LO7- Understand Why Businesses Plan Flashcards
Name reasons why businesses fail?
Flawed business plan Poor financial structure Lack of knowledge on the market and competitors Lack of clear unique selling point Relying on one major customer
Reasons why business plan?
To survive and to avoid business failure
To develop business ideas
To avoid unnecessary risks
To meet business objectives
What is internal source of financial?
Funds found inside the business like retained profit
What is external source of finance?
Fund from outside the business like bank loans
What are all the sources of finance? (11)
Savings Reserves Overdraft Loan Mortgage Credit card Hire purchase Rare credit Venture capitalist Share issue Crowd funding
What is saving? (Source of finance)
An owner may provide their own money when the business is being set up. It is a long term source.
A-contribution by the owner so not repayments needed and no interest
D-there is a limit to the amount of money an owner can afford to invest
What is reserves? (Source of finance)
Reserves are gained when profit is coming in the business. Can be medium and long term source of finance.
A-they do not have to be repaid and have no interest
D-new business will not have reserves
What is overdraft? (Source of finance)
This is when you withdraw money even if it doesn’t have enough money in the account. Short term finance.
A-good day to day running cost solution, short term wise, it’s cheaper than a bank
D-it can be expensive if used over a long period of time
What is a loan? (Source of finance)
A loan is amount of money borrowed at and agreed rate of interest for a set period of time.
A-payments are spread over a long period of time
D-expensive due to interest rate
What is a mortgage? (Source of finance)
A mortgage is a long term solution that is a loan to secure on a property. It is repaid in instalments over a period of time, typically 25 years.
A-business will have the use of property
D-expensive method, If the payments aren’t kept up with then the property is repossessed
What is a credit card? (Source of finance)
A plastic card by banks to purchase goods or services
A-convenient, money can be claimed back, allows free borrowing
D-interest rate is high if not repaid, can get into debt
What is hire purchase? (Source of finance)
This allows businesses to obtain assets without the need to large sum of money up front.
A-spread over a period of time and business will own asset
D-more expensive than playing cash in full
What is a trade credit? (Source of finance)
This when when you can buy now and pay later. Periods can vary between 30-90 days and is a short term source of finance.
A-no interest is charged if the money is on time
D-no discounted offers if the money is not on time
What is venture capital? (Source of finance)
A person who invests in a project. They find or expand the business.
A- good business advice, they have good business connections.
D-they control business ideas a lot more and you can lose management
What is share issue? (Source of finance)
When you issue further shares to family, friends or the public but it is only for limited co panties as a long term source.
A-no interest and do not have to repay
D-ownership could change
