business theme 2 Flashcards

1
Q

name the internal sources of finance

A

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

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2
Q

name the external sources of finance

A

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

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3
Q

benefits and disadvantages of the internal sources of finance

A

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

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4
Q

pros and cons of external sources of finance

A

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

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5
Q

reasons to start a business

A

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

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6
Q

advantages of franchising

A

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

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7
Q

Business objectives

A

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

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8
Q

what is an entrepreneur

A

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

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9
Q

disadvantages of a partnership

A

share profits,
slow decision making,
conflict

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10
Q

whats the difference between limited liability and unlimited liability?

A

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

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11
Q

cash flow forecast calculations

A

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

e.g february opening balance is januarys closing balance

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12
Q

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

A

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

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13
Q

why do businesses need to follow consumer legislation?

A

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

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14
Q

following legislation impacts

A

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

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15
Q

Why might it be difficult to forecast sales?

A
  • 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
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16
Q

Benefits of cash flow forecast

A

Support an application for lending

Support budgeting process

Identify potential cash flow crisis

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17
Q

limitations of budgeting

A

only as accurate as the data its based on

past doesnt equal the future

unexpected changes in processes

budget cuts can decrease motivation

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18
Q

margin of saftey

A

determines the risk of the business

margin of saftey = current level of output - breakeven point

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19
Q

difference between current assets and non current assets

A

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

nca = fixed assets used to operate the business

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20
Q

difference between current liabilities and non current liabilities

A

cl = payments due within a year

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

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21
Q

ways to improve liquidity

A

delay payments

sell off stock

encourage cash sales

gain extra short term finance

take out credit agreements with suppliers

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22
Q

reasons for business failure

A

internal : poor planning
cash flow
marketing
lack of skills

external: competition
legislation
market conditions
economic factors

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23
Q

what does spicee stand for

A

strong
pound
expensive
exports
cheap
imports

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24
Q

methods of production

A

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

cell production - teams of workers work together to produce an entire product

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25
factors affecting productivity
amount of capital working practices specialisation education and training motivating workers
26
how can a business benefit from improved efficiency
unit costs fall increase profit margins improved flexibility charge lower prices - competitive
27
implications of of under capacity utilisation
idle resources costing money and not being used unit costs rise flexible to changes in demand
28
implications of over capacity utilisation
employees overworked and unhappy mistakes are more likely unit costs will fall but may rise again due to mistakes from stress
29
what is capacity utilisation?
CU is about the use a business makes of its resources
30
what is efficiency ?
making the best use of all the resources of a business an efficient business has minimal waste
31
what is productivity?
is the amount of output that can be produced in a given input of resources in a period of time
32
what are the costs of poor stock management
tying up cash that cant be used elsewhere risk of damaged stolen stock storage costs are high too little stock means loss of sales and unhappy customers goods will expire or stop being trendy can respond to changes in demand
33
what is lean production?
lean production is making production as efficient as possible by removing waste in the operational processes (waste of time materials and effort) its about doing more with less focused on reducing defects, time wasted and inventory levels
34
ways a business can minimise waste
store inventory appropriately e.g perishable goods in the freezer rotate stock so old stock gets used first sell off more stock through sales
35
what is the lead time
the time taken from when the order was placed to it arriving
36
what is the difference between quality control and quality assurance
quality control is about the product whereas quality assurance is about the process
37
outline quality control
quality checked at the end focus on identifying faults quality control is a specific role about the product
38
outline quality assurance
about the process all employees are involved quality is considered at all steps of production focus is on continual improvement of quality
39
what are the limitations of poor quality
if products need recalling this can be expensive poor quality = bad brain rep could get sued quality costs
40
what is total quality management
quality is the priority throughout the organisation and is everyone's responsibility. Quality circles ensure all aspects of the supply chain are considered and give people the opportunity to work closely as a team Example: A hotel encouraging all staff, from cleaners to managers, to suggest ways to improve guest satisfaction.
41
outline the 4 stages of the business cycle
boom - high rates of economic growth and production recession - output starts to fall and growth declines slump - prolonged period of economic decline recovery - economy starts to pic up after a period of decline
42
features of a boom
high profits low unemployment high inflation shortages in supply
43
features of a recession
production declines as demand falls governments use policies to stimulate growth - subsidies consumer certainty starts to fall
44
features of a slump
high unemployment low interest rates low spending and investing business failures and closures
45
features of recovery
increasing consumer confidence business are investing and hiring spare capacity is used up
46
impacts of deflation on a business
businesses may struggle to pay off their costsnbecause they remain the same whilst their prices decrease low demand (people dont purchase as they expect things to get cheaper) may lead to redundancies and less supply
47
impact of competition on business
fall in prices leading to lower profit margins increased costs of promotion improved efficiency to reduce average costs increased innovation
48
benefits and limitation of a large market
wider consumer base less volatility than small markets more regulation and scrutiny potential international competition
49
pros and cons of a small market
less competition opportunities for expansion easier to build loyal relationships threat of new entrants few economies of scale
50
How may exchange rates impact decision making
businesses may try to avoid uncertainty when exchange rates are volatile businesses may set an agreed rate for future transactions
51
what are the impacts of competition in a market
cons: a fall in prices increase costs of promotion businesses may act unethically pros: improved efficiency to reduce average costs wider product ranges
52
what is the interest rate
this is the cost of borrowing money and the reward for saving money
53
what are the impacts of high interest rate on business activity
consumer and business spending falls as theres incentive to save and invest inflation falls - as theres a reduced demand for goods and services stronger pound - high interest attracts foreign investors
54
difficulties in improving quality
quality is subjective and dynamic business may let quality slip if theres no incentive from rivals it can add more work so it may be rejected by the workforce measuring quality is difficult and expensive
55
what is a balance sheet
a financial document that records the assets and liabilities of a business gives a snapshot of the value and financial strength of the business
56
what can we find out from a balance sheet
the value of a business (equity) assets the business holds and liabilities they need to pay the long term debts of a business how a business has been financed
57
what is the difference between net assets and net current assets
net assets tells us the value of a business net current assets tells us the working capital that a business has
58
what does current ratio assess
whether a business has sufficient working capital to pay its short term debts current assets over current liabilities
59
what does a current ratio of 2:1 mean
The business has £2 of current assets for every £1 of current liabilities
60
how does acid test ratio differ from current ratio
its a more severe measure of liquidity because it doesnt take into account stock this is because or many businesses theres no guarantee that inventories can be quickly turned into cash current assets - inventory over current liabilities
61
what is working capital and how is it calculated
this is the money in a business that is used to finance day to day running costs. this includes paying bills, wages and buying stock working capital includes stock wc = current assets - current liabilities
62
what is the statement of comprehensive income
this tells us the revenue generated by a business and its profit at various levels following a series of expenses
63
what can we find out from a statement of comprehensive income
changes in sales revenue how well a business is managing its operating costs changes in the direct cost of sales the profitability of a business
64
What should be included in the contents of a business plan
business idea aims and objectives market research sources of finance personnel buying and production premises and equipment financial forecasts
65
What are the 4 methods of quality management
Total quality management - everyone responsibility through quality circles where people get together to discusss quality problems quality control - about the product at the end. quality assurance : about the processes being right so mistakes don't happen in the first place Kaizen: Making small regular improvements all the time that add up