2.1 & 2.2 Flashcards
What are the three examples of internal finance and pros and cons of them both
(o..)
1.Owners capital +not paying anyone back x-unlikely to be a large amount of money
2.Retained profit +can access it immediately x-may not have a large amount
3.sale of assets +large injection of cash into business x-lose ownership of asset
external finance examples
loans (long term )
share capital
venture capital
overdrafts (short term , higher interest rates)
sources of external finance
- family and friends
2.banks - peer to peer
4.business angels (people that specialise in making investments to start up or expanding businesses) - crowdfunding
benefits and drawbacks of using business angels
+ more willing to take risks
+ often offer advice and guidance
x- often require a share of the business
factors to consider when deciding on a source of finance
- amount required
- how important ownership of business is
3.how quickly funds required
4.interest?
business plan definition
purpose?
A business plan is a document made by the owner at start-up, which provides forecasts of items such as sales, costs and cash flow.
Reduces risk and allows to make informed decisions, gain finance
cash and cash flow forecast definition
money the business can access right away
a prediction of the cash coming in and out of the business over a period of time
receipts and payments definition
receipts = cash in
payments = cash out
net cash flow =
closing balance =
net cash flow = total inflow- total outflow
closing balance = net cash flow + opening balance
causes of cash flow problems
- poor management of suppliers
- seasonal demand
- credit sales
- unforeseen change (pandemic)
ways of improving cash flow problems
- overdraft (short term, small amounts)
2.bank loan - debt factoring (selling debts)
4.asset sale/ lease
positives and negatives of cash flow forecasts
+ predict surges in demand
+ highlights where negative - prepare source of finance
+helps apply for a loan
- only based on estimates
- doesn’t take in external factors (economy)
revenue equation
price x quantity sold
fixed costs definition
costs that do not change with output
(variable costs are ones that do change with output)
breakeven definition
point where total revenue is equal to total costs
breakeven equation
fixed costs/contribution
contribution= selling price - variable costs
margin of safety definition
difference between actual level of sales and breakeven point
advantages and disadvantages of breakeven
+ allows business to plan how many sales need to make
- assumes you sell every product you make
budget definition and 3 types
forward financial plan for costs and revenue
1: income budget
2: expenditure plan
3: profit budget
methods of setting budgets
historical: based on previous budgets
zero budgeting: no money allocated, have to go to budget holder to request money when you need it
variance definition
difference between budgeted and actual figures
favourable and adverse variance definition
**favourable ** where costs are lower than expected or sales/ profit higher than expected
adverse costs higher than expected or revenue lower than expected
sales forecasting definiton and factors affecting these
predicting future sales volumes/ values to inform key decisions
1. consumer trends (time of year, fashionable)
2.actions of competitors
3. economic variables
business angel and grant definition
someone who helps a business by investing their own personal money - looking for more risky opportunities for success
grant- sum of money given by government/ organisation
difficulties within sales forecasting
data may be inaccurate
consumer trends are variable especially in dynamic markets
