Business Exam Flashcards
Business Plan
A document for the development of the business giving details such as the product, resources and costs
3 reasons why a business plan is important
1.To show potential lenders or financiers
2.A business plan reduces risk because it forces the entrepreneur to consider all factors that could cause the business idea to succeed/fail
3.to check that the aims are being met
Briefly list the 5 key elements of a business plan
1.Executive summary
2.The businesses and its objectives
3.Owner’s background
4.The market
5.Financial forecasts
Why a business plan may not be important…
- The level of risk can be assessed using elements of the business plan e.g. cash flow forecast. Therefore a full business plan may not be necessary.
- Not all sources of finance require a business plan
- Business planning is subject to external constraints and influences which may make predictions invalid
Internal finance
Money generated by the business or from its current owners. The raising of capital /cash from within the business.
What is ‘Owner’s Capital’ ?
Owner’s Capital refers to money invested by the owner of a business.This often comes from their personal savings.This source of finance does not cost the business, as there are no interest charges applied.
What are ‘Personal Savings’ ?
Money that has been saved up by an entrepreneur which she/he invests in the business
What are financial forecasts?
Financial forecast may be the important content because if the entrepreneur is needs to obtain a bank loan when setting up the bank would most likely have been more willing to loan the money having seen financial forecasts in the business plan
Sale of assets
An asset sale is an internal finance that happens when you sell or transfer the assets of your company, rather than shares or stock. These assets can be tangible such as machinery and inventory or intangible (intellectual property). In an asset sale, you can typically choose what you want to sell.
Retained Profit
The amount of a business net income that
s kept within its account rather than paid out to the share holders
External finance
External finance is capital / funding obtained from a source outside the business
Sources of finance
- family and friends
- banks
- peer-to-peer funding
4.business angels
5.crowd funding
6.other businesses
Methods of finance
- Loans (bank loan, mortgage, debenture)
- share capital
- venture capital
- overdrafts
- leasing
- trade credit
- grants
What may the type of finance depend on?
Whether the financial need is long or short term
The financial position of the business
Cost
Type of expenditure for which the money is needed
Legal status of the business
Peer to peer lending (P2P lending)
lending money to individuals or businesses through online services that match lenders with borrowers.
Crowd funding
Crowd funding is where large numbers of individuals can provide direct funding for a business or project which is administered by a website such as www.crowdfunder.co.uk
Venture capital
Venture capital involves issuing shares to a small number of investor(s) in return for a capital injection into the company
Sole Trader
The simplest form of business set up and owned by one person/with only one owner .
Partnership
A type of business ownership owned by two or more people
Private limited company
A type of business ownership owned by shareholders where their liability for company debts is limited which means that shareholders can only lose the money they have invested
Franchising
Franchising is a method of business ownership that involves a business selling the rights to another business to operate under its name and use its products / a business model that allows an individual or business to acquire a licence to use another firm’s branding, product knowledge and systems for a prescribed period of time.
Social enterprise
A business with mainly welfare or environmental objectives rather than maximising profit
Lifestyle businesses
A business set up with the aim of making no more than a set level of income from which to enjoy a particular lifestyle
Public limited company (plc)
Public limited company (plc) can offer shares on a stock market to the general public and shareholders are only limited to potentially lose the value of the amount paid for the shares.