Theme 2 Flashcards
Internal sources of finance (3)
- Owners capital
- Selling assets
- Retained profit
External sources of finance (6)
- Family and friends
- Banks
- Peer to Peer lenders = typically low interest
- Business Angles = give up a share but gain advice
- Crowd funding = small funding from many people eg gofundme
- Other businesses
Methods of finance (Short term - 4 )
- Overdrafts = allowing a negative amount in the bank account
- Leasing = Using another’s firms asset
- Grant = Government given , doesn’t need to be paid back
- Trade credit = Business buys a good and has a set time to pay for it
Methods of finance (long term - 3)
- Loans = Fixed amount borrowed and pad over a fixed amount with interest
- Share capital = Limited companies
- Venture capital = Provided by business angles
Unlimited liability
Business debts become personal debts , and business owners may be forced to sell personal assets
eg. sole trader , partnerships
Limited liability
Owners aren’t personally responsible for business debts
eg shareholders in PLCs and LTDs
Business plan
- Helpful to getting external finance
- Not essential
Working capital
Cash business has available for day-to-day spending
Sales forecast look at … (3)
- Finace
- Marketing
- Resources
Factors affecting sales forecasting (3)
- Consumer trends
- Economic variables (inflation , unemployment rate, interest)
- Competitor actions
Sales revenue calculation
Selling price x sale volume
Total Variable costs calculation
average variable cost x quantity produced
Total costs calculation
fixed costs + variable costs
Profit calculation
Total revenue - total costs
Break even point
Business is not making a profit or at a loss
Contribution per unit calculation
Selling price - variable cost per unit
Break - even calculation
Total fixed costs
————————
Contribution per unit
Margin of safety calculation
actual output - break-even output
Break even analysis Pros and cons
- Influences a business descion wether to launch a new product or not
- Assumes variable cost is steady
- Assumes all product will be sold
Income budgets
Forecast of the amount of money ENTERING a business as revenue
(typically based off of previous years and market research )
Expenditure budgets
Predicts TOTAL business costs for year
(typically broken down into departments)
Profit budgets
Income budget - Expenditure budget to calculate either profit or loss
Benefits of budgeting
- Motivating
- Control income and expenditure
- Departments can coordinate their spending
- Helps investors believe in thee success of the business
Drawbacks of budgeting
- Can make departments rival for money
- Restrictive
- Time -consuming
- Inflation is hard to predict
- Inaccuracy