💚13 Finance Flashcards
Whats budgeting
Managing money properly to ensure you have enough cash abailavle to pay bills
Define cash flow forecast
Written plan in which a business sets out its expected future receipts and payments over a period.
Helps it to estimate if itll have surplus or deficit in future
Can then plan out actions to deal with the estimate
Name some ways a Business can Receive cash
Selling goods to customers
Cash received from customers sold to on credit
Income earned on investments (interest etc)
Rent from tenants
Name some ways a Business can Spend Cash
Buy stock
Paying suppliers on credit
Buy fixed assets
Paid out in dividends
Pay expenses (wages ins electricity)
Paid to revenue (tax)
How to deal with an expected future business deficit
Increase Cash Receipts
-credit control methods, discount if they
pay quicker
-sell some investments
-have a sale,encourage spending
Reduce Cash Payments
-spread big payments out (HP)
-make cutbacks (wage cuts,cheaper
services)
-reduce amnt paid out in dividends, offer
free shares in business instead
Why does a business prepare a Cash Flow Forecast??
Avoid Cash Deficits
-Gives time to plan and make changes
Improve Financial Control
-Compare predictions and actual
receipts and payments, see if on track
Raise Finance
-Show investors it wont run out of cash,
wont go bankrupt, convinces investors
to provide w money.
Increase Profits
-Know when theyll have excess cash and can plan to invest it and earn interest
What is a HOUSEHOLD BUDGET
Written plan in which a family sets out its expected future cash receipts and payments over a period.
What categories can household expenditure fall under
Fixed-Monthly bills,amnt stays the same
Irregular-Bills but amnt changes
Discretionary-Optional spending
Ways household can receive money
Wages/Jobseekers allowance
Child Benefit
Interest on savings
Ways household can spend money
Household Expenses-food, mortgage etc
Buy Fixed Assets-Tv, car, fridge
Paying Local Authority-Bin charges, motor tax etc.
How does a Household deal with a predicted deficit
Increase Receipts
-Overtime, extra part time job
-Rent out a spare room
Reduce Payments
-Spread out payments, hire purchase
-Make cutbacks
Why does a household prepare a budget??
Avoid Cash Deficits
-Can plan to make changes
Manage Money Better
-Highlights areas of overspending
Raise Finance
-Show bank to convince for a loan
Maximise Investments
-Can plan to invest any cash surplus
What is a spreadsheet
Computer software that is used to do basic maths calculations.
Can be used to draft CFF
Advantages of a spreadsheet
Performs basic maths calculations accurately and quickly saving time and money
Allows for “what if?” analysis, can know how vulnerable they are to changes
Name HOUSEHOLD SHORT TERM sources of finance
Bank Overdraft
Accrued Expenses
Credit Card
Name BUSINESS SHORT TERM sources of finance
Bank Overdraft
Accrued Expenses
Credit Card
Trade Credit
Factoring
Name HOUSEHOLD MEDIUM TERM FINANCE
Hire purchase
Leasing
Personal loan
Name BuSineSs MEDIUM TERM FINANCE
Hire purchase
Leasing
Medium term loan
Name HOUSEHOLD LONG TERM finnance
Mortgage
Savings
NameBuSiNeSs LONG TERM finnance
Debentures
Retained Earnings
Grants
Equity Capital
Tracker Mortgage
How long is considered short term
Under a year
How long is considered medium term
1-5 years
How long is considered Long term
5+ years
What is a bank overdraft??
ST H+B
Source of finance where the bank allows u to pay for things even tho you don’t have enough money in your current acc.
Pay back sometime during the year with interest
Stock,groceries
What are the advantages of a Bank overdraft (ST H+B)
Interest is only paid in the amount overdrawn not on the full limit
No security needed
B:Tax deductible
What are the disadvantages of a bank overdraft (ST H+B)
Interest rate is high
Bank can ask u to pay back immediatley
Bank imposed extra charges if u go over limit
Must be overdraft free at least 30days yearly
What is accrued expenses
ST H+B
Supplier allows u to use its services now without immediate payment.
Supplier sends bill at end of month and a deadline
Electic,phone,gas etc
What are the advantages of Accrued Expenses (ST H+B)
No interest charged
No security needed
What are the disadvantages of Accrued Expenses (ST H+B)
Cut off if u take to long to pay bill, then may have to pay reconnection fee
Only suitable for certain purchases such as utility services
What is a Credit Card
ST H+B
Pay for g+s with a cc, the cc company pays and u pay them back at a later daye
Good for small value item or short term items
Advantages of a Cc (ST H+B)
No interest charged if u pay in full on time
Safer than cash cuz u can cancel a cc if its stolen
Disadvantages of a Cc (ST H+B)
If not paid on time interest is charged at a v high rate
Must pay a govt tax for each cc u own
What is factoring
ST B-Only
Raise money by selling debtors to a bank for cash who then pressure debtors for money
Factoring With Recourse:business must reimburse bank if debtors sold dont pay bank
Factoring Without Recourse:business doesnt have to reimburse bank if debtors dont pay it
What are the advantages of Factoring (ST B-ONLY)
No security needed
Entrepreneurs ownership not affected
What are the disadvantages of Factoring (ST B-ONLY)
Expensive as bank charges high fee for the service
Can only be used by businesses that sell a lot on credit (have a lot of debtors)
What is Trade Credit
ST B-ONLY
Supplier allows the business to buy stock from it now without having to pay for it now
Bill sent to buyer at end of month and a date is set out to repay
Whatre the advantages of Trade Credit (ST B-ONLY)
Free source of finance, no interest if paid ontime
Tax deductible
No security needed
Entrepreneurs ownership not affected
Whatre the disadvantages of Trade Credit (ST B-ONLY)
If deliberately keeps suppliers waiting all the time (LEANING ON THE TRADE) the business will lose its credit rsting
If bill paid late it loses out on any cash discounts offered by supplier for early payment
What is LEANING ON THE TRADE
When a business deliberately keeps its suppliers waiting for their money, all the time
The business will lose its credit rating and find it very hard to get credits in the future

What is Hire Purchase
MT (H+B)
Buying an asset and taking delivery of it now but paying for it in instalments
Eventually own it
Once uve paid 1/3 the HP company can only repossess with permission of judge
U can end a HP if uve paid 1/2
Used to buy relatively ecpensive stuff used up within 5 years (cars,machinery)
What are the advantages of Hire Purchase (MT H+B)
No security neefed
B-ONLY: Tax deductions
B-ONLY:Entrepreneurs ownership not affected (dont have to give shares etc)
What are the disadvantages of Hire Purchase (MT H+B)
Expensive as interest is high
If u cant repay asset will be repossessed
U pay interest on initial sum borrowed, no reduction for instalments paid
What is Leasing
MT H+B
Rent the asset up to 5 yrs.
Pay monnthly lease for use
Never own it
Hand back asset at end of lease
Cars,furniture,equipment
What are the advantages of Leasing (MT H+B)
No security needed
Can always have up to date equipment
B: Tax deductible
B:Ownership not affected
What are the disadvantages of Leasing (MT H+B)
If u cant afford the payments asset is repossesed
If u rent it for a long time it might have been cheaper to just buy the item
What is a personal loan?
MT H-ONLY
borrow money from bank/CU pay back in regular instalments over 5 yrs
Fixed rate-Interest doesnt change
Variable Rate-Interest changes in accordance with ECB rates
Tvs, Cars
What are the advantages of a personal loan? (MT H-ONLY)
Interest rate cheaper than HP
No security needed
What are the disadvantages of a personal loan? (MT H-ONLY)
Pay interest on initial sum borrowed. No reduction for instalments paid
What is a medium term loan
MT B-ONLY
Borrow money from bank pay back over 5 yrs in instalments plus interest
Fixed rate:Interest doesnt change
Variable rate:Interest change in accordance with ECB
Cars machines equipment
What are the advantages of a medium term loan (MT B-ONLY)
Interest cheaper than HP
Interest paid os tax deductible
Entrepreneurs control not affected
What are the disadvantages of a medium term loan (MT B-ONLY)
Security required, assets may be repossessed if business cant repay
If ECB raises interest rates and the loan is variable the monthly repayments increase
What is a mortgage
LT H-ONLY
Loan used to buy a house.
Paid back in 20-35 yrs
If u cant repay house will b repossed
Monthly repayments
Fixed or variable rates
Buy house or extension
What are the advantages of a mortgage (LT H-ONLY)
Interest rate on mortgage is cheapest rate on ANY loan
What are the disadvantages of a mortgage (LT H-ONLY)
If family cant afford repayments, house repossed
What is SAVINGS
LT H-ONLY
Amnt of income family hasnt spent but has set aside for future use.
Used to buy relatively expensive items thatll last longer than five yrs
What are the advantages of Savings (LT H-ONLY)
No interest to repay as money isnt borrowed
No security needed^
What are the disadvantages of Savings (LT H-ONLY)
May take years to build up
What are retained earnings
LT B-ONLY
Also called reserves
Profits that business has saved up over the years to reinvest in the business
Used for premises or business expansion
What are the advantages of Retained Earnings (LT B-ONLY)
No interest to repay
No security needed
Ownership not affected
What are the disadvantages of Retained Earnings (LT B-ONLY)
Not available to new businesses as theyve to be built up over years
Businesses that save a lot of their profits may have bad relationships with shareholders
What are grants
LT B-ONLY
Sum of money the govt gives a business to help it pay for things it needs. Businesses create employment
Permanent source of finance doesnt have to be repaid if u obey all conditions
Premises or business expansioon
What are the advantages of Grants, (LT B-ONLY)
No interest to repay
No security needed
Ownership not affected
What are the disadvantages of Grants, (LT B-ONLY)
Strict conditions
Only given a % of the money u need
What are debentures
LT B-ONLY
Lt loan used on a company.
Loan is secured on the companys assets
If u cant repay the bank will repossess its building or other valuable assets
Company pays interest every year but pays back the loan in a lump sum
Interesr rate fixed
Major extensions last longer rhan 5yrs
What are the advantages of Debentures (LT B-ONLY)
Interest is tax deductible
Ownership not affected
What are the disadvantages of Debentures (LT B-ONLY)
Security required
Increase the company’s debt/equity ratio. This increases company’s annual interest payments and chances of going bankrupt
What is equity capital
LT B-ONLY
Getting finance by selling some shares to investors for money
Investors (shareholders) get dividends every year (part of the profits) and get a vote in the company for every share they have
What are the advantages of Equity Capital (LT B-ONLY)
No interest to repay, dividends only have to be paid at directors discretion
No security needed
Money raised is permanent source of finance
What are the disadvantages of Equity Capital (LT B-ONLY)
Reduced % ownership
Any dividends the business pays out arent tax deductible
Organising the sale of shares is expensive. Advertisements stockbrokers and lawyers
What are the things judged when applying for a loan??
Character
-Honest+reputable
-Job/business details
Capacity
-If it has sufficient income to repay
-P60
-Audited copy of business P&L account
to see if profits are sufficient
Collateral
-Valuable assets as security
-Household details
-Business balance sheet so assets can be
examined
Credit Rating
-Good history taking out loans+repaying
-Ever gone bankrupt/defaulted on any
loans, credit check
Factors to consider when choosing a source of finance
1.Cost
-Shop around cheapest APRs, no
documentation fees etc.
2.Purpose of Loan
-Match source of finance to the item, no
point taking out a loan longer than life
of asset
-ST, MT, LT
3.Security
-Weigh up advantage of finance source with risk of losing their valuable assets
4.Tax Implications
-See if u get a tax deduction on the source of finance
5.Control B-ONLY
-Involves giving away shares? This will reduce ownership and control
what is a APR
Annual Percentage rate
-Total cost of borrowing expressed as a % of the anount borrowed
-Includes interest charged and any other charges (documentation fees)
What is a current account
Bank account that businesses and households can use for handling money that comes in and goes out all the time 
what services does a current account to provide?
Cheque
Standing order
Direct debit
Paypath
ATM cards,
Debit cards,
Bank statements
Whats a cheque (current acc services)
Written document that the current account holder fills in.
Bank deducts sum of money written on cheque out of her account and pays it to person named on cheque
Whats a standing order (Current acc services)
current account holder instructs her bank to take the same amount of money out of her account every period and pay to the account she has named
Used to pay regular bills.
Same amount each month
satellite TV insurance premiums, debenture interest
Whats a Direct Debit (Current acc services)
current account holder, instruct her bank to take whatever sum of money is told to buy a person she names and pay it into their account every period
Amount changes each time
Pay bills where bill is different amount every month,
telephone electricity 
Whats a Paypath (Current acc services)
employees net wages are paid directly into her bank account, transferred electronically from her employers account into hers
Safer than being paid in cash for both 
Whats a ATM (Current acc services)
Automated Teller Machine
allows current account holder to withdraw money 24 hours a day
needs a PIN
Also check balance or buy phone credit

Whats a Debit Card (Current acc services)
Account holder pay for things without inconvenience or cost of writing a cheque
Bank automatically takes money from your account and deposits it into the shops account within a few days. 
Whats a Bank Statement (Current acc services)
document u receive from bank, stating all transactions that took place on the account over a period of time together with balance left in the account 
Household and Business Management
1.BUDGETING
both plan out all the cash they will expect to receive and spend in the future
Can then take appropriate steps to deal with the deficit or surplus 
Household and Business Management
2.SOURCES OF FINANCE
both raise finance and fill in forms to apply for loans
both will choose source of finance with lowest APR to save money

Household and Business Management
3.CONTROLLING
Both use stock control to make sure they don’t run out of products/food
Household and Business Management
4.COMMUNICATIONS
both use internal and external communications
internal: instructing children/employees,
external: communication with banks and government
Household and Business Activities
1Taxation
Business managers workout tax the business owes
households do not have to work at their own tax
Household and Business Activities
2.SIZE
businesses are much larger and hire, a professional managers
households manage themselves
Household and Business Activities
3MISSION
businesses main aim is producing and selling for profit
household main aim is a social unit for love and support.
Household and Business Activities
4MANPOWER PLANNING
businesses, engage in manpower planning to make sure they have the right number of employees to do all the jobs
households don’t 
What are the business finance sources that are TAX DEDUCTIBLE
Bank overdraft (ST)
Trade Credit (ST)
Hire Purchase (MT) -interest only
Leasing (MT)
MT loan (MT)- interest only
Debentures (LT)-interest only
