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However there will be costs such as having to employ

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Unformatted text preview: inance in saving money by being more efficient. However, there will be costs such as having to employ a competent credit controller or giving up some of your own time to carry out this task. Incorporated: Organised as a limited (or unlimited) company (or even an LLP). Institutional investor: An investor investing other than in a private capacity - normally a financial institution such as an insurance company. Investigation: The analysis of the operating and/or financial aspects of a business - the objective being to produce a report that will help or support the decision-making process. Invoice discounting: A similar arrangement to factoring, but confidential - the customer should be unaware that the invoice has been discounted. The business usually retains responsibility for running the sales ledger and collecting debts. 14 Sources of Venture Capital under £250,000 IRR: A basis by which to measure investor returns, being effectively the compounded annual rate of return on their investment, including interest, dividends and realisation profits. It is used, for example, by venture capitalists to measure achievement and in such cases the IRR is greatly affected by the timing of exit. Management buy-out: An arrangement whereby the management of a company purchases the business, with funding provided by a group of financial backers. Normally the managers put up a relatively small sum to finance the deal but gain a disproportionately large share of the equity if all goes well. Lease /HP: Leasing or HP (renting an asset for most of its useful life) can be a good way to finance an asset if your business lacks security or there are tax reasons to do so. Remember however that lease and HP companies will only enter into contracts with creditworthy businesses. A lease will normally cost you more than a loan or overdraft and involves a regular monthly commitment, but there may be tax advantages that make this a cheap way to finance an asset. Remember to compare the quoted APR, which each company must calculate in the same way. Mezzanine finance: A form of finance falling between equity and debt. It is a flexible form of funding, typically used in a management buy-out to achieve the desired overall risk/return profile for investors. Frequently unsecured, it usually bears interest at a higher rate than secured loans and often carries an option to give the lender a stake in the equity. Leveraged buy-out: Similar to a management buy-out or buy-in but without the same degree of direct equity participation by the managers. The term 'leverage' is another name for gearing, and is used to indicate the substantial levels of borrowings taken on by the acquisition vehicle to finance the acquisition, which is typically secured on the assets of the business being purchased. Overdraft: A flexible form of bank lending. Clearly the key advantage of an overdraft is that you only pay for the funds you use and this makes it suitable for funding working capital. Typically the rate of interest payable will be between 3% and 7% over the bank's b...
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