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GCSE Business Studies AQA > Unit 3: Finance > Flashcards

Unit 3: Finance Flashcards

1
Q

Definition: Finance

A

Money raised by an entrepreneur so that they can operate.

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2
Q

Startup costs?

A
  • Property.
  • Raw materials.
  • Vehicles.
  • Equiptment.
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3
Q

Running costs?

A
  • Advertising.
  • Transport.
  • Raw materials.
  • Property (rent, bills).
  • Employees.
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4
Q

Sources of finance?

A
  • Bank loan.
  • Savings.
  • Family.
  • Friends.
  • Overdraft (very short term).
  • Mortgage (only for property).
  • Trade credit.
  • Government grant (social enterprise).
  • Investors.
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5
Q

How to choose what source of finance to use?

A
  • What you’re buying.
  • How much you need.
  • How quickly the money needs to be repayed.
  • How long money is needed for.
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6
Q

Source of finance, advantages of bank loan?

A
  • Large amounts.
  • Get all the money at once.
  • Pay monthly,
    • easy to manage.
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7
Q

Source of finance, disadvantages of bank loan?

A
  • Long time to repay.
  • Interest rates.
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8
Q

Source of finance, advantages of shares?

A
  • Quick source of income.
  • Don’t pay it back.
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9
Q

Source of finance, disadvantages of shares?

A
  • Lose part of business.
  • Could lose control of business.
  • Pay dividends to share holders.
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10
Q

Source of finance, advantages of family/friends?

A
  • More flexible.
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11
Q

Source of finance, disadvantages of family/friends?

A
  • Might not be able to get all the money you want.
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12
Q

Source of finance, advantages of overdraft?

A
  • Use it however you want and whenever.
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13
Q

Source of finance, disadvantages of overdraft?

A
  • High interest rates.
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14
Q

Source of finance, advantages of mortgage?

A
  • Pay monthly,
    • easy to manage.
  • Buy rather than rent.
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15
Q

Source of finance, disadvantages of morrtgage?

A
  • Long repayment time.
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16
Q

Source of finance, advantages of trade credit?

A
  • Have 30/60 days to repay.
  • Sell stock you haven’t payed for,
    • helps with cash flow.
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17
Q

Source of finance, disadvantages of trade credit?

A
  • Penalty if not payed back in time.
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18
Q

Source of finance, advantages of government grant?

A
  • Don’t repay.
  • Free.
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19
Q

Source of finance, disadvantages of government grant?

A
  • Can’t generate money fast enough.
  • Many businesses don’t qualify.
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20
Q

Why new/small businesses find it difficult to raise funds?

A
  • Lender doesn’t know how reliable entrepreneur is.
  • High startup costs.
  • Business plan only contains estimated figures.
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21
Q

Sources of help for entrepreneurs?

A
  • Government run support centres.
  • Small business advisors.
  • Prince’s trust (charity).
22
Q

Why does the government support entrepreneurs?

A
  • Reduce unemployment.
  • Increase reputation of the country.
23
Q

What support might entrepreneurs need, apart from finance?

A
  • Advice, Providing expertise through employees at regional development agency.
  • Contacts, helping new entrepreneurs make contact with potential suppliers.
  • Planning, helping inexpirienced entrepreneurs apply for loans and create business plans.
  • Funding, provide grants for selected new/small businesses.
24
Q

Definition: Sales Revenue

A

The amount of money a business recieves from selling its products. This is sometimes called turnover.

25
Q

Definition: Costs

A

The outgoings a business has to pay in order to operate.

26
Q

Definition: Profit

A

The money left over after costs have been deducted from sales revenue.

27
Q

Formula for profit?

A

Profit = Revenue - Costs

28
Q

Definition: Loss

A

When sales revenue is less than costs.

29
Q

Formula for revenue?

A

Revenue = Price x Quantity Sold

30
Q

How can businesses increase their sales revenue?

A
  1. Increase or decrease the price (depends on the product, and competition) in order to increase demand.
  2. Incrase quantity sold,
    • Promotion.
    • Change location.
    • Alter the product.
31
Q

Why might new businesses value sales more than profits?

A
  • Gather information about what customers want.
  • Survival could be their objective.
  • Building customer relations,
    • Increases reputation.
    • Establish the business.
  • Increase market share.
32
Q

Formula for profit?

A

Profit = Sales Revenue - Total Costs

33
Q

How can a business try to decrease its costs?

A
  • Buy cheaper raw materials, but:
    • Poor quality = less sales.
  • Find a new supplier.
  • Reduce wages, however:
    • People might quit.
    • Low morale.
    • Poor motivation.
    • Poor reputation.
  • Find cheaper location.
  • Cheaper advertising.
34
Q

How can a business try to increase its profits?

A

By increasing its sales revenue and decreasing its costs.

35
Q

Definition: Cash

A

Money that the business has available to it straight away, such as money in its bank account.

36
Q

Definition: Cash Flow Problems

A

When a business doesn’t have enough cash to pay their bills.

37
Q

Why is cash so important to businesses?

A
  • Contingency planning.
  • Buy stock and raw materials.
  • Pay bills.
  • Pay staff.
  • Pay expenses.
38
Q

Definition: Forecast

A

A prediction of the future.

39
Q

Definition: Cash Flow Forecast

A

A prediction of the cash that will come into a business and leave a business over a period of time.

40
Q

Definition: Receipts (Cash In)

A

The cash predicted to enter a business each month.

41
Q

Definition: Payments (Cash Out)

A

The cash an entrepreneur predicts they’ll spend each month.

42
Q

Definition: Net Cash Flow

A

The difference between the cash predicted to enter and leave a business.

43
Q

Definition: Opening Balance

A

A prediction of money a business has at the start of each month.

44
Q

Definition: Closing Balance

A

The money an entrepreneur predicts that they’ll have at the end of each month.

45
Q

What’s shown in a cash flow forecast?

A
  • Receipts (cash in).
  • Payments (cash out).
  • Net cash flow.
  • Opening balance.
  • Closing balance.
46
Q

How do cash flow forecasts help entrepreneurs?

A

It allows entrepreneurs to check if they’ll have enough cash during the next month to keep their business going. Other reasons include:

  • Help set targets.
  • Plan for a source of finance (e.g. overdraft).
  • Show when they should buy stock.
  • Help persuade banks to lend a business money.
47
Q

What are the consequences of runnig out of cash?

A
  • Can’t pay bills (e.g. wages),
    • Staff leave, low morale.
  • Can’t buy stock.
  • Find new source of income,
    • Interest.
    • Additional costs.
48
Q

Why might a business run out of cash?

A
  • Overspent.
  • Offer too much trade credit.
  • Not sell enough stock, poor sales revenue.
  • Used money to pay debts.
49
Q

Cash flow problem solution: Make payments to supplier at a later date, Drawbacks?

A
  • Supplier might not be keen as it may be detrimental to their cash flow.
  • May have to oay more to pay later.
50
Q

Cash flow problem solution: Encourage receipts to be paid earlier, Drawbacks?

A
  • May have to offer customer a discount deal,
    • lose out on profit in the long run.
51
Q

Cash flow problem solution: Use a source of finance, Drawbacks?

A
  • Creates additional costs (interest rates),
    • Cost the business more in the long run.
52
Q

Cash flow problem solution: Reduce costs, Drawbacks?

A
  • Upset workers (due to lower wages),
    • Low morale.
  • Less sales due to poor quality (cheaper manufacturing).

GCSE Business Studies AQA (5 decks)

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