business theme 2

Question 1

name the internal sources of finance

Answer 1

retained profit, sale of assets, owners capital (personal savings)

Question 2

name the external sources of finance

Answer 2

overdraft, trade credit, grants, leasing, bank loans, venture capital, share capital, crowd funding

Question 3

benefits and disadvantages of the internal sources of finance

Answer 3

retained profit and perosnal savings are free and do not incur interest !

however shareholders may want some of the profit (dividens and the owner may lose personal investment)

sale of assests frees up the business so they can invest in other things but the business will lose the benefit of the asset

Question 4

pros and cons of external sources of finance

Answer 4

bank loans and overdraft have high interest rates and may need collateral.

share capital and bank loans can raise large amount of finance and sc is only available to ltd and plc

trade credit allows a business to generate revenue before paying suplliers but delays in payments may ruin relationship w suppliers

venture capital can bring expertise into the business but they may try to take control

Question 5

reasons to start a business

Answer 5

enjoy a challenge
be creative
be your own boss
ethical/moral
make profit

Question 6

advantages of franchising

Answer 6

recieve a lump sum of income after the sale,
more promotion with every sale,
economies of sale,
garanteed customers
dont have to be creative

Question 7

Business objectives

Answer 7

profit/sales maxim.
market share
survival
employee welfare
customer satisfaction
social objectives(ethical)

Question 8

what is an entrepreneur

Answer 8

a person who takes the risk to set up a business in hopes of profit and reward.

Question 9

disadvantages of a partnership

Answer 9

share profits,
slow decision making,
conflict

Question 10

whats the difference between limited liability and unlimited liability?

Answer 10

limited liability is when the company and owner are separate legal entities, so they can lose their investment but their personal belongings are safe
unlimited liability can lose personal assets if they dont pay the debts of the business

Question 11

cash flow forecast calculations

Answer 11

inflow - outflow = net cash flow +opening balance = closing balance

e.g february opening balance is januarys closing balance

Question 12

how do your improve cash flow ? (speed up inflow and slow down outflow)

Answer 12

incentivise early repayment e.g give discounts

reduce customer trade credit

sell off stock at low price to free up cash

delay payments to suppliers

increase trade credit with suppliers

cut costs: cheaper supllier alternatives or postpone spending

Question 13

why do businesses need to follow consumer legislation?

Answer 13

fsulty products could lead to a fall in customers, negative reviews/word of mouth, fines which increase costs, customers lost to competitors

Question 14

following legislation impacts

Answer 14

fewer returns and refunds(decrease costs), better brand reputation, higher costs because of high quality raw materials that meets requirements

Question 15

Why might it be difficult to forecast sales?

Answer 15

• New competitor enters the market - Competitor changes their price
• Changing consumer incomes
• Changing fashion and trends
  May over or underestimate sales which could lead to expenses being incorrectly forecasted
• Suppliers may increase their price which could lead to increased costs
• The exchange rate may fall which could lead to increased costs of imports

Question 16

Benefits of cash flow forecast

Answer 16

Support an application for lending

Support budgeting process

Identify potential cash flow crisis

Question 17

limitations of budgeting

Answer 17

only as accurate as the data its based on

past doesnt equal the future

unexpected changes in processes

Question 18

margin of saftey

Answer 18

determines the risk of the business

margin of saftey = current level of output 0 breakeven point

Question 19

difference between current assets and non current assets

Answer 19

ca = assets the business expects to sell or use withing a year

nca = fixed assets used to operate the business

Question 20

difference between current liabilities and non current liabilities

Answer 20

cl = payments due within a year

ncl = debts the business doesn’t expect to pay with in a year

Question 21

ways to improve liquidity

Answer 21

delay payments

sell off stock

encourage cash sales

gain extra short term finance

Question 22

reasons for business failure

Answer 22

internal : poor planning
cash flow
marketing
lack of skills

external: competition
legislation
market conditions
economic factors

Question 23

what does spicee stand for

Answer 23

strong
pound
expensive
exports
cheap
imports

Question 24

methods of production

Answer 24

job production - one off single units (requests) that require a highly skilled workforce e.g painting

Batch production - standardized components made in batches/small groups

flow production - continuous automated standardized production to achieve economies of scale

Question 25

factors affecting productivity

Answer 25

amount of capital
working practices
specialisation
education and training
motivating workers