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edexcel business alevel > 2.2 raising finance > Flashcards

2.2 raising finance Flashcards

1
Q

why is finance/ capital required?

A
  • to start a business
  • to grow a business
  • to deal with cash-flow problems
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2
Q

what are the 3 sources of internal finance?

A
  • owner’s capital / savings
  • retained profit
  • sale of assets
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3
Q

what are the 5 external sources of finance?

A
  • banks
  • crowd funding
  • peer to peer funding
  • business angels
  • family and friends
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4
Q

definition of owners capital / savings

A

portion of income thats not spend on current expenditures

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5
Q

definition of retained profit

A

profit after all costs have been paid and all dividens have been paid to shareholders

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6
Q

definition of sale of assets

A

when a business sells/ transfers assets out of business (property, land, capital machinery)

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7
Q

definition of peer to peer funding

A

when people lend money to individuals or a business through an agreement.

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8
Q

what are business angels

A

investors who invest in the very early stages of a business taking a significant share/equity stake (dragons den)

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9
Q

definition of crowdfunding

A

obtaining external finance from many small investments

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10
Q

what is a bank loan?

A

a sum of borrowed money by a business from a bank

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11
Q

what are the 7 methods of finance?

A
  • loans
  • share capital
  • venture capital
  • overdrafts
  • leasing
  • trade credit
  • grants
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12
Q

what is share capital?

A

finance raised by the sale of shares

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13
Q

what is a loan?

A

usually from the bank, involve providing a lump sum of cash which will we paid over an agreed period of time.

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14
Q

what is venture capital?

A

method of providing finance in higher risk investments - generally with a combination of loans and shares

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15
Q

definition of overdraft?

A

offers flexibility - allows the business to spend money even when they don’t have it/ account becomes negative.

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16
Q

definition of leasing

A

renting as asset that the business requires, if they can’t afford it

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17
Q

what is trade credit?

A

good and services provided by a supplier aren’t paid for immediately - “buy now, pay later”

18
Q

definition of a grant?

A

a sum of money given by the government that doesn’t have to be paid back

19
Q

adv of retained profit

A
  • no interest
  • doesn’t have to be paid back
  • no dilution of shares
20
Q

disadv of retained profit

A
  • shareholders may have reduced dividens
21
Q

adv of sales of assets

A
  • no interest
  • doesn’t have to be paid back
  • no dilution of shares
22
Q

disadv of sale of assets

A
  • once gone, sold forever - may need it again in the future
23
Q

adv of share capital

A
  • no interest
  • doesn’t have to be paid back
24
Q

disadv of share capital

A
  • dilution of shares - may upset existing shareholders
25
Q

adv of loans

A
  • no dilution of shares
26
Q

disadv of loans

A
  • interest payment
  • set date to be paid back
27
Q

adv of overdraft

A
  • quick and easy to set up
  • flexibility
  • interest paid only on amount drawn
28
Q

disadv of overdraft

A
  • interest is higher than the loan
29
Q

adv of leasing

A
  • improves cash flow
  • regular fixed payments = certainty
30
Q

disadv of leasing

A
  • expensive
  • can be a long term commitment
31
Q

adv of trade credit

A
  • eases cash flow
32
Q

disadv of trade credit

A
  • if late paying, could damage credit history
33
Q

liability (and finance)

A

responsibility of the owners of a business for the debt and finance of that business

34
Q

unlimited liability

A

legal obligations of the owners of sole traders/ partnerships where they are all liable for all business debts

35
Q

what types of businesses have limited liability and unlimited liability?

A

limited : incorporated
- private limited companies
- public limited companies
= share capital, loans and overdrafts, angel and venture capital, trade credit, leasing, crowdfunding

unlimited : unincorporated
- sole traders
- partnerships
= owners’ capital, loans and overdrafts, trade credit, leasing

36
Q

what is a business plan?

A

gives a summary on the objectives of a business and gives a detailed plan on how they’re meant to be met

37
Q

what can a business plan give?

A
  • gives a sense of direction for owner and employees
  • gives a clear target
  • can be used to judge the success of the business
38
Q

what is a cash-flow forecast?

A

shows the movement of money into and out of a business over a period of time

39
Q

what info does the cashflow forecast give?

A
  • opening balance
  • cash inflow
  • cash outflow
  • monthly balance
  • closing balance
40
Q

advantages of cash-flow forecasts

A
  • gives an early warning/ identification of problems
  • control of stock
  • gives target and motivates those involved
41
Q

limitations of cash-flow forecasts

A
  • depends on the accuracy of the figures
  • may limit flexibility

edexcel business alevel (1 decks)

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