Finance

Question 1

What does short term sources of finance mean?

Answer 1

Sources of finance that firm will get access to instantly

Question 2

What are the sources of short term finance

Answer 2

Sale of asset - firm will sell off piece of equipment that it is not using
Government grant - lump sum of money that firm supplies from government
Trade credit - supplier will deliver supplies to firm and allow them to pay at later date for the goods
Factoring - firm will collect all outstanding debts and sell them on to another firm, a debt collection agency
Bank overdraft - bank allows firm to exceed funds they have in bank

Question 3

What does medium term sources of finance mean?

Answer 3

Sources of finance that firm will use and aim to pay off over a year often less than 10 years

Question 4

What are the medium term sources of finance

Answer 4

Hire purchase - firm will hire equipment and pay for it in instalments. After last payment firm takes ownership of good
Leasing- firm rents building of piece of equipment for an agreed period of time
Bank loan - lump sum of money borrowed from bank to be repaid in instalments with interest

Question 5

What are the long term source of finance

Answer 5

Mortgage - loam given to firms who wish to purchase premises and is repaid in instalments with interest
Owners savings - funds saved by owner and invested in business
Venture capitalist - private investors who provide finance where banks decide it is too risky eg a Dragon from Dragons Den
Debenture - group of companies will give Plc a long term loan to be repaid with fixed interest over a long period of time . Full amount repaid

Question 6

What is cash budgeting

Answer 6

A forecast of all the money coming into and going out of the business over a period of time

Question 7

What is the structure of a cash budget

Answer 7

Cash budget can cover 6 month period
“00” at top of column means that the sales for the month is £1,500, not £15
“Other income” money business will make OTHER THAN from the products
“Payments” costs business has to cover and so money is leaving the business

Question 8

What are the potential cash flow problems

Answer 8

Low sales which has lowered the amount of money coming into the business
Owner is taking out too many personal drawings
Too much money tied up in stock
Firm is not chasing in unpaid bills and so there is money outstanding from customers
Firm has allowed customers too lengthy period of trade credit
Firm has borrowed at high interest rate and so its monthly costs are very high
Firm has purchased products instead of leasing it

Question 9

What are the solutions for a poor cash budget

Answer 9

Organise an overdraft or bank loan
Negotiate better discounts with suppliers which will keep raw material costs down
Lease/HP equipment instead of buying which will spread the repayments
Extend credit period with suppliers which means firm has longer to pay back debts
Chase in outstanding bills with customers
Offer discounts to customers to increase sales and so revenue for each moth is good and firm avoids having left over stock

Question 10

What are the reasons for a cash budget

Answer 10

Allows firm to spot when they have surplus cash and are able to purchase items
Controlling the business better
Useful document to take to bank to appeal for loan
Allows firms to set targets for the managers and departments

Question 11

What is the equation for profit

Answer 11

Profit = revenue - costs

• revenue - money made from sales
• cost of raw materials

Question 12

What is another word for sales

Answer 12

Revenue

Question 13

What are the different types of costs

Answer 13

Fixed costs - these costs DONT vary with output. Firm would have to pay rental costs even if NO output is being made . Level of output for that day or month will not influence rental fee of factory
Variable costs - costs DO vary with output. An example is raw materials, cotton, buttons. If firm made lots of shirts that month then costs of cotton will rise. If output rises then variable costs rise

Question 14

How would you calculate total costs

Answer 14

Total costs = fixed cost + variable costs

Question 15

What are the sources of finance seen as?

Answer 15

Short-term
Medium-term
Long-term

Question 16

What is break even

Answer 16

When total cost and total revenue are EQUAL

Question 17

What are debtors

Answer 17

Someone who owes the business money

Question 18

What are creditors

Answer 18

Business owes someone money

Question 19

What are the benefits of using a break even chart

Answer 19

It can determine a minimum target for sales
Once sales target has been set, the firm can a target level of output
These targets can be communicated to rest of firm such as sales staff
Break even chart acts like a planning document for firm
Managers can pass judgement as to whether members of staff are performing well

Question 20

What are profit statements

Answer 20

Accounting documents that help them organise their figures

Question 21

What is a trading account

Answer 21

This is where all the sales and costs linked directly wit the making and buying of the product are logged to produce a general profit figure called GROSS PROFIT

Question 22

What is a Profit and Loss account

Answer 22

This is where the overheads of the business are logged. These are subtracted from the profit in the trading account and the final profit is arrived at ie the NET PROFIT.

Question 23

What is the calculation for gross profit

Answer 23

Gross profit = sales - cost of goods sold

Question 24

What is the formula for net profit

Answer 24

Net profit = gross profit - expenses

Question 25

What is expenses

Answer 25

These are costs such as lighting, rent of factory, advertising costs , delivery costs and repayments of loans. These are known as OVERHEADS. also known an EXPENSES

Question 26

What is technology in finance

Answer 26

Spreadsheets, databases, sage, PayPal

Question 27

What are the types of training?

Answer 27

Induction training

On going job training - on the job/off the job

Staff development/Continuous Professional Development (CPD)

Question 28

What is induction training

Answer 28

When a new member of staff is recruited. It is used to cover the background of the organisation, inform them of the various departments, meet their new colleagues, go over health and safety arrangements and give the, an introduction to the tasks of their job. The idea is to make the recruit feel comfortable and welcome to the organisation.

Question 29

What is on going job training

Answer 29

Used to update the skills of staff eg if a new type of software package is released then staff are shown how to apply it to their work or to train them hoe to use a completely new piece of machinery/technology. This can take place two ways: on the job - employee is trained at their usual place of work, off the job - the employee is taken off site to take part in the training eg training centre or college. On the job training is normally quicker and cheaper than off the job, but by being taken to a different location it means that staff have no distractions of their work place and can fully concentrate on the training.

Question 30

What is Staff Development/Continuous Professional Development (CPD)

Answer 30

Used for staff to achieve personal targets and goals over a period of time.