Venture Capitalists: is when you put money into the business from the start it’s also the same as Business Angels this is known as a capital income as they money has been put from the beginning which means it would stay with business. It can be maximised as more people would want to more shares like for example they would want more then 50% shares to the business so they can much control then others and gain more profit.
Loans: This is when an individual ask another individual or banks to borrow some money for a temporary which they have to pay back with interest. As this is a capital income which means as it was given from the start and will continue throughout the year as they would have to pay back on whoever they borrowed money from. This can be minimized as they could ask for a lower interest or also they could also can ask them for a extended payment even though it may take longer period of time to pay the bank back. Also some bankers may not lend out money as they opening up a business newly they may worry businesses might able to pay back the money on time. So they check the credit history if they have good report they may able to give out as much loan as they can could trust them to pay back within the limited time.
Mortgages: A mortgage is where the bank pays for a property or building as businesses may not able to pay straight away. This means is a loan, secured by a property/house which they have to pay the banks in instalments over a set period of time. They could ask for a low interest rate or even could ask them for an extended time to pay back, however if they don’t pay back the instalments this could led bailiffs to come around may have to take valuable supplies from the business if still they cannot pay back within the time given then this would mean they may have to take back the property away from them meaning the business would be closed down.
Capital Expenditure
Capital expenditure is the money that is going out of the business over a number of years.
A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset with a useful life that extends beyond the taxable year. Capex are used by a company to acquire or upgrade physical assets such as equipment, property, or industrial buildings.
Fixed Assets Fixed asset, also known as a non-current asset or as property, plant, and equipment (PP&E), is a term used in accounting for assets and property which cannot easily be converted into cash. This can be compared with current assets such as cash or bank accounts, which are described as liquid assets. In most cases, only tangible assets are referred to as fixed.
Building: A Building can be used for many things such as, renting a room, apartment or a building. As people might open up a business for the first time they may not usually buy the building or take a mortgage out as they just opened up a business its more easier if they rented the place out. It is classified as Capital Expenditure as this is because the money is going into the business for the mortgage which takes up to 25years to pay back the bank. It is better and easier for the businesses if they rent out a property rather then buying building instead of mortgaging it out as this is because if they business do not do well and become bust they may not able to pay back the mortgage which then would lead to more debt as where if they rented it out they could easily pay it by end of the month which couldn’t cost much.
Vehicles: many businesses have vehicles for their businesses it is mainly used for a delivery or a pick up; this can be a motorbike, car or van. As it’s a Capital Expenditure this is because the money comes out towards the business as its used for a longer period of time which would help them in a long term basics. As having a vehicle it’s not that important to the business unless it’s a major big company to have a company vehicle or other then that it would be wasting money to have a company vehicle.
Equipment: when businesses open up a new business they would need to get all the equipment and also through while running the business in between. This could include stock hangers if it’s a retail clothing shop they would need to buy hangers now and then as they need to display clothing’s and also paper and pens which they could pay out monthly . As its known as a capital expenditure for that reason they don’t need to purchase so many all in one go they could get it by monthly as this is more efficient and cheaper. If they do want to budget their equipment they could get a different supplier who is cheaper to the current one.
Land: Land a premise is for businesses would buy based on number of acres where they can build a building or property on top as it’s their own land. As your buying the land it is quite expensive rather then buying just a property. As for example if you are buying near a rich or a wealthy area then your chances of paying of for it. It is known as a capital expenditure because the money your are paying for the land is for improvements as the payment for the land comes every month.
Intangible Assets: these are the assets that cannot be touched physically as this is because its protected by the law such as:
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Goodwill: this means when a business has done something good within the organisation for the environment for example if they are selling things which are recyclable. As businesses know that they have done good things and therefore they would want to sell the products then this could mean it’s would sell and make profit because people purchase something that they know would benefit the environment. So whoever buys the goodwill would worth more then without the goodwill.
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Copyright / Patents: this just have that because they do not want their ideas to be stolen or used from other businesses so they protect it by copyright. If their ideas does get stolen this would be illegal as they paid for their ideas to be protected and not to be used from any other businesses as they could get sued.
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Trademark is a word, symbol, phrase or device which identifies a particular company or individual. There are many types of bottles used to contain , for example, but only one with the distinctive logo and design of Coca-Cola. Each element of a Coca-Cola bottle- the shape, red imprint and name-could be considered a trademark of the Coca-Cola Company. Because all of these elements have been legally registered with the United Kingdom and Trademark Office, no other soft drink company can create a similar trademark. The best trademark is easily recognised in the Market as people would know they are a trustworthy company and the products they buy is reliable and good quality at all times.
Revenue Income (Day-to-day): where the money comes into the business day to day basics. The money can come to the business such as:
Credit Sale: is when a customer purchases a product or service with a credit card. However this may take up to 30days to come through. It is the same procedure when the business buys from their suppliers as they would still have money on their account for another month after it has been paid for. It is categorised as a Revenue Income as this is because it takes longer to go to the business however there is still money coming through the business.
Cash Sales; is when the customer purchase something with cash in hand as this means it gets paid straight away. As the business gets cash everyday because most customers are purchasing from there by cash. It is known as Revenue Income because the money is coming into the business day to day so they money comes through right away.
Rent Received; is when you they take out a building they don’t really need to use it but they would have someone else to rent the place out but business would get the money. This is known as a Revenue income because they money that is coming into the business in a day to day basics so the money is used every month so this would help the business make money out of it. If they want to make more money they could get more tenants to rent out the place or could increase the amount which would be paid monthly.
Commission Received: is when a business has a system of payment when business are successful in exchanging goods of services to another business. So if they sell an product from another business, then they will get a certain percentage of the profit or an agreed amount.
Discounts: is when the business reducing the selling price of goods as for example when they have with a supplier and with the business for quite some time, the supplier can take a small fraction off the cost as this is because the business have been a long term customer from the same suppliers. This is as revenue income because they are not spending or taking out much money out the business they used to spend so they will be saving money for the business, also when they sell that stock, they would be getting much more money than this would mean its going to give them a profit at the end.
Revenue Expenditure: This is money coming out of a business on a day to day basis. Routine repairs are revenue expenditures because they are charged directly to an account such as Repairs and Maintenance Expense.
Rent/Rates: Businesses would rent or rate to a building as its because they just started up a business they probably would prefer pay it separate monthly as they cant afford to pay all altogether upfront. This is known as a Revenue Expenditure as this is because money is taking out from the business time to time basics which would benefit in the long term as they paying for the place they have rented out for the business.
Utility Bills: is when business would have to pay for their utility bills this includes things such as heat, light, water, gas etc. They would have to pay month to month basis which depends on how much they are using as they are not fixed costs. This is known as a Revenue Expenditure because the money is coming out from the business to day to day basics so they can pay of the bills end of the month. For not to pay so much they should may start thinking how less they can use it because as its not a fixed asset then money would rise or low depends on how much they use, or if sometimes they may not known how much that they have used a lot which would mean they would have to pay going to be an expensive, in order it that doesn’t happen they would need to make sure they don’t use it much.
Admin Costs: business would have to pay for their admin costs this includes; postage, printing and stationary. The money they would be spending is actually depending on how much or amount they are buying for the products. It is as revenue expenditure because the money is coming out from the business in a day to day basis. They could reduce the quantity they do spend on which is by buying less and also they could start recycling things that they could use again as papers.
Staff (Wages, Training, Insurance etc.): the business would have to pay for their staff, such as Staff Wages which is very important, if they don’t pay their staff wage it can affect employee performance and loyalty and they might not have employers at the end so would have to make sure they can pay off their staff. Also they give the cost for their training if it is needed. Its revenue expenditure as this is because it is money coming out of the business on a day to day basis as their staff get paid monthly, also they would have to pay for their training. If business do not want to spend much money on wages, they could less their pay or have less staff work for them. As they do not have to re train all their staff, they could train only for the more important roles, and then from this could save the business a lot of money.
Selling costs (Transport, Advertising, and Research): Business need to advertise so customers can be aware of their business from other towns, by doing that they would have to spend money everyday on advertising and research. It is revenue expenditure as this is because the money is coming out from the business on selling costs and it is also expensive to advertise for your business. In order to save money they really do need to advertise as they just opened their business for the first time as they can’t afford for expensive advertisement just yet.
Interest from Bank: is when a business loans money from the bank, they would want the money back but this would include with interest, this could be difficult for the business to pay back the bank straight away so they could ask the bank to give them extra time to pay back the loan, however this is leading to an disadvantage because for if they don’t pay back the money this could lead to interest will be added on the total. It is best ideal ting to do when it’s a new business to ask for a loan from the bank because this could lead bankrupt and loss a lot of money.
Cash Purchase of Stock: Cash sales is when the business purchases and pays for their products to their suppliers. This is when business pays the money to their suppliers straight away. It is revenue expenditure as because it is money out of the business on a day to day basis so which means the money gets paid to their supplier quickly as possible.
Credit Purchase of Stock: when a business purchases products from their suppliers, so they would still have the money on their account for another month after they have brought stocks from credit card. It is known as revenue expenditure because the money will be coming out of the business from a day to day basis yet it’s going to take quite some time for the money to go through. Business may need to be careful on how they use their credit card even though money is still in the account they would have to make sure they don’t spend anymore which they have to be careful they don’t go overdraft which means they would be charge interest from their credit card.
Well the difference between Capital income and Capital Expenditure is Capital income money which is coming towards the business which is paid directly where it can be used within number of years, where for Capital Expenditure the money is going out from the business throughout number of years. The difference between Revenue Income and Revenue Expenditure is that Revenue Income is coming through the business on a day to day basics and whereas Revenue Expenditure money is going out from the business through day to day basics.
