2.1 Raising Finance

Question 1

What is owners capital?

Answer 1

Money that comes from the owners pocket end not thee business

Question 2

What is retained profit?

Answer 2

Profit kept from previous years

Question 3

What is sale of assets?

Answer 3

Selling business or own property in order to make money

Question 4

What is internal finance?

Answer 4

Money from within the business

Question 5

What is external finance?

Answer 5

Money from outside the business

Question 6

What are the sources of finance?

Answer 6

• Family and friends
• banks
• Peer to peer funding
• business angels
• crowd funding
• other businesses

Question 7

What is a loan?

Answer 7

Money borrowed from the bank

Question 8

What is share capital?

Answer 8

Money gained from selling shares

Question 9

What is venture capital?

Answer 9

Money gained from a professional investor

Question 10

What is an overdraft?

Answer 10

When you take more money out then you have (allows you to go into temporary debt)

Question 11

What is leasing?

Answer 11

Renting

Question 12

What is trade credit?

Answer 12

Buy now pay later

Question 13

What are grants?

Answer 13

Money issued by the government (free money)

Question 14

What is limited liability?

Answer 14

Only liable for their original investment should the business fall into debt

Question 15

What is unlimited liability?

Answer 15

Owner is liable for all debts in the business and may need to pay back with own assets

Question 16

What are the sources of finance available for limited L?

Answer 16

• retained profit
• sale of assets
• ordinary and preference share issues
• grants
• venture capital

Question 17

What are the sources of finance available for unlimited L?

Answer 17

• loans
• Business angels
• credit card
• crowd funding
• trade credit
• savings
• overdraft

Question 18

What are the components of a business plan?

Answer 18

• Cash flow forecast
• 4ps of marketing
• HR
• production costs
• location

Question 19

What is the purpose of a business plan?

Answer 19

• Help set up a new business
• help the business raise finance
• help the business set objectives
• outline business functions and organisation

Question 20

What does SMART stand for?

Answer 20

Specific
Measurable
Achievable
Realistic
Time bound

Question 21

What are the uses of cash flow?

Answer 21

• Compare predictions to actual events
• shows owner where like us surplus and shortfalls are
• secures a better deal for finance
• allows the owner to arrange suitable sources of finance

Question 22

What are limitations of cash flow?

Answer 22

• very short term to make concrete decisions
• only an estimate
• owner may have overstated or understated income or expenditure
• Not about profit only cash
• would need to come along with other income statements or financial positions

Question 23

Why should a business use a business plan?

Answer 23

• Attract potential investors
• give owners direction
• persuade lenders that business will make enough profit to pay them back
• identify problems
• set targets.