2.1-Raising Finance

Question 1

What is internal finance?

Answer 1

Money generated from within the business e.g retained profit, owner funds

Question 2

What is external finance?

Answer 2

Money from outisde of the business e.g loans ,shares, venture capitalist

Question 3

Why do businesses need finance?

Answer 3

Start up
Expansion
Marketing
Day to day costs
Innovation
Market research

Question 4

What are current assets?

Answer 4

Are items owned that will change in value in the short run.(within a year)
e.g cash, inventory

Question 5

What are Non-current assets?

Answer 5

Will stay in the business for more than a year e.g buildings, equipment, furniture.

Question 6

What are the three types of internal finance?

Answer 6

1.Owners capital
2.Retained profit
3.Sale of assets

Question 7

What is owners capital?

Answer 7

When an entrepreneur invest their own money into the business

Question 8

What is retained profit?

Answer 8

The profit that remains after tax and dividends have been paid.

Question 9

What is sale of assets?

Answer 9

If a business or its owner have any assets they may sell them to increase funds for investment.

Question 10

List as many external methods of finance as you can.

Answer 10

Family and friends
Banks
Peer to peer funding
Business angels
Crowd funding
other businesses
Loans
Mortgage
Overdraft
Share Capital
Venture Capital
Leasing
Trade Credit
Grant

Question 11

What is peer to peer funding?

Answer 11

Allows savers to lend money direct to individuals or small business via specialist website

Question 12

What is a business angel?

Answer 12

High net worth individuals who invest directly or via networks and syndicates.

Question 13

What is share capital?

Answer 13

Business may sell some of its shares in return for money.

Question 14

What is venture capital?

Answer 14

Investment from an experienced entrepreneur in return for a stake in the business.

Question 15

What is Trade Credit?

Answer 15

Delays the pay for goods and services.

Question 16

What 6 factors businesses need to consider when choosing finance?

Answer 16

Legal structure
Use of the finance
Amount required
Future Profit levels
Level of risk
Views of owners

Question 17

What is a business plan?

Answer 17

A document setting out the business idea and showing how it is going to be financed, marketed and put into practise.

Question 18

What are the two main reasons for a business plan?

Answer 18

1.Persuade lenders to invest into the business.
2.Helping to clarify objectives and identify what needs to be done to meet them.

Question 19

What are the contents of a business plan?

Answer 19

Nature of the business
The market
Objectives
Marketing plan
Operational plan
Financial plan

Question 20

What is cash flow?

Answer 20

Cash flow is the amount of money flowing in and out of a business over a period of time.

Question 21

What is the formula for Cash inflows?

Answer 21

Cash income from sales + other sources of cash

Question 22

What is the formula for cash outflows?

Answer 22

Raw materials+ wages+ rent+ other items of cash spending

Question 23

What is the formula for net cash flow?

Answer 23

Cash inflows - cash outflows (for that time period)

Question 24

What is an opening balance?

Answer 24

Firms cash holding at the beginning of the time period

Question 25

What is a closing cash balance formula?

Answer 25

Opening cash balance + net cash flow

Question 26

What are three factors affecting cash flow?

Answer 26

Transaction types ( sales, cash vs credit)
Timings of cash inflow ( seasonal sales)
Nature of business( start up capital +costs)

Question 27

What are the benefits of cash flow?

Answer 27

Not be caught short of cash
Time major non-urgent purchases
Know when there will be a shortage of cash
Borrow less
Lender want to see cash flow

Question 28

What are the drawbacks of cashflow?

Answer 28

Changes in economy
Changes in consumer tastes
Inaccurate market research
Competition
Uncertainty
Unemployment