2.1

Question 1

Owners capital

Answer 1

Internal - Invested by business owner often from savings
+ Quick/convenient/no interest
- Many not be enough

Question 2

Retained profit

Answer 2

Internal - Reinvested profit
+ Easy to access/no interest
- Once it’s been used, it’s gone

Question 3

Selling assets

Answer 3

Internal - Owned by the business
+ Space for other use
- Full market value?

Question 4

Leasing

Answer 4

External - Renting out assets
+ Company responsible for repairs
- Aren’t owned by business

Question 5

Hire purchase

Answer 5

External - Deposit paid, the rest paid in monthly instalments
+ For expensive assets
- Not owned until final payment is made

Question 6

Government grant

Answer 6

External - Rewarded to business
+ No interest
- Need to meet criteria

Question 7

Family/friends

Answer 7

External - Loaned or given
+ Low or no interest
- Could cause arguments

Question 8

Bank loan

Answer 8

External - Borrowed with interest
+ Significant amount at one time
- Interest/difficult to access

Question 9

Overdraft

Answer 9

External - More than what’s in bank (minus)
+ For emergency
- Short term only

Question 10

Venture capital

Answer 10

External - Individual/group investing in return for share of profits/business
+ Gain money fast/help and advice
- Give business/profits away

Question 11

Share issue

Answer 11

External - Sell ordinary shares
+ No interest/quick
- Vulnerable to takeovers

Question 12

Trade credit

Answer 12

External - Agreement with supplier for payments (buy now pay later)
+ Supplies without immediate payment
- Short term, must be paid back

Question 13

Limited liability

Answer 13

• Liability of owners is detached from company
• Only assets within the business can be lost

Question 14

Unlimited liability

Answer 14

• No distinction in law between the individual and the business
• If the business goes under, personal assets can be lost

Question 15

Business plan

Answer 15

A written outline of every aspect of your business with a focus on your business model and economic viability

Contents:
- Overview
- Objectives
- Market Research
- Employees
- Finance
- Production

Importance:
- Attract investors
- Reduce risk of failure
- Focus and direction
- Creates strategy for growth
- Determines future financial needs

Drawbacks:
- Does not guarantee success
- Must be flexible to adapt to change
- Expectations may cause overspending

Question 16

Current and non-current liabilities

Answer 16

Current: Amounts that are owed by the business and which are due to be paid within the next twelve months

Non-current: Debts a business owes, but isn’t due to pay for at least 12 months

Question 17

Incorporated business

Answer 17

A business model in which the business and the owner(s) have separate legal identities

Question 18

Unincorporated business

Answer 18

A business model in which there is no legal difference between the owner(s) and the business

Question 19

Insolvency

Answer 19

If the business is unable to pay it’s debts and it’s assets do not cover these

Question 20

Cash inflows

Answer 20

The flow of money into a business

Question 21

Cash outflows

Answer 21

The flow of money out of the business

Question 22

Cash-flow forecast

Answer 22

The prediction of all expected receipts and expenses of a business over a future time period which shows the expected cash balance at the end of each month

Question 23

Collateral

Answer 23

An asset that might be sold to pay a lender when a loan cannot be repaid