Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Business Studies Theme 2 > 2.1 - Raising Finance > Flashcards

2.1 - Raising Finance Flashcards

1
Q

Internal sources of finance (3)

A

• Retained profits (short and medium term) • Selling assets (short term) • Owner’s own capital (long term)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is Owner’s capital: personal savings ? (2)

A
  • Most likely to be used as a source of start-up finance
  • This money could be provided in the form of share capital or lent to the business as a loan
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are retained profits? (2)

A
  • Any remaining profits left after all costs are covered and dividends paid to shareholders
  • Probably the safest and most common form of internal finance for established businesses
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are sales of assets?

A

A firm may sell their assists that they no longer need to fund other projects

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

External sources of finance (6)

A
  • Family and friends
  • Banks
  • Peer-to-Peter funding
  • Business angels
  • Crows funding
  • Other Businesses
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Consequences of using family and friends as a source of finance

A

The owner starts to lose independence in decision making and retaining profits as they may want a stake or day in the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Banks as a source of finance

A

They can provide a fixed-term bank loan in return for repayment of the amount plus interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Peer-to-Peer funding as a source of finance (2)

A
  • Relies on websites that can match investors willing to lend the business start-ups with start-ups needing finance
  • Loans will generally be at a fairly high rate of interest - however they provide an option where banks are unwilling to lend
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are business angels as a source of finance

A

These are wealthy entrepreneurial individuals who provide capital in return for a share in the business e.g Dragon’s den encourage this finance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is crowd funding as a source of finance? (3)

A
  • This is where firms gain funds by raising many small amounts of money from a large number of people
  • Benefit is smaller investors are more likely to take risks on the business
  • Drawback is this source of finance is more dependant on the ability of the business to market its ideas
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Other businesses as a source of finance

A

Same benefits and problems as with business angels

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Methods of finance (6)

A
  • Loans
  • Share capital
  • Venture capital
  • Overdrafts
  • Leasing
  • Trade credit
  • Grants
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Loans as a method finance (3)

A

• Provided by banks • Involves providing a lump sum of cash which will be repaid over an agreed period of time • This includes an interest rate which represent the ‘cost’ of the loan

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Share capital as a method of finance (3)

A
  • Consists of funds raised by issuing shares in return for cash
  • Benefit - accessible to limited companies
  • Drawback - Not accessible to sole traders or partnerships
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Venture capital as a method of finance

A
  • Is money invested in a business in which there is a substantial element of risk
  • Benefit - Accessible for high risk businesses
  • Drawback - Not accessible to most other businesses
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Overdraft as a method of finance (3)

A

• Is where a bank allows a firm to take out more money than it has in its bank account • Benefit - Helpful to resolve short term cash flow problems • Drawback - interest charges

17
Q

Leasing as a method of finance (3)

A
  • Is a financial facility allowing a business to use an asset such as an industrial robot over a fixed period in return for regular payments
  • Benefit - easily accessible for firms with a major assets
  • Drawback - can only be used for major assets
18
Q

Trade credit as a method of finance (3)

A
  • Means that goods or services provided by a supplier are not paid for immediately
  • Benefit - access to materials without any material costs
  • Drawbacks - not easily accessible for start up businesses
19
Q

Grant as a method of finance (3)

A
  • A sum of money given by a government or other organisation for a particular purpose
  • Benefit - no interest charge
  • Drawback - strict laws must be followed
20
Q

What is a business plan?

A

Is a forecast of business operations, including a statement of business objectives, a cash flow forecast, a plan of staffing needs and marketing methods

21
Q

What does a business plan include? (3)

A
  • A marketing plan
  • An operational plan
  • A financial plan
22
Q

What a business plan includes: marketing plan (2)

A
  • Covers market research such as market mapping of key competitors and their products
  • Medium-long term plan for achieving objectives such as higher market share or a stronger product portfolio
23
Q

What a business plan includes: Operational plan

A

Showing how the product will be produced and delivered to customers in their target market

24
Q

What a business plan includes: financial plan

A

Prediction of the business’s income from sales and expenditure from costs over a period of time - helps the business assess its short-, medium and long term needs in terms of finance

25
Q

Importance of a business plan (2)

A
  • potential investors and lenders of finance will want to see detailed forecasts of how the business will perform over time
  • Plans reduce risks to investors meaning that they could pay lower interest rates on loans or give smaller share of the business to venture capitalists - keeping costs to a minimum whilst retaining as much ownership and control of the business as possible
26
Q

What is cash flow?

A

The movement of cash into and out a business

27
Q

What is a cash flow forecast?

A

A prediction of cash flowing into and out of the business over a period of time

28
Q

Interpret a simple cash flow forecast (5)

A
  • Cash inflows shows the places and timings from which cash flows into the business
  • Cash outflow shows how much cash leaves the business in each month
  • Monthly balance (or net cash flow) shows the net effect of the month on cash flow
  • Opening balance shows amount of cash the business has at the start of each month = to last months closing balance
  • Closing balance shows the amount of cash in the business at the end of the month
29
Q

How to calculate monthly balance?

A

Cash inflow - cash outflow

30
Q

How to calculate closing balance?

A

Monthly balance (net cash flow) + opening balance

31
Q

Uses of cash flow forecasts

A

To spot cash flow problems so that action can be taken in time to prevent a major crisis

32
Q

Limitations of a cash flow forecast (2)

A
  • Is not always reliable - due to assumptions being made about the future
  • For a new business there may be unexpected costs in promotion and distribution
33
Q

Implications of unlimited liability (3)

A
  • Fully responsible for the debts of the business
  • May result in the owners having to sell their own possessions to raise the money
  • Means that businesses will pay all its profits to its owners and they have full control over decision making
34
Q

Implications of limited liability (3)

A
  • the business can lose only the money they have paid for a share of the business
  • It encourages investors to risk their money in new and growing businesses
  • A certain amount of profits will have to be sacrificed (dividends) proportionate to the shares it has issued to shareholders
35
Q

Finance that is appropriate for unlimited (liability) businesses (4)

A
  • owner’s capital
  • Bank loan or overdraft
  • Trade credit
  • Loan from family or friends
36
Q

Finance that is appropriate for limited (liability) businesses (5)

A
  • Issuing shares - attract large numbers as only investment is lost
  • Bank loans
  • Overdrafts
  • Leasing
  • Trade credit

Business Studies Theme 2 (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions