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
What is the formula for variance analysis?
Budget - actual spending
How are budgets advantageous?
Encourages planning and ensures no overspending
How are budgets disadvantageous?
May cause inflexibility and market is dynamic
What is cashflow?
The movement of money in a business
What is the formula for net cashflow?
Inflow - outflow
What is the difference between cashflow forecast and cashflow statement?
Forecast is the prediction and statement is the logging of actual flow.
What is liquidity?
Ability to convert an asset into cash without delay or loss
What is an income statement?
Profit and loss account of a business over a certain period. Shows net profit.
What is the formula for net profit?
Gross profit - indirect costs
What is the formula for net profit margin?
(Net profit / sales) x100
What is the formula for gross profit margin?
(Gross profit / sales) x 100
What does ROCE stand for?
Return on capital employed
What is the formula for ROCE?
(Gross profit / capital employed) x 100
