Theme 2 - Finance

Question 1

Owners capital personal savings : benefit

Answer 1

• If owner uses their own capital
• Business will not incur any debt
• Will not need to make any capital repayments
• Reduced cash outflows
• If cash outflows are less than cash inflows
• Business will have a positive net cash flow
• Able keep up with payments to suppliers
• Won’t have to sell non current asset to generate cash inflow

Question 2

Owners capital personal savings : drawback

Answer 2

• If owner uses their own capital
• They are likely to be limited in the amount that they can raise
• This will limit the businesses potential expansion
• Reducing their scale
• Limiting their ability to achieve economies of scale
• Fixed costs will be spread over less units
• Increased fixed cost per unit
• Reduced operating profit margin