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Business Unit 1 Flashcards

1
Q

What is the Primary Sector

A

The primary sector is the sector that harvests the earths raw materials

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2
Q

What is the Secondary Sector

A

The secondary sector is the manufacturing sector, they take resources from the primary sector and use them to create products

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3
Q

What is the Tertiary Sector

A

The Tertiary Sector distributes products and services to the customer

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4
Q

A need is

A

something you need to survive like food, water, shelter

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5
Q

A want is

A

something that a person desires but will be able to survive without

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6
Q

What is an entrepreneur

A

An individual who sets up and runs a new business and takes on the risks associated with the business

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7
Q

What are the key characteristics of entrepreneurs

A
  • Risk Taker
    -Creative
    -Passionate
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8
Q

Why would an entrepreneur want to start a business

A
  • To be their own boss
  • To fill a gap in the market
  • To have a source of income
  • To challenge themselves
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9
Q

What are the negatives of being an entrepreneur

A
  • You have full responsibility
    -Unlimited liability for mistakes in your business
  • You might go out of business
  • Will have to deal with difficult employees
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10
Q

An entrepreneur can get help from

A
  • Other entrepreneurs
  • Welsh government support sites and businesses
  • Family members
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11
Q

What is an entrepreneurial motive

A

the process that activates and motivates the entrepreneur to exert higher level of efforts for the achievement of his/her entrepreneurial goals.

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12
Q

What is a business plan

A

a document created by a business or entrepreneur. that provides and outlines details about each element of the business

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13
Q

what are the components of a business plan

A
  • Executive summary - a brief outline of what your business
  • Company description - This section provides a detailed description of the business, including its mission, vision, and goals, as well as including information about the industry and target market
  • Market analysis - a detailed assessment of your business’s target market and the competitive landscape within a specific industry
  • Organization and management - follows the Market Analysis. This section should include: your company’s organizational structure, details about the ownership of your company, profiles of your management team, and the qualifications of your board of directors.
  • Service or Product line - demonstrate how your particular product will fill a need for your target customers.
  • Marketing & Sales - a document that outlines strategies for creating awareness of your product or service among a defined group of prospective buyers
  • Funding Request - an outline of the future funding requirements of a company. The name and nature of the company, location, owners, service or product offered, target audiences, etc.
  • Financial projections - use existing or estimated financial data to forecast your business’s future income and expenses
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14
Q

Advantages of a business plan

A

Helps manage risk - A business plan includes a risk analysis, identifying potential threats to the company’s success and strategies for mitigating them

Management - helps manage funds, It is essential that a business carefully plans and manages cash flows to ensure that there are optimal levels of cash in the bank at all times

Help raise finance - attracts investors and funding

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15
Q

disadvantages of a business plan

A
  • Businesses need to be flexible and able to adapt to a changing environment. A business plan may stop a company changing.
  • Business plans can be costly and time consuming to make
  • Also, forecasts of revenue and profit may be misleading and lead to bad decisions.
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16
Q

What is an SME

A

small and medium enterprises

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17
Q

What is a Stakeholder

A

any person, group of people or other organization that has an interest in the activities of a business.

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18
Q

Internal Stockholders

A
  • Employees
  • Managers
  • Owners
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19
Q

External Stockholders

A
  • Suppliers
  • Society
  • Government
  • Creditors
  • Shareholders
  • Customers
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20
Q

What is a zero hours contract

A

Zero-hours contracts are usually for ‘piece work’ or ‘on call’ work, for example for interpreters. This means: they are on call to work when you need them. you do not have to give them work

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21
Q

What is Monopolistic competition

A

when many companies offer competing products or services that are similar, but not perfect substitutes. The barriers to entry in a monopolistically competitive industry are low, and the decisions of any one firm do not directly affect its competitors.

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22
Q

3 features of monopolistic competition

A
  • Large Number of Buyers and Sellers.
  • Free Entry and Exit of Firms.
  • Product Differentiation.
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23
Q

What is a Monopoly

A

A Monopoly in its purest form is when one business dominates, having 100% of the marketplace

When a business dominates the majority of a market

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24
Q

3 Features of a Monopoly

A
  • Only one firm operating in the market
  • Barriers to entry are blocked
  • No close substitutes for the good the monopoly firm produces
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25
Q

What is an Oligopoly

A

A market structure that consists of a small number of firms, who together have substantial influence over a certain industry or market

No one company has the power to undermine the others or steal market share

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26
Q

3 features of an oligopoly ( i added a 4th ;)

A
  • Very high barriers to entry
  • Interdependence: The firms under an oligopoly market are interdependent, which means that the actions of one firm affect the actions of other firms
  • Few firms
  • differentiated products
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27
Q

What is perfect competition

A

When all companies sell identical products, market share does not influence price, companies are able to enter or exit without barriers, buyers have perfect or full information, and companies cannot determine prices.

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28
Q

What are 3 features of Perfect Competition

A
  • No barriers to entry or exit
  • All products are Homogenous(all Identical)
  • Many Buyers and sellers, so many that no one firm or business has control over the market, as everyone has an equal share
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29
Q

What does barriers to entry mean

A

the high startup costs or other obstacles that prevent new competitors from easily entering an industry or area of business

Benefits older businesses as it stops new ones from stealing market share

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30
Q

What does Homogenous mean

A

That all products are identical and have no differences, despite being made by different businesses

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31
Q

What is a price maker

A

A company that can dictate the price it charges for its goods because there are no perfect substitutes

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32
Q

What is a cartel

A

groups of independent producers who work together to set prices, production, or other business practices to achieve higher profits than they would under perfect competition

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33
Q

What are business to business markets

A

the marketing of products or services to other businesses and organizations

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34
Q

What is Mass marketing

A

When a business advertises to a wide range or broad audience, advertising to everyone

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35
Q

Advantages of Mass Marketing

A
  • Large customer base
  • ## Can benefit from economies of scale(due to higher output levels)
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36
Q

What are the disadvantages of mass marketing

A
  • High barriers to entry, very expensive set up costs
  • Products are all very similar, this means businesses have to spend a lot on marketing
  • High competition, struggle for new businesses as they have very little market share
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37
Q

What is Niche marketing

A

When a business targets specific segment of people within a larger target audience

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38
Q

What are the advantages of Niche marketing

A
  • Businesses can make their own price, as they offer expert product or services
  • Low barriers to entry, start up costs
  • Little to no competition
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39
Q

What are the disadvantages of Niche marketing

A
  • unable to benefit from economies of scale, due to low levels of output
  • If successful will attract more competition
  • Very vulnerable to market changes, if trends or fashion changes it could loose what little customers it has as they are unable to change
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40
Q

What is market segmentation

A

a process companies use to break their potential customers into different sections

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41
Q

Advantages of market segmentation

A
  • allows a business to target its desired audience, by tailoring their marketing strategies
  • Leads to a better customer experience and satisfaction, increasing customer loyalty
  • Increases recourse efficiency, as a business is able to focus on certain demographics
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42
Q

Disadvantages of marketing segmentation

A
  • High research and development costs are high
  • High Promotional costs
  • Producing products for every segmentation in a market is impossible
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43
Q

What are the types of market segmentation

A

Demographic - Age, Social class, Gender, Income

Psychographic - targeting groups based on personality & emotional behavior

Geographic - Targeting based on area, country

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44
Q

What is a global market and why would a business enter it

A

Selling goods or services to overseas markets

  • Higher earnings
  • Spread risk
  • Saturation of the home market
  • Economies of scale
  • Survival
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45
Q

Advantages of entering the global market

A
  • reach more customers.
  • It increases the visibility of your brand
  • potential for higher revenue
  • can reduce competition as your specialty may not exist in other countries
  • Spreads risk
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46
Q

Disadvantages of entering the global market

A
  • It can be difficult to determine if there is an available market
  • There may be different laws and standards which need to be met
  • Large number of barriers to entry
  • International politics and market conditions can eliminate profits
  • It creates a need for international product delivery
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47
Q

What is Seasonal market

A

A business whose operations and sales fluctuate depending on the time of year, example: Christmas sales, beach clothing

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48
Q

Advantages of being in a seasonal market

A
  • Concentrated Revenue Opportunities
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49
Q

Disadvantages of being inn a seasonal market

A
  • Inconsistent income
  • Low customer engagement
  • Less situational freedom
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50
Q

What is a Consumer market

A

the final point of sale, businesses sell a product to the final consumer

consumers buy products and services for consumption or sharing with others rather than for reselling

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51
Q

What is Market size

A

The total revenue generated by the sales of all products and services in a given market. In other words, it is the measurement of the total volume of a given market

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52
Q

What does Market share mean

A

the percentage of total sales (by value) or total output that a business has in a specified market.

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53
Q

What is the formula for calculating market share

A

Total Sales (divided) Total Market Sales X 100 = %

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54
Q

What does market growth mean

A

An increase in the sales volume of products, services, and economic activity over time

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55
Q

What is the formula for market growth

A

Change in market size during year 1 and 2 (divided) by the size of the market in year 1 X 100 = %

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56
Q

What does price elastic mean

A

it is sensitive to price. A fall in price leads to a bigger increase in quantity demanded, although the price of one unit is less the increase in sales means the total revenue earned is more

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57
Q

What does price inelastic mean

A

A product or service for which the price does not change even if supply or demand go up or down, it is insensitive to price

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58
Q

What does Income elasticity mean

A

An economic measure of how responsive the quantity demanded for a good or service is to a change in income.

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59
Q

What is the formula for income elasticity

A

the percentage change in quantity demanded (divided) by the percentage change in income

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60
Q

What is meant by demand

A

the amount of a product or service that customers are willing and able to pay for at a given time

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61
Q

What is meant by supply

A

the number of goods/services businesses are willing to sell at a given price in a specific time period

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62
Q

What are the factors that affect demand

A

Income - More money people have the more they’ll buy

Price - increase in demand will cause a fall in quantity demand, but will make it appear to be a higher quality

Changing tastes - As things go in and out of fashion demand for certain products will also change

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63
Q

What are the factors that affect supply

A

Technology - better a businesses technology, it can produce better quality and/or quantity of goods, increasing its output

Production Cost - if the cost of production increases, the supply of products will decrease

Transport - Traffic on roads, bad sailing and flying weather

Government policies - the lower the tax, the higher the supply of that product, if stricter regulations are imposed then a products supply would fall off

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64
Q

What does a Demand Curve look like

A

Straight line labelled demand, going from top left to bottom right

price running vertical

quantity running horizontal

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65
Q

What does a supply curve look like

A

Straight line labeled supply, going from bottom left to top right

Price running vertical

Quantity running horizontal

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66
Q

What does Equilibrium price mean

A

The consumer cost assigned to some product or service such that supply and demand are equal, or close to equal.

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67
Q

What are Substitute goods

A

A product that can be used as an alternative to another product, with both products serving similar functions and having similar uses.

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68
Q

What are normal goods

A

Products and services that see a rise in demand when incomes rise

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69
Q

What are Inferior goods

A

A good whose demand drops when people’s incomes rise

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70
Q

What is a Luxury good

A

Products and services that see a rise as peoples income significantly rises

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71
Q

What is Market research

A

the process of collecting, collating and analysing data about the market

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72
Q

What is primary research

A
  • Research that is conducted by yourself or someone you’ve hired to do it for you
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73
Q

What are the Advantages of Primary research

A
  • Ensures that collected information is up to date and relevant to your business
  • Allows for the researcher to gain control over ownership of the data
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74
Q

Disadvantages of primary research

A
  • Expensive
  • Time consuming
  • Risk of bias
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75
Q

What is Secondary research

A

research method that involves compiling existing data sourced from a variety of channels

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76
Q

Advantages of secondary research

A
  • Cheap as the data already exists
  • Can answer some questions
  • Easily accessible
77
Q

Disadvantages of secondary research

A
  • Lack of relevance, rarely answers all the questions you have, not specific to your needs
  • Lack of Accuracy, old or incomplete data
78
Q

What is Test market research

A

a method that aims to explore consumer response to a product or marketing campaign by making it available on a limited basis to test markets before a wider release

79
Q

What is Quantitative Research

A

It uses mathematical analysis and data to shed light on important statistics about your business and market

80
Q

What are the advantages of quantitative research

A
  • Data relatively easy to analyse
  • Numerical data provides insights into relevant trends
  • Can be compared with data from other sources (e.g. competitors, history)
81
Q

What are the disadvantages of Quantitative data

A
  • Focuses on data rather than explaining why things happen
  • Doesn’t explain the reasons behind numerical trends
  • May lack reliability if sample size and method is not valid
82
Q

What is Qualitative research

A

Based on opinions, attitudes, beliefs and intentions. This kind of research deals with questions such as “Why”? “Would?”, or “How?” Qualitative research aims to understand why customers behave in a certain way or how they may respond to a new product

83
Q

What are the advantages of qualitative research

A
  • Essential for important new product development and launches
  • Focused on understanding customer needs, wants, expectations = very useful insights for a business
  • Can highlight issues that need addressing – e.g. why customers don’t buy
  • Effective way of testing elements of the marketing mix – e.g. new branding, promotional campaigns
84
Q

What are the disadvantages of using Qualitative research

A
  • may not be generalisable or representative as opportunity or non-probability samples are used
  • Samples are often small
  • Time consuming to collect data, as well as analysing and drawing conclusions as it is not quantitative
85
Q

What are focus groups

A

A group of consumers brought together to discuss their opinions on a product/ market.

86
Q

What are consumer panels

A

a group of individuals who have been carefully selected to represent a target market for a product, service, company, or industry, and are typically used in the testing of what ever the business outputs

87
Q

What is an Ombudsman

A

a person who investigates, reports on, and helps settle complaints made against businesses

88
Q

What is a sample

A

In market research, sampling means getting opinions from a number of people, chosen from a specific group, in order to find out about the whole group

89
Q

What is random sampling

A

A technique in which each sample has an equal probability of being chosen

90
Q

What is random sampling

A

A technique in which each sample has an equal probability of being chosen

91
Q

What is quota sampling

A

A sample that has been created to mimic the characteristics of a market, sampling a target group

92
Q

What is the Competition and Markets Authority

A

Protects consumer rights by ensuring businesses follow fair competition laws. This includes investigating infringements, imposing fines and sanctions, and taking action against companies practicing anti-competitive behaviour or mis-selling products or services.

93
Q

Why do consumers need protection from businesses

A
  • Keep them from fraudulent business practices, defective products, and dangerous goods and services
94
Q

What is the Consumers Rights Act

A

The Act is designed to ensure that products are safe. It makes businesses that produce, rather than just sell, liable for any damage caused by poor quality or defective products

95
Q

What is the public sector

A

Businesses owned by the government, they provide goods and services for the benefit of the community. They are run by the government. They operate with money raised from taxes.

96
Q

Why do we need a public sector

A

to provide essential services and benefits to citizens, and prevent companies from dominating a market and charging high prices for essentials like healthcare in the UK

97
Q

What is the Private Sector

A

Part of the economy owned and controlled by individuals or private organizations, and in almost all cases seek to make a profit

98
Q

Objectives of Private Sector businesses

A
  • To make a profit by increasing revenues and reducing costs
  • Market share Growth: Businesses target growing their percentage of the total market sales. More market share often equates to more influence within the industry
  • To survive
  • To increase shareholder value
99
Q

What does non-excludable mean

A

It is costly or impossible for one user to exclude others from using a good

100
Q

What does non rivalry mean

A

Non rivalrous means that when one person uses a good, it does not prevent others from using it

101
Q

What does infrastructure mean

A

the facilities that support everyday economic activities : roads, phone lines

102
Q

What are key locational factors

A
  • Factors that are taken into consideration when choosing a place to start a business
  • labor, future expansion, location sustainability, transportation cost, land cost, customer ease and energy cost
103
Q

What does Footloose mean

A

A footloose industry is one which is not tied to any particular location or country and can relocate to another place without effect from factors of production such as resources, land, labor, and capital.

104
Q

What is a Merit good

A

goods or services that are considered to be beneficial to individuals and society as a whole, but are often under-consumed and not utilized to the fullest

105
Q

What is a Public good

A

goods and services that are non-excludable and non-rivalrous

106
Q

What is meant by the term E-commerce

A

The buying and selling of goods or services over the internet

107
Q

hat is meant by Economies of Concentration

A

The dominance of a small number of firms within a particular industry or market

108
Q

What is a Sole trader

A

A single person who is the exclusive owner of a business, still have employees and the owner is entitled to keep all of the profits after tax but is also personally liable for the business’ debts

109
Q

Advantages of being a sole trader

A
  • Keep all the profit they make for themselves
  • Make all the key decisions on their own
  • legally the easiest of all types of ownership to start, least rules and regulations
  • Low start up costs
110
Q

Disadvantages of being a Sole Trader

A
  • Unlimited Liability
  • Sole reasonability, the pressure of making all the important decisions can overwhelm some people
  • Profits are subject to Income Tax, means you cant, for example, leave profits in your business and pay yourself these further down the line or in the next tax year
  • Barriers to finance, lenders are more wary of sole traders because of the unlimited liability aspect and, in some cases, because of the private nature of these businesses, may have to borrow a smaller amount, and pay higher rates
111
Q

What is a Partnership

A

Type of business that has 2 or more owners

112
Q

Advantages of being in a Partnership

A
  • Shared Risk, partners contribute capital and share the risk of going bust between them
  • Shared responsibility, Takes pressure of and allows for shared responsibility for decisions made
  • Easy formation, Profits in partnership businesses flow directly to the personal tax returns of partners, providing easy access to earnings
  • Partners bring new skills and ideas to a business; Decision making can be much easier with more brains
  • More capital can be brought into the business
  • Shared workload
113
Q

Disadvantages of a Partnership

A
  • Profits are shared between partners, typically equally, this can lead to inconsistency as one partner may do more work then the other
  • Unlimited Liability
  • Less control over your business as yo share it with your partner, slower decision making
  • Don’t usually pay income tax, means the responsibility is passed to the partners
  • Potential for conflict, A fallout between partners is not uncommon and can potentially compromise a business
114
Q

What is a private limited company

A

A business that is owned by its shareholders, run by directors and where the liability of shareholders for the debts of the company is limited. It does not publicly trade shares, and is limited to 50 shareholders

115
Q

Advantages of a Private limited company

A
  • Limited Liability, the business owner or owners are only responsible for business debts. up to the value of their financial investment in the business
  • Tax efficient, can claim corporation tax relief on their profits, can increase profits, dividends paid to shareholders are also taxed at a lower rate
  • Separate legal identity, creditors cannot seek direct payment from the personal assets of the business’s owners in case of debts or bankruptcy on behalf of the business
  • Easier to raise capital, due to their credibility it is easier attract new investors.
116
Q

What are the disadvantages of a Private Limited company

A
  • Limited access to capital, shares cannot be sold to the general public, and private limited companies have restrictions on how they can issue shares. This may limit the amount of capital raised to expand the business, as well as this their can only be a max number of shareholders (50), father limiting capital
  • Lack of Flexibility, Have to comply with a set of rules and regulations to operate. It is necessary to file documents such as annual returns, financial statements, and annual accounts with Companies House on time. Failure to do so can lead to penalties, and in the worst-case scenario, the company could be struck off the register.
  • Shared ownership, Lack of control - many shareholders, no single share holder is able to have complete control over the business - Slower decision making, shareholder must come to an agreement on important decisions which can take a long time when they disagree with each other.
117
Q

What is a public limited company

A

A company who’s shares are available to be purchased by the general public

118
Q

What are the advantages of public limited company’s

A
  • Limited liability
  • Large access to capital, as shares can be sold to the general public
  • Due to them being large businesses they are often able to benefit from economies of scale
119
Q

What are the disadvantages of a public limited company

A
  • High barrier to entry, it is expensive to set up, requiring a minimum set up cost of £50,000
  • There is a greater risk of a
    hostile takeover by a rival company as the company cannot control who buys its shares
  • Shareholders might clash when making decisions, slowing down the process
120
Q

What is a Co-operative

A

A legal business structure that is owned and governed by, and functions for, the benefit of those who use its services. They are owned by those that work for it, are served by it, or both.

121
Q

What are the advantages of a Cop-operative

A
  • equal voting rights for members
  • Limited liability for members
  • No limit on the number of members
  • Additional members area source of finance
122
Q

What are the disadvantages of a co-operative

A
  • members have equal voting rights regardless of investment - which may not suit an investor-driven business. And can lead to disputes over contribution
  • There is a legal limit on payments of dividends on shares, which may not suit an investor driven business
123
Q

What is Unlimited liability

A

The owner(s) of a business are entirely responsible for its debts.

124
Q

What is a Social Enterprise

A

A business with specific social objectives that serve its primary purpose. Social enterprises seek to maximize profits while maximizing benefits to society and the environment

125
Q

What is a charity

A

A organisation that is exclusively not for profit, and engages in activities that are legally considered to be of ‘public benefit’

126
Q

What is a deed of partnership

A

Sets out the terms of the partnership. For example it states how much money each partner invested in the partnership and what role each partner will have in the partnership

127
Q

What is a shareholder

A

Owners of the company and therefore get to make decisions about how a company operates. To be a shareholder in a company, you need to own at least one share of the company. Shareholders can be individuals, companies, or other types of organisations.

128
Q

What is Incorporation

A

broad term to describe a business registered with a state to become a separate legal entity

129
Q

What is Dividends

A

Businesses may decide to share a proportion of their profits with shareholders, and this payment is called a dividend

130
Q

What is retained profit

A

The portion of a company’s profits that is not paid out as dividends to shareholders but is instead retained by the company for future use

131
Q

Advantages of using retained profit

A
  • Increased Stock Value - Retained profit makes your business look better on paper with more money in your accounts, in turn attracting further investment
  • Financial Safety Net - boosts your corporate liquidity, this lends stability to your business with a financial safety net for any unexpected expenses, without taking on new liabilities
  • Funding for Growth - Another advantage to retaining profit is it gives you a fund for research and development. You can reinvest your earnings into the company and drive growth
132
Q

What is Working Capital

A

The money used to cover all of a company’s short-term expenses, which are due within one year. Working capital is the difference between a company’s current assets and current liabilities

133
Q

Disadvantages to Retained profit

A
  • Cannot be relied on as a long term source of finance as retained profit will eventually run out, and it is unpredictable how much retained profit a business will have each year
134
Q

What are the Advantages of working capital as a source of finance

A

Liquidity Management: Adequate working capital enables a company to meet its immediate financial obligations, including paying suppliers, salaries, and utility bills. This liquidity management is vital for business continuity

135
Q

Disadvantages of working capital as a source of finance

A
  • Increased risk of bad debts and shorter collection periods can impact cash flow
  • Excessive Working Capital leads to unnecessary accumulation of raw materials, components and spares
136
Q

What is Sale of assets as a source of finance

A

selling products owned by the business

137
Q

Advantages of Selling assets as a source of finance

A
  • Can be a quick and easy way to raise finance
138
Q

Disadvantages of selling assets as a source of finance

A
  • Selling assets wont guarantee that you’ll have enough money to finance what you need
  • Selling assets can put you in a difficult financial position if your business fails and you’re unable to repay your debts
139
Q

What is Internal Finance

A

Money that comes from within a business

140
Q

What is External Finance

A

money that comes from outside a business

141
Q

What is Revenue

A

money that a business makes from selling its goods and services

142
Q

What is the formula for calculating revenue

A

Number of sales X Sales price

143
Q

What is profit

A

the amount of money that the business makes when taking into account costs

144
Q

What is the Formula for calculating profit

A

Total sales (Revenue) - Total costs

145
Q

What are variable costs

A

Costs that change in proportion to production output or sales

146
Q

What are Fixed Costs

A

Costs that are independent of volume

147
Q

What are Semi-variable costs

A

A cost composed of a mixture of both fixed and variable components, costs are fixed for a set level of production or consumption, and they become variable after this production level is exceeded

148
Q

What is a Bank Loan

A

A fixed amount of money that is given to a business by the bank that has to be repaid over time with interest

149
Q

What are the advantages of a bank loan as a source of finance

A
  • Are paid back over time
  • Keep ownership of your business
  • Relatively quick access to a large sum of money
150
Q

Disadvantages of a Bank Loan

A
  • Have to be paid back with interest
  • Harder for new businesses to acquire as they have no or very little credit history
  • Valuable collateral, the more money you wish to borrow, the more assets you’ll have to pledge, failure to pay the money back will result in these assets being seized by the bank
151
Q

What is an Overdraft

A

A facility that can be part of the current account of a business. Business overdraft borrowing takes place when the business makes payments out of its current account and exceeds its available balance

152
Q

Advantages of an Overdraft as a source of finance

A
  • Easier to obtain for new businesses than other sources of finance as they do not require credit history or past profit and loss statements
  • Can be arranged Quickly
153
Q

Disadvantages of an Overdraft as a source of finance

A
  • Short term source
  • Interest charged is not predictable, as it depends on a variable interest rate and on the amount overdrawn on each day of the charging period.
  • The lender may not grant the entire amount requested, as the business’s financial situation will be taken into consideration
154
Q

What is debt factoring

A

When a business sells its accounts receivables to a third party at a discount, enabling companies to immediately unlock cash tied up in unpaid invoices without having to wait the usual payment terms

155
Q

Advantages of Debt Factoring as a source pf finance

A
  • Improves cash flow, as it allows you to get the cash from your invoices without having to wait for your customers to pay
  • Fast access to capital
156
Q

Disadvantages of Debt Factoring

A
  • Loss of Profit, receive less than the total amount the invoice was worth
  • Loss of control over your business
  • Looks bad to your clients

-Credit ratio downgrading- The creditworthiness of a corporation resorting to factoring will be reduced, as this system trades receivables with solid debts : book debts will not be available as security anymore. Access to credit will be reduced.

157
Q

What is leasing

A

Leasing is a way of renting an asset that the business requires, such as a coffee machine. Monthly payments are made and the leasing company is responsible for the provision and upkeep of the leased item

158
Q

What are the advantages of leasing as a source of finance

A
  • Don’t have to outright buy the asset
  • Don’t have to store what your leasing when your not using it, as you can just give it back to the leaser
  • Tax advantages, Lease payments can be deducted as a business expense, allowing a company to benefit from a tax advantage.
159
Q

Disadvantages of leasing as a source of finance

A
  • If leasing is continued eventually it will become more expensive than buying the asset for yourself
  • Wont have full control as you don’t own it
160
Q

What is Hire purchase

A
  • A type of asset finance that allows firms or individuals to possess and control an asset during an agreed term, while paying rent or instalments covering depreciation of the asset, and interest to cover capital cost.
  • Hire purchase grants eventual ownership through installment payments
161
Q

What are the advantages of Hire purchase

A

Flexibility - Both the monthly payments and the length of the agreement can be adjusted to meet the needs of the business

Cash Flow - businesses can spread the cost of equipment, allowing them to manage cash flow and keep valuable working capital within the business. Paying a fixed amount each month over a set period will also help financial forecasting

Ownership - Unlike other types of business lease agreements, once you have made the last hire purchase instalment, your business will own the equipment

  • Lower rate of interest then other forms of sources of finance

Immediate access - By spreading the cost of high-value assets over time, your business can access the equipment immediately, rather than having to wait to save up the necessary funds. This supports business growth and expansion.

162
Q

Disadvantages of Hire purchase as a source of finance

A

Asset deprivation - All assets depreciate over time, depending on the equipment, it could be at the end of its use by the time you finish the payments and would need replacing

Overall Cost - End up paying more than if you bought the product outright

Ongoing fixed payments - If you experience any financial difficulties in the future and are unable to pay, the lender may seize the asset

163
Q

What is a Mortgage

A

long term source of finance. It is a sum of money borrowed from the bank that is secured against a property and paid back in instalments

164
Q

What are the advantages of a mortgage as a form of finance

A
  • Lower interest rates than other unsecured borrowing
  • Fixed monthly payments allow for easier and more accurate business planning and forecasting
  • Allows for more control over a property than renting, as you own it
165
Q

What are the disadvantages of using a Mortgage as a source of finance

A
  • Interest, the total cost of the asses is much higher than if it were bought for cash
166
Q

What is sale & leaseback as a source of finance

A

Where a business sells a major asset then leases the same asset back from the new owner in order to raise finance

167
Q

What are the advantages of using sale & leaseback as a source of finance

A

Operational flexibility – cash out now, allowing a business to stay or move premises in the future as the company expands/contracts.

Restore finances – bolster the firm’s balance sheet by reducing debt and improving free cash flow.

168
Q

What are the disadvantages of sale & leaseback as a source of finance

A
  • In the long term you pay more by renting, due to interest
  • Can reduce the value of the firms assets that can be used as security against future loans.

-May eventually loose use of the asset when lease ends (a competitor may be prepared to pay higher)

169
Q

What is share capital

A

The money invested in a company by the shareholders, In return for their investment, Long term finance, shareholders gain a share of the ownership of the company

170
Q

Advantages of Shared capital as a source of finance

A
  • No interest
  • Investors bring advice & contacts
  • Increases brand notoriety
  • Less risk, no regular payments
171
Q

Disadvantages of share capital as a source of finance

A
  • More share holders means less control, as there are more who own part of the business
  • Business becomes vulnerable to take over, due to it selling so more and more shares
172
Q

What is a venture capitalist as a form of finance

A

An investor who provides young companies with capital in exchange for equity

173
Q

What are the advantages of using a venture capitalist as a form of finance

A
  • They can provide valuable guidance and mentorship to startup founders, helping them navigate challenges and make informed decisions
  • May have connections with key players in the industry, enabling startups to forge new partnerships and gain credibility
174
Q

What are the disadvantages of using a venture capitalist as a form of finance

A
  • Loss of control, decision making and authority will be shared as venture capitalists often want equity from the entrepreneur for payment
  • Dilution of ownership, this can reduce share profits and control over the direction of the company
  • High Expectations, venture capitalists expect a lot from an entrepreneur in a short time, causing a stressful work environment and causing demotivation
175
Q

What is a government grant as a source of finance

A

A sum of money provided by the government to a business that does not have to be repaid

176
Q

advantages of a grant as a source of finance

A
  • Does not need to be paid back
177
Q

disadvantages of a Grant as a source of finance

A
  • Time consuming, in order to apply for a grant, a lot of research and paperwork will have to be completed
  • Difficult to receive, many businesses and individuals apply for grants and your application will be competing against there’s
178
Q

What are direct costs

A

A price that can be specifically tied to the production of specific goods or services,

179
Q

What are Indirect costs

A

Costs that are not specifically linked to the product or service

180
Q

What is Contribution

A

The difference between sales and variable costs of production

181
Q

What is the formula for contribution

A

Revenue - Variable Costs

182
Q

What is the Margin of safety

A

The amount sales can fall before the break-even point is reached and the business begins to not make any profit

183
Q

What is the formula for margin of safety

A

Current Sales - The breakeven point

184
Q

What is Breakeven

A

The point at which revenue and total costs are the same, and neither a profit or loss is being made

185
Q

What is the Breakeven Formula

A

Fixed costs (divided by) Sales price per unit - Variable costs

                  Fixed costs ---------------------------------------------------- (Sales Price per unit - Variable costs)
186
Q

What does the Breakeven graph look like

A

Revenue running on the vertical axis

Output on the horizontal axis

Revenue line running from bottom left to top right

Total Costs line running from the starting point of fixed costs to the top right corner

Fixed costs are represented by a straight line going from somewhere on the revenue axis across the rest of the graph

Breakeven point where revenue and Total costs meet, profits to the right and loss to the left

187
Q

What are the advantages of a Breakeven analysis

A
  • Shows how many products a business need to sell in order to make a profit
  • helps visualize, boosting moral as goals can be set
188
Q

Disadvantages of a breakeven analysis

A
  • Ignores storage costs
  • assumes all products are sold
  • only looks at one product

Business (2 decks)

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