Financial resources

Question 1

Define hire purchase, advantages and disadvantages

Answer 1

Hire purchase is when an asset is paid in installments over a set period of time

Adv - ability to purchase costly assets, fixed interest rates making it easier to budget

Dis - high risk if installments failed to be paid and short-term

Question 2

Define share capital, advantages and disadvantages

Answer 2

Money raised by shareholders to fund business

Adv - less responsibility as there is no need to repay, cheaper than other methods of borrowing

Dis - loss of ownership, amount may be limited

Question 3

Define invoice discount/factoring, advantages and disadvantages

Answer 3

Money released from unpaid voices

Adv - improved business cash-flow, plan growth and development plans ahead

Dis - loss of control, minimum/annual charge

Question 4

Define trade credit, advantages and disadvantages

Answer 4

an extended loan bought by the business on credit

Adv - flexibility to use in different markets, improved cash flow

Dis - short-term, risk of bad debt if unpaid

Question 5

Define mortgages, advantages and disadvantages

Answer 5

Used by businesses to purchase premises and pay over long-time period

Adv - ability to purchase costly assets, less pressure due to yearly payments

Dis - interests rates may fluctuate, repossession of property if fail to make payments

Question 6

Define loans, advantages and disadvantages

Answer 6

when a financial institution lends a business money

Adv - certainty of funding, easy to take out and fixed amount paid per month

Dis - lack of flexibility, high risk if unpaid

Question 7

Define overdrafts, advantages and disadvantages

Answer 7

Allows businesses to borrow money they do not have

Adv - management of cash flow, easy to arrange

Dis - used for the short-term and rates are higher than loans

Question 8

Define donations, advantages and disadvantages

Answer 8

Money given by customers to a not for profit organisation

Adv - influences good customer relationships to be built, no need to repay

Dis - can only be used in the short-term to raise limited amount and requirements to donate

Question 9

Define leasing, advantages and disadvantages

Answer 9

When a business can use an asset but they do not own it

Adv - less responsibility, cheaper payments

Dis - business must repay for any damage done, only beneficial in the short term

Question 10

List start-up costs of a business

Answer 10

1. Rental deposit - 3 months upfront payment in case of problems with tenancy
   2.Stock - opening
   3.Purchasing capital, assets, furniture
   4.Licenses

Question 11

List running costs of a business

Answer 11

1.Rent
2.Mortgage
3.Staffing
4.Bills
5.Utilities
6.Stock
7.Maintenance of assets