Finance Flashcards
In terms of the market, what 3 things may a start up business consider when choosing their location?
1) Near competition or complementary stores
2) Where demand is high
3) Near to football or not
In terms of infrastructure, what 3 things may a start up business consider when choosing their location?
1) Telecommunication
2) Teleworking
3) Allows for parking spaces if by busy roads
For what 3 reasons do new businesses need finance?
1) No existing cash-flow
2) Need to advertise products
3) To cover initial fixed costs
What are two advantages of selling on credit?
Customers come back and prices are more appealing.
What are two risks of selling on credit?
Customers may pay late and business may have insufficient finance to survive
What are the 5 types of share capital?
1) Trade credit (sell in chunks)
2) Debt factoring (buy debt off bank and increase pressure/interest)
3) Leasing and hire back (hire can be kept at end of term)
4) Sale and lease back (sell assets and hire them instead)
5) Government assistance
Who are venture capitals?
Those who provide share capital
Give 3 advantages of venture capitals?
1) Business can gain their contacts / customers
2) More capital
3) Provide skill and experience
Give 3 disadvantages of venture capitals?
1) Can lose control
2) Shares can be sold on to whoever
3) Takeover
What are two advantages of a loan?
Can spread the payments and is instant finance
What are two disadvantages of a loan?
Relies on your reputation and is payed back with interest
What is the difference between fixed and variable costs?
Fixed are always a set amount and do not change depending on the outcome of the business.
What is the difference between direct and indirect costs?
Direct arise from sales whilst indirect is general expenses.
How do you calculate the BEP?
Via graph or formula
What is the formula for BEP?
FC / C
What is break even analysis?
BEA is a tool used to forecast the amount of sales needed to cover total costs AKA BEP
What are 3 benefits of break even analysis?
1) Don’t over or underbuy supplies
2) Identify possible shortfalls in finance
3) Whether or not the idea is actually worth investing
What are 3 drawbacks of break even analysis?
1) Just a forecast
2) Competition may change
3) Market is dynamic
What is the formula for contribution?
C = SP - VC
What is the difference between contribution per unit and total contribution?
Contribution per unit = Money made from 1 item
Total contribution = Contribution per unit x quantity
What is the margin safety?
Allowed amount of sale deficit before the profit turns into a loss.
What is the formula for margin of safety?
Output - BEP
What are 4 methods of setting a budget?
Look at:
1) Objectives
2) Competitor spending
3) Sales
4) Zero budgeting
What is variance analysis?
A tool used to see if budget is performing correctly
