Theme 2: Section 6 Raising Finance

Question 1

Source of Finance

Answer 1

Provider of finance, bank.

Question 2

Choosing Source of Finance

Answer 2

Amount of money required, level of risk, cost of finance.

Question 3

Internal source of Finance

Answer 3

Owner’s capital, selling assets, Retained profit.

Question 4

Owner’s capital

Answer 4

Money the owner invests in the business, personal savings easy to access debt free.

Question 5

Selling Assets (Machinery, factories)

Answer 5

Spare assets cheap, don’t pay interest.

Question 6

Retained Profit

Answer 6

Have to make lots of profit, no interest.

Question 7

External sources of Finance

Answer 7

Family and friends, Banks, peer-to-peer lenders, business Angels, crowd funding, other businesses.

Question 8

Family and Friends

Answer 8

Offer money as a gift, flexible repayment no interest.
Ruin relationship.

Question 8

Crowd Funding

Answer 8

Raising money via internet.

Question 8

Banks

Answer 8

Loans, mortgages, overdrafts, advise/provide services.
Hard for start ups.

Question 9

Business Angels

Answer 9

Invest money into businesses return, share of the business

Question 9

Peer-to-Peer Lenders

Answer 9

Cheaper than bank, lower interest rate.

Question 9

Other Businesses

Answer 9

Invest in another business than saving profit, if bank interests are low.

Question 10

Overdrafts (Short-to-Medium Term)

Answer 10

Allowed a negative amount in bank, flexible, pay interest on only what they’ve borrowed.
Can charge high interest.

Question 10

Leasing (Short-to-Medium Term)

Answer 10

Paying monthly sums of money over a period.
Don’t have to pay large up-front sum
Costs more long-term.

Question 11

Grant (Short-to-Medium Term)

Answer 11

Fixed sum of money given by government, don’t pay it back.
Time consuming if applying.

Question 12

Trade credit (Short-to-Medium Term)

Answer 12

Buying a good or service, not pay straight away until 30-90 days.
Helps cashflow, complete a job, receive payment before paying supplier.
Bad credit rating affects future.

Question 13

Loans (Long-Term)

Answer 13

Fixed amount of money borrowed, paid back overtime.
Only payback the loan/interest.

Question 14

Share Capital for Limited Companies (Long-Term)

Answer 14

New Shareholders bring knowledge.
Shareholders expect dividends.

Question 15

Venture Capital used with High Growth Potential (Long-Term)

Answer 15

Business wanting to grow, investing into others.

Question 16

Unlimited Liability

Answer 16

Business debts become personal, selling house.

Question 17

Limited Liability

Answer 17

Not personally responsible for debts.

Question 18

Limited Liability affects on Sources and Finance

Answer 18

Only lose what the’ve put in.

Question 19

Unlimited Liability affects on Sources and Finance

Answer 19

Rely on external finances, loans.

Question 20

Business Plan

Answer 20

Plans a business wants to achieve, how to achieve it, sales forecast.

Question 21

Business Plan obtaining Finance

Answer 21

Cheaper long-term finance, cash flow forecast show loan repayments paid on time=low rate of interest.

Question 22

Cash Inflow

Answer 22

Money received by business, product sales or loans.

Question 23

Cash Outflow

Answer 23

Money paid out by business, raw materials or wages.

Question 24

Cash Flow Forecast

Answer 24

Amount of money managers expect to go in and out in future, helps make sure got money.

Question 25

Cash Flow Forecast inaccurate

Answer 25

Costs can go up or down, consumer tastes can change so sales may increase or decrease.

Question 26

Cash In

Answer 26

Cash from sales and start-up loan.

Question 27

Cash Out

Answer 27

Cash going out to pay costs.

Question 28

Net Cash Flow

Answer 28

Cash Inflows-Cash Outflows

Question 29

Closing Balance

Answer 29

Opening Balance+Net Cash Flow