Finance Flashcards
What is control costs and expenditure?
This avoids financial problems and the need to borrow money to cover costs.
What is monitoring cash flow?
There needs to be enough cash available to pay bills.
What is forecast trends?
Preparing budgets and looking at past financial records help to identify what might happen and action can be taken.
What is monitor performance?
Information can be used to compare one year against another to see if performance has improved.
What are inform decision making?
When manager uses financial information to make decisions.
What are the benefits of finance?
More money for activities
Better business performance
Increase satisfaction and sales
Prevents bankruptcy
What is finance required for?
Purchase or use of premise and capital
Payment or use labour
Growth and extension
General running costs
Factors for selecting sources of finance?
How much finance is required
Is it short or long term
What the interest will be
Payback term
What are employees financial information?
Fairly paid
Understand decisions
What are inland revenue (HMRC) financial information?
Make sure correct amount of tax is paid
What are shareholders financial information?
Help make decisions on how to vote
Decide to purchase more shares
If organisation is paying fair dividends on investments
What are suppliers financial information?
decide to allow more credit
What are lenders (banks) financial information?
If loan should be given
Shows how business can pay off debt
What are internal sources of finance and the advantages and disadvantages?
Retained profits -
They are put back into the business for profits. pros - no interest owner in control. cons - can take a while to gain profits and risky.
Sales of assets -
Sell unnecessary assets, this is short term and profits could suffer if asset was essential.
Owners own savings -
How most new businesses start. pros - owners has control and reduces borrowing. cons - small, not last long and unlimited liability.
What are the short term external sources of finance and the advantage and the disadvantages?
Overdraft -
pros - easy to set up, quick access finance. cons - must be paid back quickly could be expensive.
Debt factorising -
selling debt to factories. pros - charges unpaid debt saving time and money
What are the short term external sources of finance and the advantage and the disadvantages?
Overdraft -
pros - easy to set up, quick access finance. cons - must be paid back quickly could be expensive.
Debt factorising -
selling debt to factories. pros - charges unpaid debt saving time and money
Trade credit -
Can purchase goods with a delayed payment. pros - can sell goods not paid for. cons - discretion of the supplier.
What are the medium term external sources of finance and the advantage and the disadvantages?
Bank loan -
pros - payments in regular instalments, easier to budget. cons - interest ,but be paid, small business have higher rates.
Hire purchase -
can pay for in instalments. pros - cost spread over time. cons - higher rates of interest.
Leasing -
renting instead of buying. pros - equipment up to date. cons - more expensive and an asset.
Government grants -
pros - doesn’t get paid back. cons - one off payment, need to qualify for it.
What are the long term external sources of finance and the advantage and the disadvantages?
Mortgages -
interest added at start and equals instalments. pros - over a long period. cons - deposit is required.
Debentures -
loan or group of loans usually secured by an asset of the company. pros - large amount of capital. cons - if interest not paid can seizes asset.
Venture capitalists -
Provides finance if bank says no. pros - poor credit. cons - part ownership, loss of control.
Sales and leasebacks -
invokes the firm selling assets then leasing them. pros - generate large sums of money. cons - paying interest, over a large price and could be expensive.
