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Business topics 3-5 > Topic 5 > Flashcards

Topic 5 Flashcards

1
Q

Finance is:

A

The management of Money within a business.

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2
Q

What are the 5 aspects of finance:

A
  • management and control
  • strategy and risk
  • funding
  • compliance
  • accounting
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3
Q

What is strategy and risk?

A
  • about reducing risk.
  • seeing if an opportunity is ‘worth it’
  • analysing if profit would be made
  • will advise the business on what’s best to do.
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4
Q

What is funding?

A
  • putting money into a certain area of the business.
  • fundraising
  • selling to gain finance
  • how much money to put back into the business
  • analysing how to split budgets to different departments in the business.
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5
Q

What is compliance ?

A
  • compliance with the law
  • about tax
  • making sure they pay as much as possible yet all is legal.
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6
Q

What is Accounting ?

A
  • writing up income statements
  • using balance sheets
  • records all input and outputs yearly.
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7
Q

What is management and control?

A
  • they produce a large amount of financial data to show where the company should spend there money.
  • what’s the most profitable direction for the business.
  • set budgets for each department
  • control business activity to meet financial objectives.
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8
Q

What does an income statement show ?

A

The sales revenue and profit the business makes over the year.

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9
Q

What is revenue?

A

Money from sales.

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10
Q

What is expenditure?

A

Money going out of the business.

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11
Q

What is net profit?

A

Sales revenue - expenditure.

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12
Q

What is in a balance sheet?

A
  • assets - things what the business owns

- liabilities - things the business ows.

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13
Q

Why do businesses need finance?

A
  • start up
  • pay wages and salaries
  • to expand
  • to market products.
  • pay rent and fixed costs
  • to but raw materials
  • buy equipment.
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14
Q

If a business is starting up it will need finance for:

A
  • stock
  • to buy fixtures and fittings for the shop
  • pay rent.
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15
Q

If a business needed to expand they need finance for:

A
  • buying a new property
  • buying more raw materials
  • external growth, buying another company.
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16
Q

What is finance used for to run the business everyday:

A
  • pay staff
  • pay rent
  • other fixed assets E.G. electricity, water, heating.
  • cash flow
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17
Q

What is another reason need finance?

A

RECRUIT STAFF!!!

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18
Q

What is finance spent on when marketing?

A
  • social media
  • give away.
  • competitions.
  • radio/ TV adverts.
  • newspapers.
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19
Q

What is short term?

A

Less than 3 years.

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20
Q

What is medium term?

A

3-5 years.

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21
Q

What is long term?

A

5 or more years.

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22
Q

What are the 6 internal sources of finance?

A
  • personal savings
  • sale/leaseback
  • factoring
  • retaining profit
  • sale of fixed assets
  • divestment.
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23
Q

What is personal savings?

A

Using the owners Money which he puts in himself.

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24
Q

What is sale/leaseback?

A

Sell an asset (a building) and then lease it back off the new owner.

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25
Q

What is factoring?

A

Sell the debt to a debt collector.

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26
Q

What is retaining profits?

A

Use last years profit to invest in the business.

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27
Q

What is sale of fixed assets?

A

Selling unused items in the business this could be as small as old computers or buildings.

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28
Q

What is divestment?

A

Close down some parts of the business.

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29
Q

What are the advantages of using personal savings?

A
  • fast

- cheap.

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30
Q

What are the disadvantages of using personal savings?

A
  • risky

- opportunity cost.

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31
Q

What are the advantages of using sale/leaseback?

A

-Gain lots of money

32
Q

What are the disadvantages of sale/leaseback?

A
  • slow
  • Costly
  • risky
33
Q

What is an advantage of factoring?

A
  • gain lots of money quite quickly

- good for cash flow

34
Q

What are the disadvantages of factoring?

A
  • costly

- don’t get full amount.

35
Q

What are the advantages of retained profit?

A
  • quick

- cheap

36
Q

What are the disadvantages of using retained profit?

A
  • opportunity cost

- no dividend for shareholders.

37
Q

What are the advantages of the sale of fixed assets?

A
  • cheap

- gain money without losing anything of value.

38
Q

Disadvantage of the sale of fixed assets?

A
  • cant use the things you’ve sold anymore.
39
Q

What are the advantages of divestment?

A
  • don’t have to pay interest

- stops the business losing money. —> no risk

40
Q

Disadvantage of divestment?

A
  • shuts down a part of the business which could lead to a drop in sales revenue.
41
Q

What is external source of finance?

A

When money is raised from outside the business.

42
Q

What are the benefits of getting a loan from the bank?

A
  • setting up a business

- longer loan, lower monthly payments.

43
Q

what are the risks of Loaning from a bank?

A
  • have to pay every month

- have to pay interest.

44
Q

What are the benefits of getting a overdraft from the bank?

A
  • its quick

- they can be very flexible, even daily!

45
Q

What are the drawbacks of overdraft from a bank?

A
  • due o them being short term its high interest.

- banks may refuse.

46
Q

What are the advantages of tarde credit from suppliers?

A
  • get stock as well as gain money.

- gives time to sell the products and then pay it off.

47
Q

What are the disadvantages of getting trade credit from suppliers?

A
  • need a good relationship with suppliers.

- need a good reputation and track record.

48
Q

What are the advantages of a new partner to raise capital?

A
  • gains LOTS of money

- brings in ideas, experience and contacts as well.

49
Q

What are the disadvantages of getting a new partner to raise capital?

A
  • Lose a % of the business, lose control.

- share profits and less dividend to shareholders.

50
Q

What are the benefits of using share issue to gain finance?

A
  • Gain major finance.

- No interest needs to be paid.

51
Q

What are the disadvantages of share issue to raise money?

A
  • vulnerable to take overs.

- less profit between shareholders.

52
Q

What’s the benefits of using crowd funding to gain finance?

A
  • can be used as marketing
  • advertisement
  • last resort?
53
Q

What are the disadvantages of using crowd funding to gain finance?

A
  • doesn’t raise that much money.

- can be time consuming.

54
Q

Sales revenue=

A

Price x quantity sold

55
Q

What are fixed costs?

A

Costs which stay constant despite any factor for example its not effected by amount of sales.

56
Q

What are variable costs?

A

Costs which change due to circumstances, E.G. hours worked or how many products sold.

57
Q

What are some examples of fixed costs?

A
  • rent
  • insurance
  • salary’s
  • marketing
  • leasing
  • utilities.
58
Q

Examples of variable costs?

A
  • packaging
  • stock
  • wages
  • transport.
59
Q

Net profit =

A

Sales revenue - total profit.

60
Q

Total costs =

A

Fixed costs + variable costs.

61
Q

Gross profit =

A

Sales revenue - variable costs.

62
Q

Average cost =

A

Total cost / quantity sold.

63
Q

Definition of gross profit?

A

Amount of money you make out of sales minus costs it took to make.

64
Q

Net profit definition:

A
  • final, bottom line profit after all cost have been took away.
65
Q

What things are on a income statement?

A
  • sales revenue
  • variable costs
  • gross profit
  • fixed costs
  • net profit.
66
Q

What is break even?

A

How many sales it takes to cover all costs.

67
Q

What lines do you plot on break even graphs?

A
  • fixed costs
  • total costs
  • sales revenue.
68
Q

What are the advantages of knowing your break even point?

A
  • helps set targets
  • helps monitor business success
  • helps justify borrowing money
  • tells you if you are wasting your time.
69
Q

Contribution =

A

Selling price - variable costs.

70
Q

Break even =

A

Fixed costs / contribution.

71
Q

What is margins of safety?

A

How many products you are above the break even point.

72
Q

Margin of safety =

A

Amounts of products sold - break even point.

73
Q

What are some problems with using break even?

A
  • fixed costs can change
  • its only a prediction
  • it assumes price never changes
  • it assumes every stock you buy get sold.
74
Q

What are some solutions to bad cash flow?

A
  • reduce wages
  • increase price
  • sell more products
  • change supplier to lower stock prices.
75
Q

What are the benefits of cash flow forecasting?

A
  • helps you identify future problems
  • helps you set targets for managers
  • helps control spending.
76
Q

Problems of cash flow forecasting?

A
  • Assumes all customers will pay on time
  • cant predict unexpected expenses.
  • preferences may change.

Business topics 3-5 (4 decks)

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