Finance Flashcards
Sources of finance (4)
-bank overdraft
- grant
-bank loan
-mortgage
Bank loan
Money borrowed from the bank which is paid back with interest in instalments
Grant
Money secured from the government, which has conditions attached. it doesn’t need to be paid back
Mortgage
This is a long-term loan which is secured against the property or land
Bank overdraft
A facilitate at the bank to overdraw on your account, usually for less than a year
Adv of bank overdraft
Can be agreed in advance
Adv of bank loan
Budgeting and planning is easier as repayments are made in regular fixed instalments
Adv of mortgage
The business is given a long period of time (approximately 25 years) to repay the mortgage
Adv of grant
The grant does not need to be repaided
Disadvantage of bank overdraft
This facility may incur a charge to setup and interest rates can be quite high
Disadvantage of bank loan (2)
Monthly payments must be made on time. The amount borrowed has to be repaid with interest. This could be expensive
Disadvantage of mortgage
Interest has to be paid each month
Disadvantage of grant
In order to secure a grant the business must meet certain criteria e.g. employing staff from local area.
Grants can be difficult to obtain.
Fixed costs
Costs that always stay the same, no matter how many units of products are made
Variable costs
Costs that change depending on how many units of a product are made.
Equation of total cost
Fixed cost + Variable cost
Variable costs equation
Total costs - fixed costs
Total revenue equation
Selling price x units sold
To calculate a profit
Profit = Total revenue - Total Costs
Break even point
This is the point where the business is making neither a profit nor a loss, when sales revenue is equal to its total costs
What do business spend cash on? (3)
- wages
- electricity
- raw materials
How can cash flow problem be resolved (6)
- cheaper supplies of raw materials
- offering discounts to customers
- taking out bank loans
- selling equipment or machinery
- spreading purchase costs
- tight stock control
Cash budgets
Contains a list of cash the business expects to receive and the cash expected to be paid out of the business over a period of time
The benefits of preparing a cash project (6)
- it shows id the business has a surplus
- if shops if the business will have a deficit
- it can show if addictional finance is required
- It can help control expenses by highlighting periods when expenses could be high.
- It can allow action to be taken to avoid a deficit; for example, leasing a van rather than purchasing it, or postponing a purchase.
- It can help in making decisions.
