Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Business Studies > Raising Finance- Internal Finance > Flashcards

Raising Finance- Internal Finance Flashcards

1
Q

What is external finance?

A

The investment for the business that is obtained from banks, investors and lenders outside of the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the difference between a source of finance and a method of finance?

A

Source of finance-Where the finance has come from

Method of finance- This is the use of a finance- or what use it would be suitable for

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are some examples of sources of finance?

A
  • Family and friend
  • Banks
  • Crowd funding
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the advantages of using friends and family as a source of finance?

A
  • loans from friends and family will probably be over long time with low rates of interest
  • they are unlikely to need a business plan so you wouldn’t need to write one
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the disadvantages of Family and Friends as a financial income?

A
  • may cause tension and problems if the finance is not repaid or the business does not flourish
  • may demand their money back at short notice
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the advantages of banks as a source of finance?

A
  • Banks will lend to a business without asking for a % if the ownership
  • Banks will allow the business owner to continue running the business their own way and not interfere
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are the disadvantages of banks as a source of finance?

A
  • Bank loans can be expensive compared to other sources of finance and interest must be paid back on time
  • It may be hard for a new business owner to obtain a loan as they have no historical sales data to show the bank
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the advantages peer to peer funding as the source of finance?

A
  • Businesses can get access to funding within a week once approved
  • Business owners can apply online
  • Investors can expect returns of 6-7% whereas a savings account might only give them 3%
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the disadvantages of peer to peer funding as a source of finance?

A
  • peer to peer loans are classified as private business loans so the money for the loan comes from several investors or small businesses
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are Business angels?

A

Someone who offers to lend their personal disposable finance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the advantages of business angels as a source of finance?

A
  • Angels are free to make investment decisions quickly
  • The owner gets access to your investor’s sector knowledge and contacts
  • The owner gets access to angels mentoring or management skills
  • The owner will have no repayments or interest on the money lent
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the disadvantages of business angels as a source of finance?

A
  • Not suitable for investments below £10,000 or more than £500,000
  • Owner needs to give up a share of the business
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is crowd funding?

A

where a large number of people fund a project over the internet making small investments each, 3 ways to fund:

• Donate: no money back, but rewards like tickets or a newsletter
• Lend: get money back with interest and satisfaction of contributing to success of a small business
• Invest: Invest in a business in exchange for equity or shares which may increase in value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the advantages of crowd funding as a source of finance?

A

• Good alternative to loans for small business owners
• Finance can be obtained without paying upfront fees
• The business can generate funds and also promote the business at the same time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are the disadvantages of crowd funding as a source of finance?

A

The business will need to show case their idea to investors and may need to put together a video and other promotional material to attract investors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the 7 methods of finance?

A
  1. loans
  2. share capital
  3. venture capital
  4. overdrafts
  5. leasing
  6. trade credit
  7. grants
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are the advantages of loans?

A

• Banks will not ask for a % of the business or get involved in the running of the business
• Getting into a high street bank to apply for a business loan is a straightforward process

18
Q

What are the disadvantages of loans?

A

• A bank will charge interest on the loan
• Not very flexible, the business may incur a penalty if they decide to settle the loan early
• A bank will ask for security or collateral on a loan this may be a house or another asset that can be seized if the loan is not paid back

19
Q

What are the advantages of share capital?

A

Investors are often prepared to provide extra funding as the business grows
• More cost effective way to raise finance than a loan – no interest to pay back
• Finance is based on acquiring more equity rather getting further into debt

20
Q

What are the disadvantages of share capital?

A

• Potential investors may require a great deal of background information before they buy the shares
• The more shares that are sold, the more the profits have to be divided up and paid out to investors as dividends
• Can be expensive and slow process to organise

21
Q

What’s are the advantages of Venture Capital?

A

• Useful if the business is looking to raise a large amount of money in a short space of time e.g. £1 million
• The business gets all the skills of the venture capital business, their network and links may increase revenue streams
• Great for owners who have been refused a loan from a bank

22
Q

What’s are the disadvantages of Venture Capital?

A

• Venture capital firms look for a strong business plan, sound management and a proven track record, making it difficult for start-up firms
• Venture capital firms typically want 20-30% stake in the business

23
Q

What’s are the advantages of Overdraft?

A

• For a business owner this would idea as a quick fix method to tide the business over a difficult month of trading
• An overdraft can be arranged on the phone
• or online with an instant decision from the bank
• The business will only pay interest on the amount of money that they are overdrawn
• As soon as the business improves trading they can easily pay back the overdraft to the bank and the interest charges will stop

24
Q

What are the disadvantages of overdrafts?

A

• If the business goes over this amount the overdraft will be “unauthorised” and the business will be charged heavily
• Very expensive source of finance, very high charges and interest rates
• Not suitable for large amounts over a long period of time

25
Q

What are the advantages of leasing?

A

• This is a lower monthly costs for a business owner than a loan
• Often business leases can be arranged without any advanced fees being paid
• The leasing firm maintain the equipment, vans, cars etc. so the business will always have reliable working equipment

26
Q

What are the disadvantages of leasing?

A

• Leasing is often over a fixed term, if the business changes its mind and wants to lease from a different company, contracts may be difficult to get out of

27
Q

What is finance?

A

The management of the investment needed to open, run and grow a business

28
Q

What are the five reasons for raising finance?

A
  • To pay debts
  • Overdraft
  • To expand
  • To start up a business
  • To buy stock
29
Q

What is owners capital?

A

Shows the stake the owner has in the business

30
Q

When is owners capital appropriate?

A

Sole traders and partnerships would be the two business forms which would mostly use owners capital to expand and to grow

31
Q

What are the advantages and disadvantages of retained profits?

A

Advantage is there’s no interest to pay

Disadvantage is once it’s used it has gone and cannot be used elsewhere in the business

32
Q

When is retained profit appropriate?

A
  • a business in its first year won’t have any retained profits
  • if a business has not been profitable then there won’t be any retained profits
33
Q

What is the downside of selling assets?

A

The asset won’t be on the balance sheet of the company meaning the business will look less attractive to investors

34
Q

What are the advantages of selling assets?

A
  • larger businesses who have lots of products can improve efficiency and increase capacity utilisation
  • Assets from one brand can be sold off to raise finance to invest in another
35
Q

What are the disadvantages of selling assets?

A
  • may not raise enough money for growth or expansion
  • may draw questions into how well the business is being run if it’s selling its assets
  • a new start I would be in a lot of trouble if they needed to sell their assets
36
Q

What are the advantages of trade credit?

A

• Business can sell the goods before the stock needs to be paid for, so can make a profit before the costs have to be paid
• No interest has to be paid on trade credit
• Businesses that pay regularly on time can build relationships with their suppliers and secure better deals

37
Q

What is limited liability?

A

A business owner is only liable for their original investment should the business fall into debt, their personal possessions are not at risk

38
Q

What is unlimited liability?

A

That if a business has debts the owner must pay even if this means selling their possessions to find the money

39
Q

What is a business plan?

A

A document whitch sets out the future plans for a business

40
Q

What is the purpose of a business plan?

A
  • To help set up a new business
  • To help the business raise finance
  • To help the business to set objectives
  • To outline how functions of the business will be organised
41
Q

What are the limitations of cash flow forecasts?

A
  • only a 12 month snapshot which is short term to make any concrete decisions about the business
  • only a forecast (actual sales or expenses could be higher)
  • owner may overstate expenditure or understate income

Business Studies (16 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions