2.1 Rasing Finance

Question 1

Name all of the Methods of Raising external finance

Answer 1

Loans, Share Capital, Venture Capital, Overdarfts, Leasing, Grants, Trade Credit

Question 2

What are the Advantages of Retained Profit

Answer 2

No interest to pay

Does not have to be paid back

No dilution of shares

Question 3

What are the Disadvantages of Retained Profit

Answer 3

Shareholders may have reduced dividends

Question 4

What are the advantages of Sale of Assets

Answer 4

No interest to pay

Does not have to be paid back

No dilution of shares

Question 5

What are the disadvantages of Sale of Assets

Answer 5

Once sold, gone forever

Question 6

What are the Advantages of Share Capital

Answer 6

No Interest to pay

Does not have to be paid back

Question 7

What are the disadvantages of Share Capital

Answer 7

Dilution might upset existing shareholders

Question 8

What are the advantages of Loans

Answer 8

No Dilution of Shares

Question 9

What are the disadvantages of Loans

Answer 9

Interest Payments

Set Manturity Date

Question 10

What are the advantages of Overdraft

Answer 10

Quick and easy to set up and very flexible

Intrest paid only on amount overdrawn

Question 11

What are the disadvantages of Overdraft

Answer 11

Intrest payments higher than for a loan

Question 12

What are the advantages of Leasing

Answer 12

Improves cash flow

regular fixed payments provide certainty

Question 13

What are the advantages of Trade Credit

Answer 13

Eases cash flow

Question 14

What are the disadvantages of Leasing

Answer 14

Expensive

Can be a long term commitment

Question 15

What are the disadvantages of Trade Credit

Answer 15

If late paying, can damage credit history

Question 16

What are examples of Unlimited Liability

Answer 16

Sole Traders

Partnerships

Question 17

What is an example of Limited Liability

Answer 17

Private Limited companies

Public Limited companies

Question 18

tedt

Answer 18

Owners’ Capital

Loans and Overdrafts

Trade Credit

Leasing

Question 19

What is an example of Limited Business

Answer 19

Share Capital

Loans and Overdrafts

Angel and Venture Capital

Trade Credit

Leasing

Crowdfunding

Question 20

Explain the importance of a Business Plan

Answer 20

Can be used to judge success

Gives consideration to potential problems

Provides a sense of direction

Provides Clear Targets

Question 21

What are the key contents of a business plan

Answer 21

Business Model

Product and Market Planning

Market Assessment

Financial Forecasts and Scenarios

Key Opportunities and Threats

Investment Requirements

Question 22

Explain the what cash flow can do

Answer 22

cash flow is dynamic and unpredictable

cash flow problems are the main reason why a business fails

Question 23

What is a cash flow forecast

Answer 23

Shows the movement of money into and out of a business over time and is an estimate

Question 23

What are some examples of Cash Inflows

Answer 23

Cash Sales (Turnover/ Revenue)

Receipts from Trade debtors

sale of fixed assets

Interest of Bank Balances

Grants

Loans from Banks

Share Capital Invested

Question 24

What are some examples of Cash Outflows

Answer 24

Payment to suppliers wages and salaries payments for fixed assets tax on profits interest on Loan + Overdraft dividend paid to Shareholders repayment of Loans

Question 25

What are some of the Benefits of cash flow forecasts

Answer 25

early identification of problems identification of and chasing of slow- paying customers Control of stock Target Setting and motivation for those involved

Question 26

Name some External Sources of Finance?

Answer 26

(Outside the business) - Family and Friends - Banks - Peer to Peer Lending - Business Angles - Crowdfunding - raising money from a large number of people usually from the internet. - Other Businesses

Question 27

What are some of the Limitations of cash flow forecasts

Answer 27

Depends on the accuracy of the figures May limit flexibility

Question 28

List some Internal Sources of Finance?

Answer 28

Owner's Capital Selling Assets Retained Profits

Question 29

What is a Unlimited Liability

Answer 29

the business and the owner(s) are seen as one under the law means business debts become the personal debts of the owners

Question 30

What is a Limited Liability

Answer 30

means that the owners aren't personally responsible for the debts of the business the shareholders of both private and public limited companies have limited liability

Question 31

How does Liability affect sources and methods of finance?

Answer 31

Business with Limited Liability usually find it much easier to encourage people to invest Sole - traders and partnerships are likely to rely on internal sources of finance Limited Companies have lots of finance via share capital.