Business Theme 2 Flashcards
Examples of internal finance
-owners capital
-retained profit
-sale of assets
Examples of external finance
-family and friends
-banks
-p2p lending
-business angles
-crowd funding
-venture capital
Advs of internal f
-capital available immediately
-cheap - no interested
-not subject to credit checks
-no involvement of 3rd parties
Disadvs of internal f
-can be limited
-inflexible - limited sources
-can cause conflict - shareholders vs managers
Unlimited liability (internal finances)
where there is no legal difference between the owners and the business (incorporated)
Limited liability (external)
business has a legal identity separate from the owners
ordinary shares
no guaranteed dividends, have voting rights
preference shares
received fixed rate of return when dividends declared
deferred shares
held by founders of company - receive after ordinary shares have been paid a min amount
Significance of business plans
-helps maintain fin
-structured assessment of opportunies and risk
- analysis of the competitive pos
-provides benchmark or progress to be made
Cashflow forecast uses
1.)identifying the timing of cash shortages + surpluses
2.)supporting applications for finances
3.)enhancing the planning process
4.) monitoring cashflow
cash flow forecasts limitations
1.)info based on estimates
2.) doesn’t plan for sudden external; forces beyond owner’s control
3.)time-consuming
profit
difference between total revenue - total costs
cashflow
difference between total cash inflow and outflow
where cashflow differs from profit
1.) time differences
2.)non current assets are accounted for
Sales forecasting
is a business process, assessing the probable outcome using assumptions about the future
Factors affecting sales forecasting
1.)consumer trends
2.)seasonal variations
3.)fashion
4.)long-term trends
Break Even analysis - advs
1.)helps management + finance provides (better understand the viability + risk)
2.)recognition of costs
3.) estimated BE (amount of output to sell to cover costs)
Break Even analysis - disadvs
1.)unrealistic assumptions (products not sold at the same price at different levels of output)
2.) sales aren’t the same as output
3.) planning aid rather than decision making tool
Budgets
a financial plan for the future concerning the revenues + costs of a business
uses of a business plan
1.)estimation priorities + set targets
2.) turn objectives into reality
3.)improve efficiency
4.) control income + expenditure
5.)monitor performance
difficulties of a business plan
1.) not real figures
2.) demotivate staff (unachievable)
3.) manipulation - easy targets to seem successful
4.)rigidly - different views
5.)short-termism - actions to undermine targets
types of budgets
1.)historical
2.)zero based
Income statement
-measures business’ performance (1y)
-compares income of the business over cost of goods
