finance Flashcards
What is a source of finance?
sources of finance are the ways that business get money - internal or external
what is owners investment?
an internal source of finance to set up a business money comes from owners savings
advantages of owners investment?
don’t owe anyone money
owner has full control of business
disadvantages of owner investment
if business fails personal savings may be lost.
what is retained profit?
a internal form of finance where pervious profits from the business reinvested back into the business.
advantages of retained profits
don’t owe anyone money owner
disadvantages of retained profits
takes a long time to build up
what is a bank overdraft?
an external finance that allows you to spend more money than you have
advantages of bank overdraft
can be arranged quickly
disadvantages of bank overdraft
expensive as a high rate of daily interest.
only available for small sums of money
what is a bank loan?
an external finance which means a fixed amount of money is given to a business by the bank that must be repaid overtime with interest, usually in monthly installments
advantages of a bank loan
arranged quickly
can be repaid overtime a long period of time
disadvantages of a bank loan
interest must be paid
what is a mortgage?
an external finance that is a long term source borrowed from the bank secured against property paid over a long period of time.
advantages of a mortgage?
given for a long time
can raise large amounts of money quickly
disadvantages of a mortgage?
interest charged on loan
can lose property if payments are missed
what is hire purchase?
an external finance used for vehicles. deposit is paid upfront and the rest of the money is paid back in monthly installments. only own the vehicle once final purchase is made
advantages of hire purchase
expensive vehicles can be purchased and paid back overtime
disadvantages of hire purchase
interest charged
only own after final payment made
what is leasing?
an external finances which means renting machinery and vehicles. monthly payments are made.
advantages of leasing?
leasing companies are responsible for fixing anything that breaks down
disadvantages of leasing?
never own the asset
can work out more expensive overtime that purchasing yourself
what are factors that impact choosing a source of finances?
the purpose of the finances
objectives of organization
amount of finance required to have business
the type of business
length of time finance is required for
what is break even?
the point where a business has sold enough products/services to cover all of their costs
no profit or loss at this point
what is a fixed cost?
costs that do not change regardless to the number of products being made.
includes rent, advertising, rates and salaries
what is variable costs
costa that do change with the number of products being made
includes raw materials and electricity
what is total costs?
the fixed costs and the variable costs added together.
