business -finance

Question 1

Internal sources of finance

Answer 1

-personal or business savings
-reatined profits
-selling fixed assets

Question 2

external sources of finance

Answer 2

-bank loans overdrafts and mortgages
-loans from family and friends
-new partners
-share capital
-trade credit
-government grant
-hire purchases
-crowd funding

Question 3

Short term finance

Answer 3

trade credit-businesses may give firm one or two months to pay for certain purchases
- useful for a small firm as they have time to earn the money needed to pay the debt
overdraft-

Question 4

long term finance

Answer 4

- government grants-often given to qualifying new or smaller firms.unlike loans,they dont have to be repaid.however there are fewer options than for loans
-** loans**-quick and easy repaid with interest if they arent repaid the bank can repossess the firm’s assets.
- hire purchases- these are when are firms purchases something by first paying a deposit,then paying the rest in instalments over a period of time
- personal savings-a business owner may put some of their own capital into the business to get

Question 5

four factors affect the choice of finance

Answer 5

• size and type of company
• amount of money needed
• length of time the finance is needed for
• cost of the finance

Question 6

break even

Answer 6

-the breakj even level of output or break even point in units is the level of sales a firm needs in order to cover its costs
-total costs=total revenue
-break even point in units=fixed cost/sales price-variable cost
-break even point for revenue =break even pointbin units*sales price

Question 7

margin of safety

Answer 7

margin of safety=actual sales -break even sales

Question 8

break even advantages

Answer 8

-easy to work out
-quick-can take immediate action
-predict how changes in sales may affect costs revenue and profits
-break even analysis persuades banks to give them a loan
-inform marketing and planning decisons
-

Question 9

break even disadvantages

Answer 9

selll any quantity of product at their current price
- assumes all products are sold
- if the data is wrong the analysis is wrong
- can be complicated if it involves more than one product
- it only shows how much a business needs to sell not how much they will sell

Question 10

cash flow forcast

Answer 10

-good way of predicting when a firm will face a liquidity problem
-can see when an overdraft will be needed
-help make future business plans
-needs to be monitered carefully

Question 11

effects of poor cash flow

Answer 11

-there sint enough cash
-staff cant get paid on time
-

Question 12

three main reasons for poor cash flow

Answer 12

-poor sales- there is a lack of demand from consumers for the firms products so the firm has less mney coming in and it cannot pay creditors
-overtrading-the firm takes on too many orders
-poor business decisons

Question 13

ways to improve cash flow problems improve cash flow

Answer 13

-by rescudeling payments
-reducing cash outflow
-arranging to have an overdraft
-finding new sourcses or finance
-increasing cash inflow