LO7 - Understand why businesses plan Flashcards
Why businesses plan:
- Survival
- Develop ideas
- Avoid risk
- Meet objectives
Internal/External, Short/Long-term, Definition, Positives and Negatives
Savings
- Internal, Long-term, Money set aside
+No interest, full control over funds
-Limited, Might strain personal lifestyle
Internal/External, Short/Long-term, Definition, Positives and Negatives
Reserves
- Internal, Long-term, Money set aside
+No interest, good back up funds
-Long time to build, reduces available capital
Internal/External, Short/Long-term, Definition, Positives and Negatives
Overdraft
- External, Short-term, Business can withdraw more money than is available in its account
+Flexible, easy accessibility
-High interest, overuse can harm credit rating
Internal/External, Short/Long-term, Definition, Positives and Negatives
Loan
- External, Short and Long-term, Borrowed money from bank
+Lots of capital, fixed reypayment schedule
-High interest, can require collateral
Internal/External, Short/Long-term, Definition, Positives and Negatives
Mortgage
- External, Long-term, Loan used to buy real estate
+Large capital, relatively low interest
-Very long-term, risk of losing property
Internal/External, Short/Long-term, Definition, Positives and Negatives
Credit card
- External, Short-term, borrowed money in the form of a card
+Large capital, reward scheme
-High interest, can ruin credit score if used irresponsibly
Internal/External, Short/Long-term, Definition, Positives and Negatives
Hire purchase
- External, Medium/Long-term, acquire assets through installments, with an option to buy later
+Spread cost over time, have assets without large payment
-Interest charges, can be costly
Internal/External, Short/Long-term, Definition, Positives and Negatives
Trade Credit
- External, Short-term, buy goods from supplie, pay later
+No immediate interest, improve liquidity
-Late payments result in bad relationships and interest
Internal/External, Short/Long-term, Definition, Positives and Negatives
Venture Capitalist
- External, Long-term, Capital provided by investors
+High capital, No immediate repayment
-Equity dilution, high pressure for growth
Internal/External, Short/Long-term, Definition, Positives and Negatives
Share issue
- External, Long-term, offering ‘parts’ of a company
+High capital, no debt
-Dilution of ownership, costs of being a plc
Internal/External, Short/Long-term, Definition, Positives and Negatives
Crowdfunding
- External, Medium/Long-term, raise captial by gaining small contributions from lots of people
+Capital with no interest, Validate ideas from public
-Time-consuming, Not guaranteed success
What may be included in a business plan
- USP
- How to protect product
- Prioritise business objectives
- Results of market research
- Identification of products, financial and resource requirement
Who wants to see a business plan
- Investors
- Bank
- Suppliers
- Employees
- Government
