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business > 2.1 > Flashcards

2.1 Flashcards

1
Q

why do businesses need money?

A

-start up costs (research, promotion, assets)
-to expand or grow
-working capital (cover day to day running costs)

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2
Q

what is internal finance?

A

capital/funds raised from within the business

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3
Q

what are three types of internal finance?

A

-owners capital/personal savings
-retained profit
-sale of assets

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4
Q

what are advantages of internal finance?

A

-available immediately
-no interest payments
-no credit checks (checks stability)

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5
Q

what are disadvantages of internal finance?

A

-might not be enough
-not as flexible as external (lots of sources are external)

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6
Q

external finance:
what are advantages and disadvantages of borrowing from family and friends?

A

advantages- no interest
disadvantages- might not be enough, pressure

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7
Q

external finance:
what are advantages and disadvantages of a bank overdraft?

A

advantages- instant, so it improves cash flow
disadvantages- high interest rates (increases risk)

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8
Q

what is a secured loan?

A

where the lender requires security, such as property, to provide protection in case the borrow defaults

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9
Q

what is an unsecured loan?

A

lender has no protection if the borrower fails to repay the money owned

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10
Q

external finance:
what are advantages and disadvantages of a bank loan?

A

advantages- good rates if business is established (seen as low risk), can get amount needed, provides guidance through setting up a business
disadvantages: paid back with interest

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11
Q

what is p2p lending?

A

peer to peer lending is where individuals lend to other individuals without prior knowledge to them, on the internet

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12
Q

external finance:
what are advantages and disadvantages of p2p lending?

A

advantages-higher returns than savings account
disadvantages-high risk as if company goes bust, you’re not covered up to £85,000 like with banks

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13
Q

what is venture capital?

A

providers of funds of small or medium companies that may be considered too risky for other investors

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14
Q

external finance:
what are advantages and disadvantages of venture capital?

A

advantages- advice and finance
disadvantages- lose some ownership of the business

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15
Q

what are business angels?

A

providers of funds between £10,000-£100,000 +, often in exchange for a stake in the business, investments less risky than those of venture capitalists

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16
Q

external finance:
what are advantages and disadvantages of business angels?

A

advantages- advice & finance
disadvantages- lose some ownership of the business, finding a suitable angle

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17
Q

what are advantages and disadvantages of crowdfunding?

A

advantages- potential to raise large amount with campaign
disadvantages- investors get a share in the business or payment with interest, might not raise the amount needed

18
Q

what is share capital?

A

the money introduced into the business through the sale of shares, only for limited businesses

19
Q

external finance:
what are advantages and disadvantages of share capital?

A

advantages- potential to raise a lot of capital for expansion, no interest paid, doesn’t have to be paid back
disadvantages- lose decision making power, new share holders may take over the business, have to share profits in the form of dividends

20
Q

external finance:
what is trade credit?

A

a business obtains it’s stock from suppliers but doesn’t pay immediately, average credit period is 2 months

21
Q

what is an advantage of trade credit?

A

improves cash flow

22
Q

what are disadvantages of trade credit?

A

-not suitable for large amounts
-can lead to liquidity issues or bankruptcy

23
Q

external finance:
what is a grant?

A

businesses starting up may be eligible for grants given by the government or charities, such as the princess trust

24
Q

what is an advantage of a grant?

A

doesn’t have to be repaid

25
Q

what is a disadvantage of a grant?

A

have to meet certain criteria to qualify

26
Q

what are advantages of a mortgage?

A

potential to raise a large amount

27
Q

what is a disadvantage of a mortgage?

A

has to be paid back with interest

28
Q

what are factors to consider when choosing a source of finance?

A

-amount of money required
-the cheapest option available
-how quickly the money is needed

29
Q

what is limited liability?

A

owner and business have separate legal identities
-owner can only lose amount invested in business

30
Q

what is unlimited liability?

A

owner and business seen as one if business has debts
-owner is responsible, even if it means selling personal possessions

31
Q

sole traders dont have access to ____ _____

A

share capital

32
Q

what is a business plan?

A

a report describing the marketing strategy, operation issues and financial implications of a business start up

33
Q

the purpose of a business plan is to improve likelihood of success of a business by?

A

-helping to clarify objectives & identify what needs to be done & meet them
-persuasion lenders to invest capital
-being used as a valuable tool to help running the business

34
Q

cash is the _______ _____ _____

A

immediate spending power

35
Q

businesses need cash to pay what?

A

bills, rent, wages, suppliers, electricity

36
Q

without cash you can’t pay bills so can therefore be what?

A

forced out of the business

37
Q

what is net cash flow?

A

total cash payments (inflows) into a business minus total cash payments out of a business (outflows)

38
Q

what are cash inflows?

A

payments received by a business such as those from customers or from a bank (loan)

39
Q

what are cash outflows?

A

payments made by a business such as those to suppliers and employees

40
Q

what is liquidation?

A

turning assets into cash & may be insisted on by courts if suppliers have not been paid

41
Q

what is the opening balance?

A

cash held by the business at the start of the month

42
Q

what is the closing balance?

A

cash held at the end of each month, becomes the next months opening balance

business (6 decks)

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