Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

A level bussiness > business finance > Flashcards

business finance Flashcards

1
Q

give examples of external sources of finance

A

bank loan

over draft

trade credit

factoring

leasing

hire purchase

commercial mortgages

sales and leaseback

share capital

business angles/ venture capitalists

government grants

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

give examples of internal sources of finance

A

retained profit / own funds

working capital

sales of assets

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

what is meant by external sources

A

money that is raised from sources outside the business

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

what is meant by internal sources

A

money that is generated from within the business or from the business owners own capital:

owners savings

sales of assets

reinvested profits

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

what is working capital

A

is the money needed to finance the day-to-day running of the business. it allows stock to be bought and wages and bills to be paid

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what does investment capital do

A

helps the business grow

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

what is meant by capital expenditure

A

businesses just starting up need money to invest in fixed assets such as buildings and equipment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

what are the advantages of using retained profit / own funds

A

cheapest form of finance as you do not have to pay interest on own money

immediately available

this will provide a liquidity buffer and potential funds for growth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

what are the advantages of using working capital

A

by reducing their trade credit period and collecting debts more efficiently, a business may receive money from customers more quickly

reducing stock holding is another way to release finance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

what are the advantages of selling assets

A

established businesses are able to sell off assets that are no longer required, such as buildings and machinery

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

what is a bank loan

A

a loan borrowing a fixed amount for a fixed period of time (perhaps 3 - 5 years)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

what is overdraft

A

an overdraft is the facility to withdraw more from an account than is in the bank account, resulting in negative balance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

what is trade credit

A

businesses buy items such as fuel and raw material and pay for them at a later date

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

what is factoring

A

a method of turning invoices into cash

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

what is leasing

A

the company gains use of a productive asset withot ever owning it

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

what is a hire purchase

A

method of gaining the use of capital goods, whilst gaining a monthly fee

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

what is a commercial mortgage

A

if a business owns property, a commercial mortgage may be available

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

what is sales and leaseback

A

this involves the business selling assets (buildings, machinery) to finance company and then leasing the asset back

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

what is share capital

A

a long-term method of providing funds for growth is to sell shares

20
Q

what are business angel

A

professional investors who can invest large amounts of capital into small and medium sized businesses

21
Q

what is a government grant

A

both local and central central government may offer finance to business start up schemes

22
Q

what are the advantages of government grants

A

usually to small businesses in regions where unemployment is high

often, they are grants that do not have to be repaid

23
Q

what are the disadvantages of government grants

A

they tend to be small amounts that only las for a relatively short period of time

they are also few and far between - tend to come with certain conditions which must be met

administration requirements - forms to be complete that what can be strict criteria

24
Q

what are the advantages of a business angel

A

possibly large sums of money can be attained quickly

advice may also be given

25
Q

what are the disadvantages of a business angel

A

will not only take a shareholding but also be fully involved in running the business

26
Q

what are the advantages of share capital

A

share capital is a form of permeant capital; this means it does not have to be repaid

owners of shares have a say in how the business is run, but the amount of influence the have depends upon the percentage of shareholding they own

27
Q

what are the disadvantages of share capital

A

loss of control - the business owner will have decisions influenced by new investors

new shareholder investors may be looking for a exit strategy within a few years. this means that they are expecting the business to grow rapidly and they expect to be able to sell their shares, taking their capital gain

28
Q

what are the disadvantages of sales and lease back

A

once the item has been sold, it is no longer an asset of the business thus it is a one time option

29
Q

what are the disadvantages of commercial mortgages

A

failure to make repayments may lead to the property being repossessed by the lender

30
Q

what are the advantages of sales and leaseback

A

the capital that is produced can be reinvested into growing the business

an asset owned by the business can be turned into capital for reinvestment in the business

sales and leaseback also carries potential tax benefits as the leasing costs are offset as an operating expense

31
Q

wat are the advantages of commercial mortgages

A

with a commercial mortgages the property is used as security against the loan and the loan can be as much as 60% or 70% of the value of the property

because security is being offered to the lender the interest rates will be lower than a an unsecured loan

payments are made monthly for the term of the mortgage

commercial mortgages might run for 10 to 15 years so generally have predictable costs - this can be helpful with budgeting and predicting cash flow

32
Q

what are the advantages of hire purchasing

A

useful for purchasing machinery that can be obtained quickly

finance houses may also be less selective than banks

at the end of the hire purchase period the business will own the asset

33
Q

what are the disadvantages of a hire purchase

A

interest rates are usually very high

add servicing charge for paying in instalments

the property is not owned by the business until the last payment has been made. items can legally be repossessed if the business falls behind with repayments

34
Q

what are the advantages of leasing

A

the business acquired the use of resources without the need for a large sum of money

the maintenance and repair bills are met by the leasing company

leases are generally easier to obtain than loans

equipment can be updated regularly

35
Q

what are the disadvantages of leasing

A

the business never gets to own the items leased

over a long period of time, it can be very expensive and well in excess of the purchase price

36
Q

what are the disadvantages of factoring

A

factoring services are only offered to a business with a good trading record and reliable customers

37
Q

what are the advantages of trade credit

A

the 30-90 days offered by the suppliers can be viewed as interest free way of raising finance

38
Q

what are the advantages of factoring

A

banks and other financial organizations offer factoring services that pay a proportion of the value of an invoice (80-85%) when the invoice is issued. the balance, minus a fee, is paid to the business when the invoice is paid

this flexible form of finance keeps pace with business growth as the funding is directly linked to the turnover of the company

the factor will also undertake all credit management and collections work

the use of this service results in savings in administration costs which can be substantial and faster customer payments means lower interests costs on any overdraft fully

39
Q

what are the disadvantages of trade credit

A

suppliers often offer discounts for cash or earlier payments meaning the costs of goods is higher if full credit period is used

late payments can also lead to a business gaining a bad reputation with suppliers

40
Q

what are the advantages of overdraft

A

very useful for overcoming short term liquidity problems - useful for day to day transactions easing cash flow needs and emergency requirements

only pay interest when account is overdrawn, i.e do not have to pay off regular sum

41
Q

what are the disadvantages of overdraft

A

may be an arrangement fee

can be called in immediately - it is repayable on demand

the overdraft limit tends to be fairly low for small businesses

interest charged can be very high indeed

42
Q

what are the advantages of a bank loan

A

if application for the loan becomes successful, the money becomes immediately available

payments made up of interest and capital are made monthly which can help with cash flow planning

offering security against a loan can make it much easier to get funding and reduces interest rates charged

funds are made available for medium to long term borrowing of large sums of money for example if a business needs to acquire building land

43
Q

what are the disadvantages of a bank loan

A

interest has to be paid on the loan; thus, business have tp pay back more than what they borrowed

very difficult to obtain for small businesses. it is likely that most new start ups are unlikely to receive a loan unless security is offered

some form of collateral may be required to secure the loan - if the business owner is not able to maintain payments, homes can be lost or business assets removed

44
Q

what are the disadvantages of using working capital

A

this is likely to dive customers way and may have the opposite effect on making finance available

a sudden surge in demand could result in lost sales if the business is unable to meet delivery dates

45
Q

what are the disadvantages f selling assets

A

smaller businesses are unlikely to have such unwanted assets and, if growth is an objective, they are much more likely to want to acquire assets as opposed to losing them

46
Q

what are the disadvantages of retained profits

A

money is tied up in business so not earning interest

cannot use for other purposes (opportunity cost)

reserves, reinvested profit, come with only one cost - the loss of profit distribution to owners

short - term pressures to pay profits to owners (normally shareholders) can, however, restrict the availability of this form of finance

A level bussiness (8 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions