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A level edexcel Business 2024 > real Theme 2 > Flashcards

real Theme 2 Flashcards

1
Q

What is Internal finance

A

Internal finance comes from the owner’s capital, retained profit, or the sale of assets

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2
Q

Sources of internal finance

A

Owner’s capital: personal savings
Retained profit
Sale of assets

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3
Q

Benefits for internal finance

A

+ Often free,does not involve payment of interest or charges
+ doesnt involve third parties
+ quick
+ access no matter credit check

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4
Q

Drawbacks for internal finance

A
  • Significant opportunity cost
  • May not be sufficient
  • Rarely tax-efficient
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5
Q

Sources of external finance

A

Family and friends
Banks
Peer-to-peer funding
business angels
Crowd funding
Other businesses

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6
Q

The Advantages & Disadvantages of Family and Friends as a Source of Finance

A

+ Cheap
+ No strings attached
- Damage relationships

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7
Q

The Advantages of Bank Loans

A

+ Offer short and long therm finance
+ Provide advice
+ Small sums borrowed from unsecured

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8
Q

Disadvantages of Bank Loans

A
  • Requires business plan
    -Banks are cautious
  • interest
  • businesses must be customers of the bank
  • for large amount; provide security to be granted loan
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9
Q

Peer-to-peer funding

A

Individuals with available savings pool it with others in a peer investment scheme such as Funding Circle

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10
Q

+ and - of Peer-to-peer funding

A

+ Quick
+ No strings attached
- Borrowers charged small fee, pay interest same way as a bank loan

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11
Q

+ and - of Business angels

A

+ WIlling to take risk
+ Advice
+ For determined period of time
- Finding right ones -> networking
- Own stake in business, make decisions

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12
Q

+ and - of Crowdfunding

A

+ organic customer base
+ no credit rating required
- provide persuasive business plan
- negative publicity if not successful

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13
Q

+ and - of using Other businesses

A

+ access to processes and market knowledge
+ large amount of finance
- profits shared
- decision making handed over

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14
Q

Methods of external finance

A

Loans
Leasing
Share capital
Trade credit
Venture Capital
Grants
Overdrafts

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15
Q

Method of Finance - Bank loans

A

Bank loans are usually unsecured
+ interest fixed
+ repayments made equally
- interest rates depend on business
- non-current liabilities increase

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16
Q

Method of Finance - Mortgages

A

Mortgages are long-term secured loans
+ Purchase expensive property without large amount of capital
- missed payments lead to repossession
- Repayments variable, linked to current interest rates

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17
Q

Debentures

A

Debentures are long-term agreements between a business and a lender
+ control retained
+ interest fixed
- high interest
- deter investors if fail

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18
Q

Overdrafts

A

An arrangement for business current account holders to spend more money than it has in their account
+ short term
- Called in

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19
Q

Share Capital

A

Share capital is finance raised from the sale of shares in a limited company
+ Large amount of shares
+ interest is not payable
- Shareholders have power

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20
Q

Venture Capital

A

Funds provided by specialist investors
+ Allows for another option if refused from other sources
- requires a stake in the business

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21
Q

Leasing

A

An asset such as a piece of machinery or a vehicle used by the business in return for regular payments|
+doesnt own so not responsible for maintenance
- leasing more expensive in long run

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22
Q

Trade Credit

A

An agreement is made with suppliers to buy stock which is paid for at a later date
+ usually interest free
- discounts for early payment not available

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23
Q

Grants

A

Governments and industry trusts may offer grants to businesses that meet specific criteria
+ Don’t need to be repaid
- May be used not for intended purpose

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24
Q

Appropriate internal Finance for Limited Businesses

A

Retained profit
Debentures
Share capital

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25
Q

Appropriate external Finance for Limited Businesses

A

Venture capitalists
Business angels

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26
Q

Unlimited liability business sources of finance

A

Personal savings
Retained profit
Unsecured loan
Overdraft
Mortgage
Trade credit
Leasing
Peer-to-peer
Crowd funding
Grants

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27
Q

Business Plan

A

document produced by the owner at start-up, which provides forecasts of items such as sales, costs and cash flow

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28
Q

Sales Forecasts

A

predict future revenues based on past sales figures

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29
Q

Factors Affecting Sales Forecasts

A

Seasonal
Fashion
Long term trends
Economic growth
Inflation
Unemployment
Interest rates
Exchange rates
Actions of competitors

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30
Q

Difficulties of Sales Forecasting

A

Skill
Time
Bias
Ignore stakeholders

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31
Q

Reasons for Using Budgets

A

Planning & monitoring
Control
Coordination and communication
Motivation and efficiency

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32
Q

Historical figure budgets

A

Budgets are usually based on historical data (e.g sales and costs data from previous years) and allow for factors such as Inflation and other relevant economic indicators

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33
Q

Zero based budgeting

A

requires all spending to be justified which means that many unnecessary costs can be eliminated
+ Cut costs
- Time consuming
-requires skill

34
Q

Variance Analysis

A

difference between a figure budgeted and the actual figure achieved by the end of the budgetary period

35
Q

Favourable variance

A

actual figure achieved is better than the budgeted figure

36
Q

adverse variance

A

actual figure achieved is worse than the budgeted figure

37
Q

difficulties of budgeting

A

Data must be up to date, accurate and free of bias
Skills required - > specialist staff

38
Q

How to improve profitabily

A

Increase prices
Reduce one-off costs & interest (zero budgeting)
Reduce variable costs (purchase in bulk)
Reduce expenses (replace inefficient fixed assets)

39
Q

Profit

A

the difference between revenue generated and business costs

40
Q

Cash

A

measured by taking into account the full range of money flowing in and out of a business

41
Q

Statement of Financial Position (Balance Sheet)

A

the financial structure of a business at a specific point in time, draw conclusions about the liquidity of the business

42
Q

Ways to Improve Liquidity

A

Reduce the credit period offered to customers
Ask suppliers for an extended repayment period
Make use of Overdraft facilities or short-term loans
Sell off excess stock
Sell assets and lease fixed assets instead
Introduce new capital and reduce drawings from the business

43
Q

Working capital

A

the money that a business has to fund its day to day activities

44
Q

Internal Causes of Business Failure

A

Poor planning
Lack of leadership
Ineffective marketing
Cash flow problems
Lack of funds

45
Q

External Causes of Business Failure

A

Economic failure
Changes in consumer tastes
Legal factors
Market challenges
Technological change

46
Q

Methods of production

A

Job production
Flow production
Batch production
Cell production

47
Q

Job production

A

Manufacturers produce one product at a time as ordered by the customer
+ High quality
+ motivated skilled workers
+ tailored
- slow
- labour costs high

48
Q

Flow Production

A

Continuous manufacturing of standardised products, usually on a production line
+ low unit costs, economies of scale
+ rapid
+ automated, capital intensive
- not tailored
- expensive

49
Q

Batch Production

A

Groups of the same product are produced as a batch
+ workers can specialise
+ takes place when previous batch runs out
- coordination
- products need to be stored

50
Q

Cell Production

A

workers being organised into multi-skilled teams, with each team responsible for a particular part of the production process
+ efficient
+ motivation, team
- logistics
- dependant on workers

51
Q

Factors that Influence Productivity

A

Employee motivation
Training staff
Business organisation
Investment in capital equipment

52
Q

The Link Between Productivity & Competitiveness

A

Businesses that are competitive are likely to have the financial resources required to continue investing in improvements to their productivity

53
Q

Factors that Influence Efficiency

A

Standardisation of the production process
Relocation or downsizing
Investment in capital equipment
Organisational restructuring
Outsourcing
Adoption of lean production techniques, Kaizen, just in time

54
Q

Capital Intensive

A

uses machinery and technology in the production of goods/services
+ low cost, out put high
+ consistent and precise
+ run without breaks
- maintence
- breakdowsns
- lack of flexibility

55
Q

Labour Intensive

A

uses physical labour in the production of goods/services
+ low cost
+ workers are creative
+ flexible
- unreliable, need breaks
- incentives
- training costs

56
Q

Ways of Improving Capacity Utilisation

A

Increase usage
Outsourcing
Reduce capacity
Redeployment
Increase sales

57
Q

Buffer Stocks

A

quantity of goods/raw materials kept in case of stock shortages
+ stability
+ avoid shortages
+ security
+ competitive
- cost
- obsolete
- ties up capital

58
Q

Implications of too much Stock

A

Storage costs
Spoilage, stock shrinkage

59
Q

Implications of too little Stock

A

Run out of stock
Demand may not be met

60
Q

Just in time

A

raw materials are not stored onsite but ordered as required and delivered by suppliers ‘just in time’ for production
+ cost minimsation
+ cash flow improved
+ teamwork
- bulk buying increases costs, eos not possible
- respond to demand
- logistics

61
Q

Ways to minimise waste

A

Storage
Planning
Sales tactics

62
Q

Competitive Advantage from Lean Production

A

Less time required to produce
Fewer materials
Less labour
reduced space
low unit costs achieved

63
Q

Lean Production

A

focuses on cutting out waste, whilst ensuring quality.

64
Q

Quality Control

A

Inspecting the quality of output at the end of the production process

65
Q

Quality Assurance

A

Inspecting the quality of production throughout the process

66
Q

Quality Circles

A

Groups of workers meet regularly to solve quality problems

67
Q

Inflation

A

general rise in prices in an economy over time

68
Q

Problems Caused by Inflation

A

Increased costs
Higher repayments on loans
Consumers change spending habits
International competitiveness reduces
Uncertainty

69
Q

Impact of appreciation to an exporting business

A

Sales likely to fall
May need to lower prices and accept lower profit margins

70
Q

Impact of appreciation to an importing business

A

Costs likely to fall
Expand the pool of overseas suppliers

71
Q

Impact of depreciation to an exporting business

A

Sales likely to rise
Increase selling prices

72
Q

Impact of depreciation to an importing business

A

costs likely to rise
seek domestic suppliers

73
Q

interest rate

A

reward offered for saving money and the percentage charged for borrowing money

74
Q

What happens if interest rates rise

A

businesses will have to pay more on new or variable rate borrowing which will increase their costs

75
Q

The Impact of an Increase in Taxation on revenue

A

Revenue will fall
increased tax will reduce disposable income of customers
increased VART will make products more expensive and want to switch

76
Q

The Impact of an Increase in Taxation on costs

A

Operating costs will rise
Higher costs, charge higher price
May mean lower sales

77
Q

The Impact of an Increase in Taxation on business decisions

A

Operations decisions
Spending and investment
avoid taxation

78
Q

Changes in the business cycle

A

Expansion
Boom
Down turn
Low growth
Recsession
Slump/depression
Recovery

79
Q

Legislation

A

laws and regulations passed by governments that require businesses and individuals to conduct their behaviour in a particular manner

80
Q

The Effects on Businesses of Legislation

A

Consumer protection
Employee protection
Environmental protection
Competition policy
Health and Safety

A level edexcel Business 2024 (10 decks)

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