raising finance

Question 1

what is finance needed for?

Answer 1

-business set up
-day to day trading
-growth and development

Question 2

what factors affect the type and amount of finance required?

Answer 2

-what the finance is required for
-the cost of the finance
-flexibility of finance
-the businesses organisational structure

Question 3

what are the sources of finance for a new start up

Answer 3

Internal sources:
-founder finance
-retained profits
-friends and family

Question 4

two examples of founder finance

Answer 4

-cash and investments
-inheritances

Question 5

why are personal sources of finance important

Answer 5

-cheap - no repayments or interests
-entrepreneur keeps more control over business

Question 6

examples of short term finance (4)

Answer 6

-bank overdraft
-trade creditors
-short term bank loans
-factoring

Question 7

4 examples of medium term finance sources

Answer 7

-bank loans
-leasing
-hire purchase
-government grants

Question 8

5 examples of long term finance sources

Answer 8

-share capital
-retained profits
-venture capital
-mortgages
-long term bank loans

Question 9

what is the most important source of finance for a profitable business?

Answer 9

retained profits

Question 10

what is profit?

Answer 10

revenue - cost

Question 11

what are the positives of retained profits?

Answer 11

-cheap (not free)
-very flexible as management control how they invested and shareholders, control the proportion retained
-Do not dilute the ownership of the company

Question 12

What are the negatives of retained profits?

Answer 12

-danger of hoarding cash-upsets SHs
-SHs may prefer dividends if the business is not achieving sufficiently high returns on investments
-High profits and cash flows would suggest the business could afford debt

Question 13

what are asset disposals?

Answer 13

-A one off, boost to finance
-Sell their assets
-E.g. spare land
-Not all businesses have spare assets
-Often occurs after acquisitions(two businesses come together)

Question 14

what are four sources of external finance?

Answer 14

-Share capital
-Bank loan
-Venture capital
-Trade credit

Question 15

what is share capital

Answer 15

Public company sell shares or ownership in the business to the public
-receive large cash inflow

Question 16

what is a negative of share capital

Answer 16

Dilutes ownership, so the company loses control of its assets
-Risk

Question 17

advantages of share capital

Answer 17

lots of money
other ideas
cheaper

Question 18

what is a lease

Answer 18

A contract agreed between a leasing company and the customer
-lessee pays rental income to hire the assets from the lessor who is the legal owner of the assets

Question 19

what are the advantages of a lease

Answer 19

-flexibility-aids cash flow management and there’s no large outfit of cash at the start
-Protection
— against technological obsolescence
— enables access to best tech
— remains competitive

Question 20

What are the disadvantages of leasing?

Answer 20

-expensive
— can cost more than purchasing the product
— never own the asset

Question 21

What are the advantages of a bank overdraft?

Answer 21

flexible source of finance
-Use when needed and it doesn’t cost unless used
-Helps handle seasonal fluctuations in cash flow
-Or if there’s short term cash flow

Question 22

what are the disadvantages of a bank overdraft?

Answer 22

-Short-term
-Charge high interest

Question 23

What is a bank overdraft?

Answer 23

overdraft lets you borrow money through your current account by taking out more money than you have in the account

Question 24

why do we need a business plan?

Answer 24

1. Helps finance providers assess the business model.
   -Provides a structured assessment of the opportunities and risks
   -Analysis of competitive position and market attractiveness
   -Benchmark which can be measured
   -Helps determine amount/type of finance required

Question 25

seven Examples of cash inflows.

Answer 25

-Cash sales -Receipts from traders debtors -sales of fixed assets -interest on bank balances -Grants -Loans -Share capital invested

Question 26

Seven Examples of cash outflows.

Answer 26

-payment to suppliers - Wages and salaries -Payments for fixed assets -Tax on profits -Interest on loans/overdraft -Dividends paid to shareholders -Repayment of loans

Question 27

what is trade credit?

Answer 27

A source of finance that allows a business to buy now and pay later, usually when purchasing inventory -It allows businesses to pay back supplies up to 90 days within credit terms after receiving the products from suppliers

Question 28

Advantages of trade credit

Answer 28

-allows great management of cash flow -build loyalty to supplier -Provides time to make sale -Use revenue to pay for goods -No interest

Question 29

What are the disadvantages of trade credit?

Answer 29

-might not sell inventory, so have to fund with other cash -Doesn’t work for some types of businesses -Maybe limited

Question 30

what is venture capital

Answer 30

When specialist investors invest in private companies -They manage investment funds designed to achieve high rates of return -The venture will seek a large share of the share capital and look to sell their investment in the medium term

Question 31

What are the advantages of venture capital?

Answer 31

-venture capitalists require high rates of return -Not a long-term investment 5-7yrs -Loss of control as venture capitalist may take a majority share in the company

Question 32

What can businesses do to ensure they meet demand efficiently?

Answer 32

-get enough in inventory from suppliers -Right amount of staff -Align marketing and advertising with some demand

Question 33

What can businesses do to adjust to changes in sales?

Answer 33

-Cut down unnecessary expenses -Change hours of employees -Up selling or cross selling -Find new ways to attract customers

Question 34

why forecast sales

Answer 34

-vital for planning : -HR-plan how many people needed -Production/capacity plans - Cash flow forecast -Profit forecast and budget -Very useful part of regular competitor analysis and help to focus mark research

Question 35

how do you consumer trends affect sales forecast?

Answer 35

-demanding many markets change as consumer taste and fashion change -Affects both overall market demand and market shares of existing competitors

Question 36

what causes products to fall out of fashion?

Answer 36

-another better, cooler and slicker product comes out -When products become mass market, and too many people use it

Question 37

How do economic variables affect sales forecasting?

Answer 37

-demand often sensitive to changes and variable, such as exchange rate, interest, and taxation -Overall strength of the economy(GDP growth) also important

Question 38

how do competitors, actions affect sales forecasting?

Answer 38

-Hard to predict: -Change in product -change in place they provide to -New advertising campaign -Improved production service -Decreased price

Question 39

why are sales forecasts likely to be inaccurate for a start up ?

Answer 39

-hard to forecast sales as no consumer information -No loyal customers -inexperienced

Question 40

what factors make sales forecasts inaccurate

Answer 40

-Demand is highly sensitive to change in price and income elasticity -Product in fashion item- trends change -Significant changes in market share -Management have demonstrated poor sales forecasting in the past