2.1 & 2.2

Question 1

What are the three examples of internal finance and pros and cons of them both

(o..)

Answer 1

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

Question 1

external finance examples

Answer 1

loans (long term )
share capital
venture capital
overdrafts (short term , higher interest rates)

Question 2

sources of external finance

Answer 2

1. family and friends
   2.banks
2. peer to peer
   4.business angels (people that specialise in making investments to start up or expanding businesses)
3. crowdfunding

Question 3

benefits and drawbacks of using business angels

Answer 3

+ more willing to take risks
+ often offer advice and guidance
x- often require a share of the business

Question 4

factors to consider when deciding on a source of finance

Answer 4

1. amount required
2. how important ownership of business is
   3.how quickly funds required
   4.interest?

Question 5

business plan definition
purpose?

Answer 5

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

Question 6

cash and cash flow forecast definition

Answer 6

money the business can access right away

a prediction of the cash coming in and out of the business over a period of time

Question 7

receipts and payments definition

Answer 7

receipts = cash in
payments = cash out

Question 8

net cash flow =
closing balance =

Answer 8

net cash flow = total inflow- total outflow

closing balance = net cash flow + opening balance

Question 9

causes of cash flow problems

Answer 9

1. poor management of suppliers
2. seasonal demand
3. credit sales
4. unforeseen change (pandemic)

Question 10

ways of improving cash flow problems

Answer 10

1. overdraft (short term, small amounts)
   2.bank loan
2. debt factoring (selling debts)
   4.asset sale/ lease

Question 11

positives and negatives of cash flow forecasts

Answer 11

+ 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)

Question 12

revenue equation

Answer 12

price x quantity sold

Question 13

fixed costs definition

Answer 13

costs that do not change with output
(variable costs are ones that do change with output)

Question 14

breakeven definition

Answer 14

point where total revenue is equal to total costs

Question 15

breakeven equation

Answer 15

fixed costs/contribution

contribution= selling price - variable costs

Question 16

margin of safety definition

Answer 16

difference between actual level of sales and breakeven point

Question 17

advantages and disadvantages of breakeven

Answer 17

+ allows business to plan how many sales need to make
- assumes you sell every product you make

Question 18

budget definition and 3 types

Answer 18

forward financial plan for costs and revenue
1: income budget
2: expenditure plan
3: profit budget

Question 19

methods of setting budgets

Answer 19

historical: based on previous budgets
zero budgeting: no money allocated, have to go to budget holder to request money when you need it

Question 20

variance definition

Answer 20

difference between budgeted and actual figures

Question 21

favourable and adverse variance definition

Answer 21

**favourable ** where costs are lower than expected or sales/ profit higher than expected
adverse costs higher than expected or revenue lower than expected

Question 22

sales forecasting definiton and factors affecting these

Answer 22

predicting future sales volumes/ values to inform key decisions
1. consumer trends (time of year, fashionable)
2.actions of competitors
3. economic variables

Question 23

business angel and grant definition

Answer 23

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

Question 24

difficulties within sales forecasting

Answer 24

data may be inaccurate
consumer trends are variable especially in dynamic markets