miss duddigan-raising finance

Question 1

internal sources of finance

Answer 1

Retained profit
owners capital
selling assets
e

Question 2

owners capital

Answer 2

-money the owner invest in a business often personal savings
-sole traders and partnerships use when starting up
-doesn’t need paying back
-usually smaller businesses as no need for large sum of money

Question 3

Advantages and disadvantages of owners capital

Answer 3

adv-easy access, doesn’t need paying back

dis-limited amount can be raised depending on personal wealth of owner

Question 4

selling assets

Answer 4

selling assets not needed e.g machinery
not good for new businesses as dont have many spare assets
only appropriate to those with spare assets

Question 5

Advantages and disadvantages of selling assets

Answer 5

adv-no interest needs to be paid means cheap source of finance
dis-no longer own asset
may be time consuming to get cash

Question 6

retained profit

Answer 6

profit is retained and built up for later investment
recent starters wont have enough profit to retain

adv-no interest

dis-shareholders may object as want dividends
may cause business to miss out on investment opportunities

Question 7

external sources of finance

Answer 7

come from outside the business
Banks
Business angels
Crowd funding
Peer to peer lending
Family and friends
Other businesses

Question 8

banks

Answer 8

offer methods of finance e.g. loans, overdrafts
ADV-help with advise
clear terms and conditions
DIS-strict lending criteria

Question 9

business angels

Answer 9

wealthy individuals who invest into an innovative or new business inn hope to give it chance to be successful
in return, they have share of business
ADV-business knowledge and useful contacts
DIS-due to having share, may make decisions and take over a little bit
time consuming to get a business angel willing to invest

Question 10

crowd funding

Answer 10

raising money from internet
often used by start ups
business puts up new idea onto website and people can contribute by donating if they like idea
rewards often offered for those who donate e.g. early access to product, discounted prices
ADV-increases awareness, increases sales
DIS-risk of idea being copied, if idea fails, loads seen it as public increasing risk of bad reputation

Question 11

peer to peer lending

Answer 11

used by the internet
allow businesses to lend to other businesses
lender say how much they willing to lend and how much interest they want
borrower says why they want the loan and how long for
company assesses how risky and matches them with appropriate lender
good option if loan from bank doesn’t work

Question 12

family and friends

Answer 12

getting money from a family or friend
adv-may be gift so have no part in it
little or no interest
dis-may be small amount
if wanting to pay them back, may cause strain on relationship

Question 14

short term methods of finance

Answer 14

Grants
Leasing
Overdrafts
Trade credit

Question 15

grants

Answer 15

fixed sum of money given from government
have to go through application process, if successful get grant given
given to fund specific projects
needs to provide lots of info about project

ADV-no interest, no share given up, does not need to be payed back

DIS-application process long and time consuming
often does not get money till after project

Question 16

leasing

Answer 16

paying to use other business asset
pay in monthly sums rather then all at once
lease returned

ADV-dont have to pay large up front sum

DIS-may become more expensive in the end then just buying the asset in first place

Question 17

overdrafts

Answer 17

bank allows business to have negative amount in bank account

ADV-flexible
only have to pay interest on the amount of overdraft you actually use

DIS-can charge high lates of interest
not suitable in long term

Question 18

trade credit

Answer 18

gives business more time to pay money it owes
business buys good/service from business but doesn’t have to pay back straight away
has to pay back within time limit
ADV-helps a businesses cash flow
DIS-may be charged fees if not payed all back within time limit agreed

Question 19

long term methods of finance

Answer 19

loans
share capital
venture capital

Question 20

loans

Answer 20

fixed amount of money is borrowed and then paid back with interest within a time period
ADV-good long term source of finance
DIS-difficult to arrange
loan provider will only lend if feel they will get it back
has to be repaid

Question 21

share capital

Answer 21

selling shares to raise money
ADV-does not have to be repaid
DIS-original owner no longer owns all business
shareholders may want their dividends
costly and time consuming

Question 22

venture capital

Answer 22

helps businesses with high growth potential
business angels may invest or professional employees(venture capitalist)
ADV-expert advise
DIS-get a share of business so may get too involved

Question 23

unlimited liability

Answer 23

used in partnerships and sole traders
any business debts become perosnal debts
e.g can sell perosnal assests like their house to pay off business debts

Question 24

limited liability

Answer 24

private and public limited companies
owners not responsible for debts of business
most they can lose is the amount they invested into business

Question 25

advantages of limited companies

Answer 25

much easie to encourgae people to join as only have chnace of losing out on what they invest in only
sole traders and partners more likely to use internal and external methods of finance
-can raise a lot of money via share capital
limited amount of people willing to invest in a unlimited company

Question 26

business plans

Answer 26

document that outlines what a business plans to achieve and how
useful for new business
useful for estabilished business to check on track

Question 27

what does a business plan contain

Answer 27

business overview (who is setting up business and why, location etc)
aims and objectives
financial forecasts
sale strategies

Question 28

who are business plans helpful for

Answer 28

bsuinesses wanting to get external finance
good plan shows owner knows what they are doing
helps interest investors showing that everything is well thought out
shows low risks of business failing
shows how profitable business wants to be and when
helps a business get cheap finance if person can see will get payed back on time

Question 29

cash flow forecasts

Answer 29

show cash inflows and cash outflows

Question 30

what are cash inflows

Answer 30

sum of money received by business e.g loans, products

Question 31

working capital

Answer 31

amount business has available for day to day spending

Question 31

cash outflows

Answer 31

sum of money paid out by business e.g pay wages, raw materials

Question 32

what is being on credit

Answer 32

where customer buys product then pays it back in time period

Question 33

what are people called who owe the business money

Answer 33

debtors

Question 34

what is trade credit

Answer 34

when business does not need to pay back straight away

Question 35

what do cash flow forecasts do

Answer 35

make sure business does not run out of cash
helps business make decisions
show how much money is expected to go into a business and how much is expected to leave a business
managers use to assure they have enough money to pay employyes and suppilers

Question 36

why is a cash flow forecast useful

Answer 36

shows business owners have done their research
have an idea of where business is going to be in future
can be used to check firm isn’t holding too much cash