Finance Flashcards
What is a direct cost?
They are the expenses that go to making a particular product . They are variable costs and increase as the firm expands output e.g raw materials, machinery, wages
What is revenue?
The income earned by the business (sales-units sold x price- how much customers pay)
What are indirect costs?
These are general overheads of running a business they are fixed costs and do not vary with output, they must be paid even if the firm produces nothing ę.g salaries, rent of property, telephone bills
What is profit?
Revenue- costs
name five sources of finance
Grants Trade Credit Overdrafts Loans (Banks and mortgages) Venture capital Friends and family
What is a grant?
They are when companies give money to qualifying new/small businesses that does not have to be paid back
What are short term sources of finance?
Sources that must be repaid over a few weeks or months
What are trade credits?
The customer is given an invoice so they have an extra 1 or 2 months to pay for the product / service this gives them more time to earn the money to pay the debt
What are overdrafts?
The firm is allowed to take out more money from the bank then it has in its account
What are the disadvantages of overdrafts?
High interest rates
What are the advantages of overdrafts?
Access to more money
What is a loan and name the types of loans?
Money is given to the business , this money must be paid back:
Bank loans
Friends and family
Mortgages
What are the advantages and disadvantages of bank loans?
They are quick and easy to take out for bigger businesses
It is hard to persuade a bank to lend money to a new business. It needs to be paid with interest, assets can be reposed if the loan isn’t repaid
What are the advantages and disadvantages of loans from family?
Easier to get access to
Can cause tension between family if loan isn’t repaid
What is venture capital?
Money invested by businesses or induviduals that specialise in providing finance for new or small businesses e.g dragons den
Name 3 types of ways new/small businesses can get SUPPORT
The government
Private firms
Charities
What do the government do to help small businesses?
They fund business link which helps businesses it gives advice on how to write a businesses plan and train staff
What do the government get out of helping small businesses?
The government will receive taxation revenue when the firm makes a profit
What do private firms do to help small businesses?
Offer advice on how to manage finances, calculate taxes ę.g banks they do this so businesses work with them and not their competitors
What do charities do to help small businesses? And give an example
They usually help businesses by offering advice grants and low interest loans ę.g princes trust
What is cash flow?
The flow of money into and out of the business
What is cash inflow and outflow?
Cash inflow is money coming into the business
Cash outflow is money coming out of the business
Why are cash flow forecasts used?
To predict when the business may face a liquidity problem
What are the disadvantages of cash flow forecasts?
They’re essentially only a guess
What is net cash flow?
Cash inflow - cash outflow
What are sales?
The number of units of a product sold
