1Why might new businesses need to raise finances?
Renting or buying a building
Vehicles
Advertisement
Equipment
For inventories
2Why might an established business need to raise finances?
To expand
To develop new products
To improve efficiency
3What are some examples of internal sources of finance?
Owner's funds
Retained profits
Selling assets
Trade credit
4What are some examples of external sources of finance?
Bank loans
Mortgages
Overdraft
Loans from friends and family
Selling shares
Hire purchase
Government grants
5What are the advantages of retained profits?
No interest
Quick to arrange
6What are the disadvantages of retained profits?
Only available if profitable
Shareholders may oppose this
7What are the advantages of selling assets?
No interest
May keep assets if leased back
8What are the disadvantages of selling assets?
May not have suitable assets
Leasing back means regular payments
9What are the advantages of bank loans and mortgages?
Allows large sums over a long time
Arranged quickly
10What are the disadvantages of bank loans and mortgages?
Interest has to be paid
May require collateral
11What are the advantages of selling shares?
No interest
12What are the disadvantages of selling shares?
Loss of control
Risk of take-over
Only available to PLC's
13What are the advantages of government grants?
Don't need to be repaid
14What are the disadvantages of government grants?
Strict conditions
May also have to invest money alongside
15What is trade credit?
Time where suppliers allow customers to pay
16What factors determine the source of finance on a new business?
Personal finance available
Risk of the business
Amount needed
Legal structure
17What factors determine the source of finance on established businesses?
Past history
Future prospects
Profitability
Assets owned
Amount needed
Legal structure
18What are cash inflows?
Money coming into the business
19What are some sources of cash inflows?
Revenue
Loans
Retained profits and owners funds
20What are cash outflows?
Money going out of the business
21What are some cash outflows?
Buying materials
Wages
Rent or mortgage
Interest
Taxes
22What are the benefits of having a positive cash flow position?
Business doesn't need to borrow so avoids interest
Able for long term loans
Less risk of failure
23Wet are cash flow forecasts?
a plan of expected inflows and outflows over a period of time
24What is a cash flow statement?
a record of cash inflows and outflows from a period of time
25Why are cash flow forecasts important?
Managers can identify times of cash shortages and avoid them
26What are the causes of cash flow problems?
Poor management
The business is making a loss
Offering customers too long to pay
27What are some solutions to cash flow problems?
Reschedule payments
Use overdraft
Cut costs
Find more inflow sources
28Define fixed costs
costs that remain constant
29Define variable costs
costs that fluctuate
30Define revenue
Money obtained from selling goods and services
31Define costs
Business' expenses
32Define profit
The money a business has left over after of its expenses have been paid.
33Define loss
When the expenses are more than revenue
34Define break-even output
the level of production required for costs to equal revenue
35What is the margin of safety?
The amount by which a business' actual output is greater than its break-even output.
36What are the advantages of break-even analysis?
Show the effects of any changes in cost
Show the effects of change in price
Persuasion for banks
37What are the disadvantages of break-even analysis?
assumes it sells all output produced
costs and prices change constantly so they aren't 100% accurate
38Why are financial statements important?
The law
Helps decision making
To guide investors
Assesses business performance
39What is an income statement?
a financial statement showing a business's revenue and costs so loss or profit over a period of time
40What is a statement of financial position?
The assets and liabilities a business has on a particular day
41What are the components of a financial statement?
Revenue
Cost of sales
Gross profit
Overheads
Operating profit
Tax and interest
Net profit
42What are the components of statement of financial position?
Fixed assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Total equity
43What are non-current assets?
An asset kept for many years
44What are current assets?
Assets the business will only have for less than a year
45What are non-current liabilities?
debts that need to be paid back over many years
46What are current liabilities?
debts that need to be paid within a year