Theme 2 Finance

Question 1

Methods of finance
What is ……. And benefits + drawbacks
Owners capital (personal savings)

Answer 1

+doesn’t require you to pay back.
-might not have enough savings for the use needed.

Question 2

Retained profit

Answer 2

A businesses net income that isn’t paid out to shareholders.
+ safety net for emergencies
-potentially turning off shareholders by retaining money that could used for dividends.

Question 3

Sale of assets

Answer 3

Selling things other than stock
+ can quickly raise money from unused equipment
- might not get the full market value

Question 4

Family and friends

Answer 4

+ may not need to be paid back
- arguments may occur

Question 5

Method- Bank loan

Answer 5

+ can get a significant amount of money all at once
- have to pay interest

Question 6

Business angel

Answer 6

Someone with high ent worth and business experience who invests into growing businesses.
+ use of expertise and guidance.
- loss of control.

Question 7

Crowdfunding

Answer 7

+ money may not need to be repaid.
- not in control of who’s donating.

Question 8

Other businesses

Answer 8

+ expertise.
-may need to be paid back.

Question 9

Method- Share capital

Answer 9

Shareholders invest into company in return to gain a share.
+ no repayment.
- reduces control.

Question 10

Method- Venture capital

Answer 10

Money invested usually to a start up or have substantial element of risk.
+ they may offer help and advice
- they may different visions for the business.

Question 11

Method - Over drafts

Answer 11

+ allows emergency purchases.
-Hugh interest rates.

Question 12

Method-Leasing

Answer 12

Using assets but renting for them
+ leasing company responsible for repairs and maintenance.
- assets aren’t owned.

Question 13

Method-Trade credit

Answer 13

Business to business, pay the supplier later.
+access to supplies and no interest, can sell before pay back.
- must be paid off quick.

Question 14

Method-Grant

Answer 14

Maybe supplied by government for a purpose like training.
+ doesn’t need to be paid back.
-time consuming to apply , paperwork.

Question 15

Difference between limited and unlimited liability+-

Answer 15

L- shareholders and owners can only loose the amount invested e.g proven limited company.+ - expensive to start up
UL- business owners are liable for all business debts and all personal belongings are at risk-

Question 16

What’s a business plan and cash flow forecast

Answer 16

BP-written documents that describes how a business, usually a new one, will achieve its goals.
CFF- is a forecast if the cash inflows and outflows of a business over time.

Question 17

Positives and negatives of business plans and CFF

Answer 17

BP
+generate confidence to potential lenders as risk will be lower.
- expensive and time consuming to create.
CFF
+ allows suppliers and employees to be paid on time.
-estimates, doesn’t factor in unforeseen events.

Question 18

Purpose of sales forecasts

Answer 18

To set budgets and manage cash flow.

Question 19

Factors effecting sales forecasts

Answer 19

Consumer trends
Economic variables
Competitor actions

Question 20

Fixed and variable costs

Answer 20

FC- rent, salaries and insurance
VC- raw materials, hourly wages

Question 21

What’s a break even analysis

Answer 21

Determines the number of units or amount of revenue needed to cover your businesses costs.

Question 22

2limitations of break even analysis

Answer 22

-it assumes selling price remains constant.
- variable costs like raw materials re likely to change as output increases, such as benefits of bulk buying as volume increases.

Question 23

2 types of budgeting

Answer 23

Historical and zero nased

Question 24

Purpose of budgeting

Answer 24

Allows performance to be measured by monitoring spending against a target. This provides guidance for manager on how much to sound how they should spend it, limiting waste and I,proving efficiency.

Question 25

Two problems of budgeting

Answer 25

Accuracy, they are only as good as data used to Create them.
Time consuming to prepare.

Question 26

What is meant by positive/favourable variances and negative/adverse variances

Answer 26

Favourable- real costs are less than budgeted or real revenue is more then budgeted.
Adverse- real costs are more than budgeted or revenue is less than budgeted.

Question 27

What’s profitability

Answer 27

The dope tent to which total income exceeds its total expenses over a given period.

Question 28

2 ways to improve profitability

Answer 28

• increase selling price whilst maintaining cost levels
• reduce average cost per unit (buying in bulk)

Question 29

Difference between profit and cash

Answer 29

Profit is the difference between revenues and costs whereas cash is the money in a business available as and when it’s required.

Question 30

What’s liquidity

Answer 30

The ability to convert assets into cash.

Question 31

ways to improve liquidity

Answer 31

• hold less stock(the more stock u have sitting is the more cash tied up)

Question 32

Why is cash important to a business

Answer 32

Can meet everyday needs and avoid taking on debt, without enough cash businesses ,any not be able to pay suppliers or even employees which all have a negative impact on performance.

Question 33

Two causes business failure

Answer 33

No demand for the business idea as a result of poor market research
External shocks such as changes to economic conditions.