107 Business Finance

Question 1

Sale of assets

Answer 1

Established businesses can sell off assets no longer required, such as buildings and machinery

Question 2

Debt factoring

Answer 2

A business can raise cash by selling their outstanding sales invoices (money owed by customer) to a third party (debt factoring company) at a discount. Short term source of finance when a business has a cash flow
problem

Question 3

Retained/Re-invested profit

Answer 3

A business uses profits made at the end of a financial year to reinvest them back into the business

Question 4

Share issue

Answer 4

Offering for sale of new shares of ownership in a business. Available for PLCs and LTDs

Question 5

Overdraft

Answer 5

Arrangement where a bank allows a customer to take out more than is in their account. The bank can charge interest. This is a short term arrangement

Question 6

Bank loan

Answer 6

Borrowing a fixed amount for a fixed period. Payments are usually made monthly

Question 7

Trade credit

Answer 7

Business buy items such a fuel and raw materials and pay for them at a later date. Possibly 30-90 days later
(long term)

Question 8

Leasing

Answer 8

A business pays for the use of an asset/equipment (1) but never owns the asset (1) improving short term cashflow compared to buying assets outright