Rising Finance Flashcards
What is a business?
Providing goods and services for people while generating a profit
Why do businesses need finance?
E.g. -buying stock
-paying employees
-paying rent
-paying expenses
What is a recession?
When a business has two quarters of negative growth
What is internal finance?
Finance from within a business
E.g. -owners capital
-retained profit
-sale of assets
What is owners capital?
When the owners of a business use their own personal servings to invest into the business
Benefits of using owners capital
-If owners have a lot of savings it can be quick
-Don’t have to pay it back
-Can invest it whenever
Drawbacks of using owners capital
-Possible low amount of finance raised
-Owner may not have the money
-Risk of personal debt
What is retained profit?
When a business reinvests its profits to help it grow
(well known businesses reinvest yearly for stock, staff, vehicles, premises and equipment)
Benefits of using retained profit
-Easy if the business has high profits
-It is free to reinvest
Drawbacks of using retained profit
-May not have enough profits to reinvest
-Owners are missing their share of the profits
What is sale of assets?
Raising finance by selling items the business already owns
E.g. -machinery
-land
-premises
-vehicles
Benefits of using sale of assets
-Making room
-If unused, making money from it rather than having it sitting around
-Cheaper final product because you sold the old one
Drawbacks of using sale of assets
-No longer have the asset
-May take a long time to sell
What aspects of finance should be considered in a business plan?
3 major components:
-cash flow projection
-income statement
-balance sheet
Must also outline past, present, future financial state (includes:)
-expenses
-cash flow statement
-break even point
-sales forecast
What is a business plan and why are they important?
A look into the future of a business
-prevent risk and failure
-set goals and targets
-used to apply for finance
-monitor success
-attract possible investors
What will a cash flow forecast show?
The expected income and expenditure of a business over the coming year
What will a start up cash flow management show?
The start up money (this is why many businesses fail)
What will the affordability of interest show?
It will include cash flow forecasts which show banks the interest rates that can be afforded on the finance they borrow
Interest rates
the base rate is set by the Bank of England which is independent from the government
What is a cash flow forecast?
A prediction of the amount of money that will flow into and out of the business
Includes:
-cash inflows
-cash outflows
What are cash inflows?
Money coming into a business (receipts)
E.g. -sales revenue
-loans
-grants
-selling shares
What are cash outflows?
Money leaving a business (payments)
E.g. -buying stock
-paying expenses
-repaying loans
-buying equipment
How do you calculate the monthly balance in a cash flow forecast?
Total inflows - Total outflows
How do you calculate the closing balance in a cash flow forecast?
Monthly balance - Opening balance