Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Business > 2.1 Raising Finance > Flashcards

2.1 Raising Finance Flashcards

1
Q

What are the internal sources of finance

A

Retained profit
Sale of assets
Owners capital

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

Benefits and drawbacks of retained profit

A

+ a free source of finance that doesn’t incur interest so low cost

  • shareholders may wish to receive it back in the form of a dividend
  • only applicable to an established business whose been trading over a year as it is any profit left over from previous years
  • may not be enough
  • takes a long time to save depending on business
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Benefits and drawbacks of sale of assets

A

+ frees up value in unwanted assets to be invested in other areas of the business

+ no interest so low cost

  • the business loses the benefit of the asset (opportunity cost) e.g. no longer owning a delivery vehicle
  • takes a long time to save depending on business
  • might not be enough
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Benefits and drawbacks of owners capital

A

+ a free source of finance that doesn’t incur interest

  • owners could lose their personal investment
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the external sources of finance

A 
Overdrafts
Trade credit
Grants
Leasing
Bank loans
Venture capital
Share capital
Crowd funding
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

+ and - of overdrafts

A

+ flexible way to find working capital- acts as a buffer for day to day expenses

+ flexible on repayment

+ good for emergencies and cash flow

  • bank may ask for repayment at any time
  • interest rates are high
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

+ and - of trade credit

A

+ suitable for buying raw materials from suppliers as it gives the business opportunity to generate revenues before having to pay

+ helps with cash flow as you keep cash in your organisation for longer

  • delays in payment can damage relationships with suppliers
  • dependent on relationship with supplier
  • not good for new businesses
  • can be removed at any time
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

+ and - of grants

A

+ government schemes might be available for some small businesses

+ helps to manufacture products

+ not in debt

+ don’t have to repay

+ no interest

  • generally given for social, environmental or economic benefits
  • long application process
  • few and far between
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

+ and - of leasing

A

+ assets can be acquired without large capital spending to acquire them

+ you still own assets

  • can’t use it while it’s rented
  • in the long term a leased asset is more expensive than purchasing outright
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

+ and - of bank loans

A

+ can be negotiated to meet business requirements

+ can get a large sum of money

  • have to pay interest
  • have to go through credit checks
  • business has to pay interest and may have to offer collateral to secure it
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

+ and - of venture capital

A

+ can bring expertise into the business

+ have contacts in the industry

+ can raise large sums of money

  • owner may not want input from elsewhere into the running of the business
  • diluting ownership and may be too involved
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

+ and - of share capital

A

+ it can access very large amounts of capital

+ no interest

+ doesn’t get paid back

  • only available to ltd (people you know) and plc (public)
  • have to pay dividends
  • diluting ownership
  • easy to be taken over
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

+ and - of crowd funding

A

+ cheap and easy to set up

+ can get rewards

+ flexible

+ interest free so low costs

+ doesn’t have to be paid back

+ large number of investors

  • not suitable for raising large amounts of money
  • may not get enough funding
  • can take a long time
  • not immediate
  • have to satisfy requirements of investors
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Factors to consider in finance sourcing?

A

Legal structure- some sources such as share capital are only available to companies

Cost- some sources have very high interest repayments

Risk- sources that require collateral can be high risk

Flexibility- some sources are highly adaptable to meet the business’s precise needs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is limited liability

A

When the owner is only responsible for what they invest. Owner is separate entity to business. Personal possessions can’t be taken

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What’s unlimited liability

A

Owners fully responsible for debts of business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Implications of unlimited liability

A

Owners of unlimited businesses are exposed to the financial obligations of the business

If they’re unable to pay business debts to banks and suppliers they could lose personal assets. The same obligations apply to any unlawful employees.

Unlimited liability companies sometimes find it easier to raise finance from lenders as the lenders can seem to regain any borrowings directly from the owners of the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Implications of limited liability

A

Businesses with limited liability are owned by shareholders.

As a limited liability company is a separate legal entity the personal assets of shareholders are protected. Limited liability companies may also find it easier to raise large amounts of capital through the sources available to them

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What’s a shareholder

A

An individual or institution that owns a percentage of a company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

How do shareholders gain from shares

A
  1. Through profits returned in the form of dividends

2. In the rise of the price of the shared held when they come to sell them

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What finance is appropriate for limited liability businesses

A 
Share capital
Retained profit
Venture capital
Business angels
Bank loans
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What finance is appropriate for unlimited liability businesses?

A 
Personal savings
Retained profit
Mortgages
Unsecured bank loans
Peer to peer funding
Crowd funding
Grants
Bank overdrafts
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What should a good business plan include

A 
Executive summary
Business idea and opportunity
Aims and objectives
Market research
Financial forecasts
Sources of finance
Premises and equipment
Personnel
Buying and production
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What’s an executive summary in a business plan

A

A one page overview of the business outlining its purpose and the opportunity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
What’s the business idea and opportunity in a business plan
An outline of the business idea and concept so that all stakeholders can understand the owners intentions
26
What are the aims and objectives in a business plan
Aims and objectives should be SMART. The owner will measure their success against these targets
27
What’s market research in a business plan
Market research into the target market, the market and other competitors
28
What’s financial forecasts in a business plan
These will include forecasts in costs, revenue, profit and cash flow ( cash flow forecast, budgets and break even analysis)
29
What are sources of finance in a business plan
A plan on how the business will be financed and how any borrowings will be repaid
30
What are premises and equipment in a business plan
The location of the business and its rationale. How this will be financed and any other equipment the business will need
31
What is personnel in a business plan
An organisation chart outlining the personnel in the business, their areas of responsibility, skills and qualifications
32
What is buying and production in the business plan
Details of how the products will be produces including details of suppliers
33
Who uses a business plan
Owners as a guide and working document Lenders - e.g. banks will want to investigate the likely success and risk of lending to a new business Investors- to assess the risk and reward of investing in the business Parents and employees- anyone wanting to work with/ for the business
34
What is a cash flow forecast
The prediction of all expected receipts and expenses of a business over a future time period which shows the expected cash balance at the end of month
35
How to Calculate cash flow forecast
(Inflows- outflows = net cash flow) + opening balance = closing balance
36
When analysing cash flow forecasts what should managers consider
Are the monthly inflows greater than monthly outflows? What are the forecast periods of high expenditure Are inflows increasing over time Is there a seasonal trend Is there enough cash reserves to cover unexpected costs
37
What are the causes of cash flow problems
Over trading Allowing too much trade credit to customers Poor credit control Inaccurate cash flow management Unforeseen costs
38
How to speed up inflows
Incentivise early repayment by giving customers a discount for paying early Reduce trade credit given to customers Sell off stock at a discounted price to free up cash Inject fresh capital into the business
39
How to slow down outflows
Delay payments to suppliers-> keeps cash in business for longer but may develop poor relationship Increase trade credit agreements with suppliers-> dependent on relationship, not likely if you’re a new business Cut costs, such as finding cheaper alternatives or postponing spending in areas such as training or advertising
40
What’s the best way to ensure the business has a positive cash flow
Invest time and effort into researching and planning effective cash flow forecasts
41
What is internal finance?
Money generated within the business or its current owners Cash raised for a business’ own activities
42
What’s external finance
Money raised from outside the business such as through family and friends, banks and peer to peer funding
43
What are the sources of external Finance
``` Family and friends Peer to peer funding Banks Business angels Crowdfunding Other businesses ```
44
What are the methods of external finance
``` Loans Share capital Venture capital Bank overdraft Leasing Grants Trade credit ```
45
Benefits and drawbacks of sourcing finance from family and friends
+ likely to give you it + lenient of payback + flexible - may not provide enough finance
46
Benefits and drawbacks of sourcing finance from peer to peer funding
+ more negotiable on payback - may not provide enough finance
47
Benefits and drawbacks of sourcing finance from business angels
+ have knowledge and expertise + have contacts in the industry + can raise large sums of money - may be too involved - diluting ownership
48
+ and - of internal finance
``` + Capital available immediately Cheap Not subject to credit checks No need to involve third parties ``` - Can be limited Inflexible Opportunity costs can be high
49
+ and - of limited liability
+ less risk for owners -> more willing to invest - may mean it’s harder to access external finance
50
+ and - of unlimited liability
+ easier to raise external finance - High risk for owners
51
What is risk
The possibility of a negative outcome ‘conscious choice’ Eg business failure, financial loss, lack of security
52
How to minimise risk
Planning Market research Raising sufficient start up capital Being competitive
53
What’s a business plan
A plan for the development of a business, giving details such as the products to be made, resources needed and forecasts such as costs, revenues and cash flows A business plan is a physical document
54
Influences On a business plan
Entrepreneur | Business experience
55
Benefits of producing a business plan
1. Force owners to take an objective, critical and unemotional look at the whole business idea. Can see if it’s do-able. Won’t waste time of something that can’t happen and can think of a better idea 2. Helps show lenders and investors that the owner is cautious, responsible, serious and credible 3. Flags up potential problems 4. Provide a road map that shows a clear direction for the development of the business 5. Provide an action plan that identifies key tasks that must be undertaken because it won’t show any risks or problems that the business may face. This means you may not get start up funds because banks and investors want to know you’ve panned for potential risks therefore you may not be able to start your business
56
Disadvantages of a business plan
Time consuming -> opportunity costs-> could be doing other important start up tasks Expose flaws in business -> doesn’t secure you finance
57
+ and - of loans
+ can borrow large amounts + fixed instalments make it easier to plan cash flow - interest to pay, business in debt
58
What’s venture capital
Where a business borrows a sum of money usually for a share in ownership
59
What’s an overdraft
An extension of a current account | Can go into minus figure
60
What’s leasing
When business rents out assets. Usually non current assets eg land
61
What’s trade credit
Where business has extended period to pay for supplies, usually 30, 60, 90 days
62
What’s a grant
A free sum of money given by government
63
What are the benefits of cash flow forecasting / why should a business do it
Support an application for lending and can secure Lower interest rate Support the budgeting process -> allowing business to plan how much each department has to spend Identify any potential cash flow crisis -> can plan for other sources of finance and cutting costs
64
What must a business consider in order to manage cash flow effectively
Payables- amount of time (days) taken for the business to pay creditors Receivables - amount of time taken for debtors to pay the business
65
What’s cash
Physical money a business has which is available to spend
66
What’s a receipt
Cash coming into the business (inflows, receivables)
67
What are expenses
Cash going out of the business (outflows, payables)
68
What financial document is used to the future? Which for the present? Which for the past?
Cash flow forecast Balance sheet ( statement of financial position) Profit and loss ( statement of comprehensive income)
69
How to calculate total receipts
All inflows added together
70
How to calculate net cash flow
Inflows- outflow
71
How to calculate opening balance
Previous month’s closing balance
72
How to calculate closing balance
Net cash flow + opening balance
73
Limitations of cash flow forecasting
Some figure based on estimates, depends of reliability Variables are constantly changing so needs to be updated -> demand changes, makes it more inaccurate Cash flow focus on only cash-> don’t consider profit or profitability -> has to use in conjunction
74
Why do we need cash
Pay wages Emergencies Supplies Purchase resources Without cash you have business failure

Business (18 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions