2.1 raising finance M

Question 1

examples of external sources of finance

Answer 1

bank loan
mortgage
share capital
venture capital
overdraft
leasing
trade credit
grants

Question 2

examples of internal sources of finance

Answer 2

sale of assets
owner’s capital
retained profits

Question 3

what factors can dictate how much finance a business can obtain?

Answer 3

ability to pay back
existing debts
forecasts
size/ownership of business

Question 4

define business plan

Answer 4

a document that outlines what the business is, what it does, what it wants to achieve and how it is going to do it. (1)
it is normally as part of an attempt to gain financial backing. (2)

Question 5

what are the 6 sections of a business plan?

Answer 5

> executive summary - business idea and objectives
company summary - details of ownership and sources of finance
products and services - why the market needs them and competition
strategy and implementation - sales forecasts, marketing and competitive advantage
management summary - staff and who people are responsible for
finance plan - cash flow forecast, projected income statement and break even analysis

Question 6

what are the benefits and drawbacks of business plans?

Answer 6

+forces entrepreneurs to think carefully which should increase chances of success (analyse risks)
+if the plan is well received by investors, they may compete to offer attractive terms

-problems arise if the plan is too rigid = may not be prepared for what to do if sales are unexpectedly low
-too much time spent on the plan may mean too little time is spent visiting suppliers and potential customers

Question 7

what is a cash flow forecast?

Answer 7

a document that predicts the money that will be flowing in and out of the business over a given time period

Question 8

how do you calculate net cash flow?

Answer 8

total inflows - total outflows

Question 9

how do you calculate opening balance?

Answer 9

closing balance of previous period

Question 10

how do you calculate closing balance?

Answer 10

opening balance + net cash flow

Question 11

what factors may impact cash flow?

Answer 11

investing in assets
competition
expansion or contraction
economy
seasonality of products
employee costs

Question 12

how can a business speed up inflows?

Answer 12

expand customer base
promotion
sell excess stock
sell assets
increase marketing

Question 13

how can a business slow down outflows?

Answer 13

leasing instead of buying
delay non essential purchases
find lower cost alternatives
make use of new technology

Question 14

benefits and drawbacks of cash flow forecasting

Answer 14

+helps obtain sources of finance (banks, venture capitals etc)
+affordability, eg. can you pay your suppliers

-external factors may not be considered
-only contains qualitative data (doesn’t contain customer loyalty, brand image, competitors etc)