2.1- raising finance Flashcards
1
Q
List ways a business can raise finance
A
-Asking family and friends
-Sell assets
-Take a bank loan
-Reduce staff
-Sell shares
2
Q
Why do businesses raise finance?
A
-Cashflow problems
-Help to expand
-Help to start up
-Buy new tech
-Personal gain
3
Q
What is working capital?
A
Cash to spend on day to day business activities
4
Q
- What is retained profit?
- What is a positive of this?
3.What is a negative of this?
A
- The money a company keeps from its earnings to use for future plans
- Allows a company to reinvest in itself without relying on external sources
- May lead to missed opportunities for shareholders to recieve dividends
5
Q
- What is sale of assets
- What is a positive of this
- What is a negative of this?
A
- The process of selling physical items owned by a company
- Can generate immediate cash inflow for the company
- Can lead to a reduction in the company’s long-term earning potential
6
Q
- What is owner’s capital?
- What is a positive of this?
- What is a negative of this?
A
- The business owner’s personal savings
- Always accessible to use
- Once it’s gone, it’s gone
7
Q
What is internal finance?
A
Finance generated from inside the business
8
Q
List reasons why a business may use internal finance
A
-High sales revenue
-Don’t have to sell shares
-No interest to be paid
-Keep control
9
Q
Define source of finance
A
Where you would get the money from to fund your business
10
Q
Define method of finance
A
The process of funding business activity
11
Q
- What are family and friends as a source of finance?
- What is a poitive of this?
- What is a negative of this?
A
- Borrowing money from close relatives or acquaitances to fund a business venture
- Potential for more flexible terms compared to traditional lenders
- Can cause tension and disagreements if there are difficulties in repaying the borrowed funds
12
Q
- What are banks as a source of finance?
- What is an advantage of this?
- What is a disadvantage of this?
A
- Financial institutions that provide loans and credit facilities to businesses for various purposes
- The access to larger amounts of capital compared to other sources
- Strict eligibility criteria and requirements they impose
13
Q
- What is peer-to-peer lending?
- What is an advantage of this?
- What is a disadvantage of this?
A
- Borrowing money directly from individuals without involving a traditional institution
- The potential for more accessible and flexible borrowing options
- Higher interest rates compared to bank loans for borrowers with lower credit scores
14
Q
- What are business angels?
- What is a positive of this?
- What is a negative of this?
A
- Individuals who provide financial backing for small businesses or startups, typicallly in exchange for ownership
- Expertise and industry knowledge they bring
- Loss of control and ownership of the business
15
Q
- What is crowd funding
- What is a positive of this?
- What is a negative of this?
A
- Collecting small amounts of money from a large number of people
- The ability to access a large pool of potentia; investors
- The need to meet fundraising goals within a specific timeframe
16
Q
- What are other businesses as a source of finance?
- What is an advantage of this?
- What is a disadvantage of this?
A
1.Obtaining funding from external companies or organisations to support a business venture
2. Can bring additional expertise, resources and market opportunities to the business
3. Rik of conflicts of investors or loss of control
17
Q
What are fixed costs?
A
Costs that don’t change with the amount of sales
18
Q
- What is share capital?
- What is a positive of this?
- What is a negative of this?
A
- The total value of shares issued by a company to its shareholders
- Potential for growth
- Loss of control
19
Q
- What is an overdraft?
- What is a positive of this?
- What is a negative of this?
A
- A financial arrangement where a bank allows an account holder more money than is available in their accont
- Flexible cash flow
- Interest charges
20
Q
- What is a bank loan?
- What is a positive of this?
- What is a negative of this?
A
- Financial products provided by banks or financial institutions to businesses in need of capital
- Access to capital
- Interest costs
21
Q
- What is a grant?
- what is a positive of this?
- What is a negative of this?
A
- Non-repayable funds/financial assistance provided by governments to businesses for specific projects
- Don’t have to repay
- Competitive application process
22
Q
- What is leasing?
- What is a positive of this?
- What is a negative of this?
A
- One party allows another party to use their equipment
- Flexibility
- Restrictions and penalities
23
Q
- what is a mortgage?
- What is a positive of this?
- What is a negative of this?
A
- A type of loan provided by a financial institution to help businesses purchase real estate
- Home ownership
- Interest costs
24
Q
- What is venture capital?
- What is a positive of this?
- What is a negative of this?
A
- People invest in companies in exchange for equality ownership
- Expertise and guidance
- Loss of control
25
1. What is trade credit?
2. What is a positive of this?
3. What is a negative of this?
1. Buy now, pay later
2. Improved cash flow
3. Interest costs
26
What is unlimited liability?
The finance of the business are treated as inseperable from the finances of the business owner
27
What are the pros and cons of using unlimited liability?
Pros: less paperwork, flexibility, business growth
Cons: financial risk, sress, limited asset protection
28
What is limited liability?
Owners are not liable for the debts of the business; they can't lose any more than what they invested
29
1. What is an LTD
2. What are the positives of this?
3. What is a negative of this?
1. Company's owners have limited liability, personal assets are protected if the company faces financial issues
2. protection, potential tax benefits, professional image
3. Higher setup costs, limited flexibility in profit distribution, public disclosure of financial information
30
1. What is a PLC?
2. What is a positive of this?
3. What is a negative of this?
1. A type of business with limited liability and sells shares to the public
2. Access to capital, attraction of large investors
3. Complex, time consuming, public disclosure of financial information
31
Define net cash flow
The difference between recips and payments
32
What is the formula for net cash flow?
Recipts - payments
33
What is the formula for closing balance?
Net cash flow + opening balance
34
1. what is a cause of poor cash flow
2. How can you improve cash flow?
3. What are benefits of cash flow forecasts?
4. What are limitations of cash flow forecasts?
1. Poor sales
2. Monitor it, increase sales control expenses
3. Financial planning, performance evaluation, risk management
4. Uncertainty, inaccuracy, complexity
35
1. What is a business plan?
2. What are advantages of using a business plan?
3. What is a disadvantage of using a business plan?
1. Setsout how the owners/managers of a business intend to realise its objectives
2. Clarity and focus, financial planning, attracting investors
3. Time consuming, Complexity, false sense of security
