Capital Expenditure - Expenses spent to acquire or significantly improve the capacity or capabilities of the business. It includes payments for fixed assets such as land, buildings, equipment, and machinery.
Revenue Expenditure - Revenue expenses are incurred when a business purchases products or services necessary for generating revenue in the short term. It includes payments for the daily operations of a business, such as wages, raw materials, rent and electricity.
Short-Term - Capital acquired that must be repaid to creditors within the current fiscal year.
Medium-Term - Capital acquired that needs to be repaid to creditors in the period between 12 months and 5 years.
Long-Term - Capital acquired that only needs to be repaid over the course of 5 years or more.
Personal Funds - When owners use their savings to fund business operations.
Retained Profits - The value of profits that the business reinvests into its operations, after paying taxes, bonuses, and dividends to its shareholders. The main benefit of retaining as much profit as possible is that it is a source of finance that does not incur any interest charges.
Sale of Assets - Businesses can sell dormant or inessential assets, such as old equipment and machinery, or land they own. However, businesses usually only tap into the sale of fixed assets when severe liquidity problems arise, as it is a short-term fix and they would have to purchase the fixed assets after the problem diminishes.
Share Capital - Finance raised from the sale of shares in the company. This is particularly useful for public limited companies who are able to sell its shares on a stock exchange. To repeatedly earn money from selling shares, businesses tend to perform stock buybacks using retained profits just to sell the stock again once its value rises.
Loan Capital - Finance obtained from commercial lenders such as banks, which tend to be weighed against collateral. Taking a loan is the easiest way for businesses to obtain urgent financing, but businesses face interest charges on the capital they borrowed.
Overdrafts - Businesses can temporarily overdraw on the money available in its bank account. This tends to only be used in emergencies, as overdrafts incur high interest charges, but allows a business to access immediate funds whenever needed.
Trade Credit - Businesses can pay suppliers in credit, allowing them to manage cash flow accounts or redirect cash to other operations if required.
Grants - Government financial gifts to support business activities, especially during times of economic hardship. Grants do not need to be repaid but are typically reserved for small local businesses rather than large businesses.
Subsidies - Government aid to reduce costs of production for businesses in a certain industry when the government feels they bring extended benefits to society, such as for essential products and services. However, subsidies usually come in agreement that the business lowers its prices, therefore the business does not typically stand to gain from subsidies from the government.
Debt Factoring - A financial service that allows businesses to ‘sell’ the debts owed to them in return for the cash amount up front, less the service fee of debt factors. This is used by businesses when urgent cash inflow is required.
Leasing - Businesses can choose to lease equipment and machinery rather than buy them. Business will only have to pay rental income to continue leasing assets from the lessor, who remains the legal owner of the assets. This is used by businesses who do not have the initial capital to buy expensive assets, but who are confident that the new assets will enable them to generate more profits to cover the cost of the lease.
Venture Capital - Capital obtained from venture capital firms in a form of loans or the sale of shares to the firm. This is most commonly used by businesses in the incubation phase, enabling them to obtain the capital required to start up. The business will also benefit from the advice and mentorship received from the venture capitalists, who want to see their investments in the business gain value.
Business Angels - Capital obtained by selling shares to extremely wealthy individuals who recognise the growth potential of the business. Like venture capitalists, business angels will take an interest in the performance and development of their investment, so the business can gain from the experience and guidance of the angel investors.