Finance Flashcards
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List three examples of direct cost and what it is.
It’s expenses that can be attributed to making a particular product.
Factory labour
Raw materials
Operating machinery.
List three examples of indirect costs and what it is.
The General overheads of running the business.
Management salaries
Telephones bills
Office rent
Give two reasons why a new business needs a source of start up finance.
Needed to buy the assests needed to run the business. Also need to finance their poor initial cash flow.
Name 2 short-term sources of finance,and explain how they work
Trade credit- rather than expecting the customers to pay cash on delivery, most businesses will issue them with an invoice, this usually gives the customer one or two months to pay.
Overdraft-let the firm take more money out of the bank than it has in it’s account.
Name 2 long-term sources of finance,and explain how they work.
Loans- money you are given by a bank ,friends , family ,mortgage, and have to pay back later
Venture capital- is money invested by individuals or businesses who specialise in giving finance to new or expanding small firms , in return get a stake in the ownership.
Explain 2 ways that the government helps new businesses.
New firms can apply to have bank loans underwriten by the government.
Government provides Department for Business, Enterprise and regulatory Reform. (BERR)
Explain what these terms mean:
1) Cash flow
2) Cash outflow
3) Net cash flow
1) is the flow of all money into and out of the business.
2) when the firm buys materials or pays wages, Money flows out.
3) is the difference between cash inflow and Cash outflow over a period of time.
What do credit terms tell you?
They tell how long after agreeing to buy a product the customer has to pay.
Give three ways that a business could try to improve it’s cash flow
Reschedule their receipts of income
Reschedule the payments
Sell unsold products
Give three main reasons for poor cash flow
Poor sales
Overtrading
Poor business decisions
