THEME 2: SECTION 1 (RAISING FINANCE)

Question 1

what are the three types of internal finance?

Answer 1

Owners capital/ personal finance
Retained profit
Selling assets

Question 2

What will the business consider before deciding the source of finance they use?

Answer 2

• Risks
• Amount that they need
• Cost of the finance

Question 3

What is the difference between a method of finance and a source of finance?

Answer 3

A source of finance is a provider of finance, whereas a method of finance is the way in which a provider gives finance.

Question 4

what are the six main SOURCES of finance?

Answer 4

• peer-to-peer lending
• banks
• friends and family
• crowdfunding
• other businesses investing

Question 5

What are the seven METHODS of finance?

Answer 5

• Loans
• Share capital
• Venture capital
• Overdrafts
• Leasing
• Trade Credit
• Grants

Question 6

Define Peer-to-peer funding

Answer 6

Obtaining loans directly from other individuals, cutting out the financial institution as the middleman

Question 7

Define the term business angels

Answer 7

Typically wealthy individuals who provide capital for the development of a business.

Question 8

Define Share capital

Answer 8

Selling shares or equity to obtain shareholders and funding

Question 9

Define Venture capital

Answer 9

Investors provide startup companies and small businesses that are believed to have long-term growth potential with finance

Question 10

What is the difference between limited and unlimited liability?

Answer 10

• limited liability = often found in private/public limited companies, is when the owners and shareholders are not responsible for the debts of the business and are seen as separate
• unlimited liability = often seen in partnerships/sole traders, the business is seen as one with the owners and they are responsible for any debts etc.

Question 11

what method and sources of finance would a business with limited liability chose?

Answer 11

• Business angels

- Other businesses to invest

Question 12

what method and sources of finance would a business with unlimited liability chose?

Answer 12

• Internal sources of finance

- external sources that don’t involve selling shares (loans, overdrafts etc)

Question 13

Why is a business plan useful?

Answer 13

• will help the business obtain finance
• shows research has been put into the business
  describes products as well as showing the possible outcomes of success
  -contains forecasts of sales and cash flow

Question 14

What is a cash flow forecast and what does it do?

Answer 14

A cash flow forecast predicts when money will come in and out of the business over a period of time.
It can help make decisions on the financial future of the business.

Question 15

The formula for net cash flow

Answer 15

Net cash flow = cash inflow - cash outflow

Question 16

The formula for the closing balance

Answer 16

Closing balance = opening balance + net cash flow

Question 17

Benefits of cash flow forecast

Answer 17

• gives figures about the financial future of the business
• ensures there is enough cash
• included in business plans for investors to see

Question 18

Drawbacks of cash flow forecast

Answer 18

• Not always accurate, only a prediction
• circumstances can change
• inaccurate forecasts can be disastrous

Question 19

What is a business plan?

Answer 19

A document that describes the business idea and all the relevant internal and external elements involved in launching a new venture.

Question 20

pros and cons of business plan

Answer 20

PROS

• helps to receive funds
• plan for future

Cons

• time consuming
• can be inaccurate

Question 21

What three statements are often included in the business plan?

Answer 21

• cash flow forecast
• income statement
• financial statement
• (sales forecast is the backbone)