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Buisness > 2.1 Raising Finance > Flashcards

2.1 Raising Finance Flashcards

1
Q

Name 3 types of internal finance

A
  • Owner’s capital: personal savings
  • Retained profit
  • Sale of assets
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2
Q

What is owner’s cpaital: personal savings

A

-money business owners/ shareholders have invested in their businesses

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3
Q

What is retained profit

A

-once all costs have been covered and divdiends paid to shareholders- any profit left is retained in business and used as source of finance

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4
Q

What is sale assets

A

-in established businesses assets that are no longer needed are sold- generates cash- used for other pdocuts

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5
Q

Name the 6 types of external finance

A
  • family and friends
  • banks
  • peer-to-peer funding
  • business angels
  • crowd funding
  • other businesses
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6
Q

How can fasmily and friends generate finance in a business

A
  • provide extra start-up capital necessary for business start-ups
  • also could provide loans
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7
Q

How can banks generate finance in a business

A
  • provide bank loan

- banks insist on some collateral aa security, either a business asset or personal asset belonging to owner

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8
Q

How can peer-to-peer funding generate finance in a business

A
  • allow individuals to lend directly to other people or businesses without using a bank
  • generally higher rate of interest
  • provide optiuon when banks are unwilling to lend
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9
Q

How can business angels generate finance in a business

A
  • extremely rich individuals who provide capital to high risk small business ventures/ start ups
  • they become involved in strategic management of business in hope of high returns
  • e.g dragons in dragons den
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10
Q

How can crowdfunding generate finance in a business

A

use of small amounts of capital from large number of individuals to finance new business

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11
Q

How can external businesses generate finance in another busines

A
  • large firms seek out small businesses starting up and help them out by providing finance
  • in return for a shareholding
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12
Q

Name the 5 methods of finance

A
  • loans
  • share capital
  • venture capital
  • overdrafts
  • leasing
  • trade credit
  • grants
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13
Q

What are loans

A
  • involves bank/ family providing large sum of cash

- repaid over an agreed period of time with added interest

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14
Q

What is share capital

A
  • when private company is formed- ownership of business is split into shares
  • these shares- sold to shareholders
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15
Q

What is venture capital

A

specialist investors who invest in private companies for a large share

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16
Q

What are overdrafts

A

a facility that will allow you to withdraw more money from your account than is available.

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17
Q

What is leasing

A

a way of renting an asset that the business requires, such as a coffee machine.

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18
Q

What are trade credits

A

when goods/ sevrices provided by supplier arent paid for immediately

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19
Q

What are grants

A

fixed amount of money awarded by the government, EU (European Union) or charitable organisations

given to a business when they meet certain criteria ( providing jobs in areas of high unemployment)

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20
Q

What is unlimited liability

A

owners of the business are personally responsible for all debts caused by the business

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21
Q

What is limited liability

A

the owners or other shareholders of a company are not responsible for all of its debts if the company fails

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22
Q

What is a business plan

A

document setting out a business idea how it will be financed, marketed & put into practise

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23
Q

Why is it important for a start-up business to have a business plan

A
  • attracts finance through shareholders, business angels, bank
  • ensures entrepenuer has carefully considered potential problems
  • point to maintain clear sense of direction
  • has quantitive targets to aim for
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24
Q

Name the main sections a business plan should include

A
  • executive summary
  • product/ service
  • market
  • marketing plan
  • operational plan
  • financial plan
  • conclusion
25
Q

What does cash inflow show

A

shows places and timings from which cash flows into business

26
Q

What does cash outflows show

A

show how much cash leaves business each month

27
Q

What does net cash flow/ monthly balance show

A

shows how much money the business makes per month

28
Q

What does opening balance show

A

amount of cash business had at start of month

-this will be last months closing balance

29
Q

What does closing balance show

A

amount of cash in business at end of month

30
Q

What does it mean for a business if the closing balance is negative

A

business needs extra finance

31
Q

What does the net cash flow tell the business

A

indicates how well each month is expected to go for the business

32
Q

What is the use of cash flow forecasts

A

-spot cash problems in advance to prevent major crisis

33
Q

Name 4 examples of actions that help to improve cash flow

A
  • producing and distributing products as quixkly as possible- get money quick
  • chasinf customers to pay asap
  • keeping stocks to a minimum
  • minimising soending on equipment- use leasing and rentint instead
34
Q

What are the benefits of cash flow forecasts

A
  • advanced warning of cash shortages
  • ensure business can afford to pay suppliers, employees
  • spots problems with customer payments
35
Q

Name the formula for net cash flow

A

cash inflow - cash outflow

36
Q

How do you calculate opening balance

A

= closing balance from last month

37
Q

How fo you calculate closing balance

A

opening balance + net cash flow

38
Q

How can you calculate cash outflows

A

wages + materials

39
Q

What is an asset

A

property or equipment purchased y for business use

40
Q

how are cash flow forecasts used for financial descision makig

A
  • identify timing, significance of potential shortfalls

- give confidence about short term survuval

41
Q

definition of equity

A

the value of ownership in something

42
Q

Name 3 types of internal sources of finance

A

-owners capital- only relevant in start-up/ small businesses]
]
-retained profit- business must have made a profit & not spend it on anything else

-sale of assets-

43
Q

Name 6 types of external sources of finance

A
  • family and friends- limited to small businesses
  • bank-
  • peer-to-peer funding- rare- particularly risky for start ups
  • business angels- rare- start-up/ recently started
  • crowdfunding- start-ups
  • other businesses- rare- start-ups
44
Q

What is liquidation

A

when companys owners close down company

-sells assets to generate cash to pay off debts of business

45
Q

Name the 4 types of finance likely to be used by sole traders and partnerships

A
  • owners capacity
  • trade credit
  • leasing
  • bank finance
46
Q

Name the 6 types of finance likely to be used by private limited companies and public limited companies

A
  • share capital
  • trade credit
  • leasing
  • peer to peer/ crowdfunding
  • angel/ venture capital
  • bsnk finance
47
Q

Why is doing business with a sole trader/ partnership less risky

A
  • if business runs into problems

- customers/ suppliers can legally pursue owners for debts owed

48
Q

Why is being a sole trader/ partnership more risky

A
  • unlimited liability

- owners have no protection of personal assets if something goes wrong

49
Q

What is inflation

A

% rate at which average prices rise during a year within the whole UK economy

50
Q

What happens if prices are rising throughout an economy

A

costs for raw materials, property and labour ^

51
Q

Name 3 circumstances when inflation has a major effect

A
  • when rates of inflation are significantly above 2%
  • when prices are rising faster than acerage earnings ->
  • when UK inflation is higher than that in most other countries
52
Q

Name 3 effects of inflation on businesses

A

-firm with a long-term fixed price contract ->

53
Q

What are the advantages to a bank loan?

A

don’t need to give % of profit/ share in your company.

Banks do not take any ownership of the businesses

Quick and easy to organise

interest rates tend to be low

54
Q

What are the disadvantages to a bank loan?

A

Have to pay off interest & original loan.

can be hard to apply for a loans -> must be able to repay

borrower’s personal assets can be seized if loan cant be repayed

55
Q

What are the advantages to a Bank Overdraft?

A

quick and east to arrange –> provides a good cash flow backup

Short-term can be cheaper than a loan

good way to cover the period between money going out of and coming into a business.

56
Q

What are the disadvantages to a bank Overdraft?

A

Interest is repayable on the amount overdrawn and can be expensive if used over a longer period of time

interest and fees on overdrafts are often at a higher rate than loans

face large charges if you go over the agreed overdraft limit

57
Q

What are the advantages to a business angel?

A

-access to investors knowledge, contacts

-no repyment, interest

58
Q

What are the disadvantages to a business angel?

A

-give up a share of ur business

-may take a long time to find suitable investor

59
Q

What are the advantages to Share issue/Share Capital?

A

there is no need to mortgage property on these shares

  • Have access to money you wouldn’t normally have access to for the business.

Buisness (22 decks)

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