raising finance

Question 1

Internal finance

Answer 1

Internal sources of finance refers to the funds used within a business to fund expansion or growth

Question 2

Owner’s capital

Answer 2

-When an entrepreneur invests their own money in a business e.g. from personal savings

Question 3

Retained profit

Answer 3

• Profit kept within the business from profit after tax to help finance future activity

Question 4

Sale of assets

Answer 4

• A method of raising short term finance by disposing of business assets in return for cash

Question 5

There are 3 main types of internal sources of finance

Answer 5

personal savings
retained profit
sale of assets

Question 6

Personal Savings-

Answer 6

Also known as owner’s capital is the amount that the business owner invests in the business. Generally used by sole traders partnerships and start ups

Question 7

Retained Profit-

Answer 7

The profit a business keeps after everything has been paid. This is available to most business types except new startups

Question 8

Sale of Assets-

Answer 8

Selling some of their fixed assets eg machinery to generate capital

Question 9

advantagesof personal savings=

Answer 9

Cash is quick to access

The owner may be more motivated for success

Question 10

Disadvantagesof personal savings=

Answer 10

Loss for the business is loss for the owner

Question 11

Advantagesof retained profit

Answer 11

No interest to pay

Question 12

Disadvantagesof retained profit=

Answer 12

Limited amount
Shareholders may demand dividends so reducing the amount retained

Question 13

advantages of sale of assets

Answer 13

Cheap source as there is no interest to pay

Question 14

disadvantage of sale of assets

Answer 14

lose the asset which you may need
may struggle to find a buyer

Question 15

External finance

Answer 15

• The ability to raise funds from sources outside of the business

Question 16

Peer-to-peer funding

Answer 16

• The practise of an individual lending to other individuals (peers) with whom there is no relationship or contact

Question 17

Business angels -

Answer 17

Wealthy individuals make personal investments into start-up businesses in return for a share of the business i.e. percentage equity

Question 18

Crowd funding -

Answer 18

This is when a business venture is funded by raising small amounts of money from lots of people

Question 19

.Loan -

Answer 19

When a lender provides capital (money) to a borrower and the borrower agrees to repay the borrowed money

Question 20

Share capital -

Answer 20

Money raised from the sale of shares which is used to fund the future activities of a business

Question 21

Venture capital -

Answer 21

Investment from an established business person or business into a new business in return for a percentage equity in the new business

Question 22

Overdrafts

Answer 22

An overdraft is the facility to overspend on a current account up to an agreed sum

Question 23

Leasing-

Answer 23

A contract that allows the renting of assets from another party

Question 24

1Trade credit

Answer 24

An arrangement by a business to provide goods and services on account. the buyer does not have to make immediate cash payment

Question 25

Grants

Answer 25

Grants are fixed amounts of capital provided to business by the government or other organisations to fund specific projects

Question 26

how to calculate cashflow

Answer 26

cash inflow-cash outflow

Question 27

what is business planning

Answer 27

business planning is making a structured plan that outlines a business's goals and how it will achieve them

Question 28

disadvantages of business planning:

Answer 28

1. Time-Consuming: Creating a detailed business plan can take a lot of time and effort, which might delay starting the business. 2. Inflexibility: A rigid plan may not adapt well to changes in the market or unforeseen circumstances, making it hard to pivot when needed. 3. Costly: Sometimes, hiring experts to help with the planning process can be expensive. 4. Overconfidence: A well-crafted plan might lead to overestimating potential success, which can result in poor decision-making. 5. False Sense of Security: Relying too much on a plan can make a business less responsive to real-time challenges and opportunities.

Question 29

advantages of business planning:

Answer 29

Here are some advantages of business planning: 1. Clear Direction: It provides a path for the business, helping to set clear goals and objectives. 2. Better Decision-Making: A solid plan helps in making informed decisions based on research and analysis. 3. Resource Management: It aids in identifying the resources needed and how to allocate them effectively. 4. Attracting Investors: A well-prepared business plan can attract funding by demonstrating the potential for success. 5. Risk Reduction: Planning helps identify potential risks and develop strategies to mitigate them.