Finance

Question 1

Direct costs

Answer 1

Expenses that can be attributed to making a particular product (labour, raw materials and operating machinery)

Question 2

Indirect costs

Answer 2

The general overheads of running the business (salaries, telephone bills and office rent)

Question 3

Fixed costs

Answer 3

Don’t vary. Mostly indirect costs. They must be paid even if the business has not sold anything

Question 4

Variable

Answer 4

Increase as the firm expands output. Mostly direct costs. Materials and machinery

Question 5

Five main sources of start-up finance

Answer 5

Grants
Trade credit
Overdrafts
Loans
Venture capital

Question 6

Grants

Answer 6

Providers include the EU, government and charities. Don’t have to be repaid

Question 7

Trade credit

Answer 7

Issue customers with an invoice, give people 60 days to pay

Question 8

Overdrafts

Answer 8

Allows the firm to take more money out of the bank than it has in its account

Question 9

Loans

Answer 9

Bank loans - quick and easy but need to be paid back with interest
Friends and family loans - borrowing
Mortgages - long term loans used to buy a property

Question 10

Venture capital

Answer 10

Money invested by individuals who specialise in giving finance to new or expanding small firms

Question 11

Cash flow forecast

Answer 11

Show all the money coming in to and out of the business. Helps predict when there may be a shortage of money in the business

Question 12

Cash flow

Answer 12

Money going in and out of the business

Question 13

Cash inflow

Answer 13

Money going in through sales

Question 14

Cash outflow

Answer 14

Money going out (costs)

Question 15

Net cash flow

Answer 15

Difference between cash inflow and cash outflow

Question 16

Reasons for poor cash flow

Answer 16

Poor sales (lack of demand)
Over trading (too many orders)
Poor business decisions (new products when they don't have enough money to support them)

Question 17

Profit =

Answer 17

Revenue - cost