Theme 2

Question 1

Owners capital

Answer 1

Personal savings
Sometimes called owners equity
Possibly inherited usually saved up
Could be redundancy pay
Only appropriate for soletraders or partnership

Question 2

Retained profit

Answer 2

Profit a business has saved and not spent over a period of time
Only available to developed businesses

Question 3

Sale of assets

Answer 3

Land , machinery, vehicles or premises

Question 4

Sources

Answer 4

Where the finance comes from eg bank

Question 5

Methods

Answer 5

Type of finance eg loan or overdraft

Question 6

Friends and family

Answer 6

Private limited-selling shares to family and friends
Sole trader or partnership borrow from family or friends but as a loan

Question 7

Banks

Answer 7

Loans and overdrafts
Overdraft is short term
Banks will be hesitant to give loan if involves risk

Question 8

Peer to peer funding

Answer 8

Unsecure loans
Student loans
Payday loans
Debt factoring
Lease agreements

Question 9

Business angels

Answer 9

Angel investing in equity finance using own personal finance
Provide experience and knowledge

Question 10

Crowd funding

Answer 10

Donate:no money back rewards such as tickets or newsletters
Lend:money back with no interest
Invest: exchange for equity or shares

Question 11

Bank loans

Answer 11

Often reluctant to give them to start up businesses
Quick source of finance
Effected by interest rates
A bank may ask for security or calateral

Question 12

Share capital

Answer 12

Long term
Only applies to businesses with plc after their name
Floating shares on the stock market they can raise more by having an ordinary share issue

Question 13

Overdraft

Answer 13

Used to tide over a business
Short term
Can have high charges and interest rates
Unauthorised overdraft will be charged heavily

Question 14

Lease

Answer 14

Never owned
Change when it wears out

Question 15

Trade credit

Answer 15

But now pay later
Short term
Helps with cash flow

Question 16

Government grants

Answer 16

Don’t have to be repaid

Question 17

Liability

Answer 17

Sole trader Unlimited
Partnership Unlimited
Private limited Limited
Public limited Limited
Franchisee Limited

Question 18

Limited liability

Answer 18

Only liable for their original investment should the business fall into debt

Question 19

Unlimited liability

Answer 19

Debts must be paid even if that means selling personal possessions

Question 20

Uses of a business plan

Answer 20

Can be used to persuade people to lend money or invest
Helps owners with direction and targets
Identify possible problems
Monitor effectiveness

Question 21

Cash flow

Answer 21

Measures how much money a business has available to allow them to pay running costs

Question 22

Uses of cash flow forecasts

Answer 22

Control and monitor cash flow
Support applications for finance
Spot surpluses and shortages
Can make comparisons of actual with expected at years end

Question 23

Sales volume

Answer 23

Number of sales made
Also known as output

Question 24

limitations of cash flow forecasts

Answer 24

bias, optimistic or pessimistic
prediction can sometimes not take problems into consideration
need regular updating
can be inaccurate if over a long period of time

Question 25

breakeven

Answer 25

the point at which revenue equals costs so your business is making neither profit nor a loss
fixed costs/contribution

Question 26

benefits of breakeven

Answer 26

-quick and simple method for setting targets
- clear target to business of what sales need to be made for the business to be successful
-allows the business to explore what if scenarios
key part of a business plan

Question 27

drawbacks of breakeven

Answer 27

-assumes costs and selling price don’t change however this isn’t the case ,they fluctuate.
-assumes every product is sold at the same price
-breakeven is only based on one product

Question 28

profit

Answer 28

revenue-total costs

Question 29

profit and loss account