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Business Paper 1 > Business finance > Flashcards

Business finance Flashcards

1
Q

What is finance ?

A

Funding required to set up & expand a business

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2
Q

What is internal finance ?

A

Funds from inside a business

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3
Q

What are 3 methods of internal finance ?

A
  1. Owner’s capital
  2. Retained profits
  3. Sale of assets
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4
Q

What is owner’s capital ?

A

Money or other capital that the person aiming to set up the business may have saved or come by

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5
Q

What are 2 advantages of owner’s capital ?

A
  1. No interest
  2. Flexibility in paying back
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6
Q

What are 2 disadvantages of owner’s capital ?

A
  1. Owner may not have enough money to finance business
  2. Business failure = all capital lost
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7
Q

What are retained profits ?

A

Profits kept in the business rather than paid out to its owners

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8
Q

What is a dividend ?

A

Sum of money paid by a company to its shareholders out of profits

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9
Q

What are 2 advantages of retained profits ?

A
  1. Cheap
  2. Flexibility to decide how & when its used
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10
Q

What is a disadvantage of retained profits ?

A
  1. Opportunity costs = owner or shareholders may want retained profits as part of income
  2. May not be enough to finance business
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11
Q

What is the sale of assets ?

A

Items of property owned by a person or company, regarded as having value, be sold

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12
Q

What are 2 advantages of selling assets ?

A
  1. Cash raised
  2. No more costs in maintaining asset
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13
Q

What are 2 disadvantages of selling assets ?

A
  1. Business does not always have surplus assets to sell
  2. Slow process = may not satisfy finance in short term
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14
Q

What is external finance ?

A

Funds found outside a business

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15
Q

What are 6 methods of external finance ?

A
  1. Family & friends
  2. Banks
  3. Peer to peer funding
  4. Business angels
  5. Crowd funding
  6. Other businesses
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16
Q

What is family & friends ?

A

Gaining finance from close relationships

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17
Q

What are 2 advantages of family & friends ?

A
  1. No interest
  2. Flexibility in paying back
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18
Q

What is a disadvantage of family & friends ?

A

Owner may not have enough to finance business

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19
Q

What is a bank loan ?

A

Fixed term bank loan

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20
Q

What is an advantage of a bank loan ?

A

Gains finance

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21
Q

What are 2 disadvantages of a bank loan ?

A
  1. Interest
  2. Won’t be able to gain loan if high risk
22
Q

What are peer to peer fundings ?

A

Lending money to businesses without going through a bank or financial institution

23
Q

What is an advantage of peer to peer fundings ?

A

Lower interest = saving costs

24
Q

What is a disadvantage of peer to peer fundings ?

A

Difficult to gain funding = lenders careful about who they lend to

25
What are business angels ?
Wealthy, entrepreneurial individuals who provide capital in return for a share of business
26
What is an advantage of business angels ?
Entrepreneurial guidance & experience
27
What is crowd funding ?
Gaining funding by raising small amounts of money from a large number of people
28
How can a business gain crowd funding ?
Interest sites like Crowdfunder
29
What is an advantage of crowd funding ?
Small investors likely to take risks
30
What are 2 disadvantages of crowd funding ?
1. More dependent on ability of the business to market its idea to investors 2. Project failure = damage reputation of business
31
What are other businesses ?
Using other business to gain external sources of finance
32
What is an advantage of other businesses ?
Can gain entrepreneurial experience & guidance
33
What is share capital ?
Funds raised by issuing shares in return for cash
34
What is an advantage of share capital ?
No interest or repayments attached to it
35
What are 2 disadvantages of share capital ?
1. Costly 2. Giving away some of company & profits to investors
36
What is venture capital ?
Money invested into business where there is substantial element of risk
37
What are 2 advantages of venture capital ?
1. Money quickly available 2. Provide expertise so investment is successful
38
What is a disadvantage of venture capital ?
Some ownership & profits will have to be given to investors = loss of independence in decision making & profits
39
What is an overdraft ?
Bank allows firm to take out more money than it actually has
40
What is an advantage of an overdraft ?
Can cover short term debts
41
What are 2 disadvantages of an overdraft ?
1. Bank can ask for repayment at any time 2. Has to pay interest with repaying
42
What is leasing ?
Allows a business to use an asset over a fixed period in return for regular payments
43
What are 2 advantages of leasing ?
1. Can pay relatively small amount of money in the short term for an asset 2. Other funds can go towards other business needs
44
What is a disadvantage of leasing ?
Doesn't actually own asset so has to keep paying in installments
45
What is trade credit ?
Suppliers deliver goods now & willing to wait for days before payment = 90 days
46
What are 2 advantages of trade credit ?
1. Don't have to pay for goods instantly 2. Business can sell goods & make profit
47
What are 2 disadvantages of trade credit ?
1. Costs business to administer payments 2. Can only be used for goods supplied rather than for general busniness expenses or growth
48
What is a grant ?
Given by charities or government to help businesses get started
49
What is an advantage of a grant ?
Usually not have to pay back any money = free to invest
50
What are 2 disadvantages of a grant ?
1. Difficult to gain = high competition 2. Criteria that can be difficult to meet

Business Paper 1 (11 decks)

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