Theme 2: Raising finance

Question 1

Fixed costs

Answer 1

Those that do not change as the number of sales change (for example, rent or salaries)

Question 2

Variable costs

Answer 2

Those that do not change in line with the amount of business (for example, the cost of buying new raw materials)

Question 3

Working capital

Answer 3

The finance available for the day-to-day running of the business

Question 4

Angel investors

Answer 4

Investors who back a business before it has opened its doors, taking a full equity risk, i.e. if it fails the angel investor will lose everything invested

Question 5

Collateral

Answer 5

An asset used as security for a loan. It can be sold by a lender if the borrower fails to pay back a loan

Question 6

Crowdfunding

Answer 6

Obtaining external finance from many individual, small investments, usually through a web-based appeal

Question 7

Public Limited Company (PLC)

Answer 7

A company with limited liability and shares, which are available to the public. Its shares can be quoted on the stock market

Question 8

Seedcorn capital

Answer 8

The early stage (sowing a seed) finance that might come from an angel investor

Question 9

Share capital

Answer 9

Business finance that has no guarantee of repayment or of annual income, but gains a share of the control of the business and its potential profits

Question 10

Stock market

Answer 10

A market for buying and selling company shares. It supervises the issuing of shares by companies. It is also a second-hand market for stocks and shares

Question 11

Venture capital

Answer 11

High-risk capital invested in a combination of loans and shares, usually in a small, dynamic business

Question 12

Bankrupt

Answer 12

When an individual is unable to meet personal liabilities, some or all of which can be as a consequence of business activities

Question 13

Creditors

Answer 13

Those owed money by a business - for example, suppliers and bankers

Question 14

Limited liability

Answer 14

Owners are not liable for the debts of the business; they can lose no more than the sum they invested

Question 15

Sole trader

Answer 15

A one-person business with unlimited liability

Question 16

Unlimited liability

Answer 16

Owners are liable for any debts incurred by the business, even if it requires them to sell all their assets and possessions and become personally bankrupt

Question 17

Best case

Answer 17

An optimistic estimate of the best possible outcome - for example, if sales prove much higher than expected

Question 18

Business plan

Answer 18

A document setting out a business idea and showing how it is to be financed, marketed and put into practice

Question 19

Cash flow forecast

Answer 19

Estimating future monthly cash inflows and outflows, to find out the net cash flow

Question 20

Just-in-time

Answer 20

Ordering stock so that it arrives just before it is needed, just in time, i.e. having no stockpiles to cover for late deliveries

Question 21

Overdraft

Answer 21

Short-term borrowing from a bank. The business only borrows as much as it needs to cover its daily cash shortfall

Question 22

Worst case

Answer 22

A pessimistic estimate assuming the worst possible outcome - for example, sales are very disappointing