Unit 6 Finance (mock) Flashcards
Government grants
Often given to new or small firms. They don’t have to be repaid
Trade credit
Businesses may give a small business one or to months to pay back for the stock they have bought
Overdraft
Banks allow you to spend more money than you have in your current account
Loan/mortgage
A fixed amount of money lent for a fixed amount of time with interest charged by the bank
Family and friends
When people known by the business lend it money
Retained profit
What is left of sales revenue after all expenses have been paid, including tax and dividends
Issuing shares
When a limited company sells shares
Selling unwanted assets
Selling items such as old machines or vehicles that are no longer needed
Hire purchase
when a business can rent an asset for a period, and after that time they own it
Factors to consider when choosing how to finance your business (5)
- how much you need
- how quick you can pay back
- whether your business is already operating or a startup
- whether you are a sole trader/partnership/plc/ltd
- if you want to obtain complete control over the business
Family and friends (internal or external)
Internal
Retained profit (internal or external)
Internal
Share issue (internal or external)
External
Loan (internal or external)
External
Mortgage (internal or external)
External
Selling unwanted assets (internal or external)
Internal
Overdraft (internal or external)
External
Trade credit (internal or external)
External
Trade credit (internal or external)
External
Hire purchase (internal or external)
External
Government grants (internal or external)
External
Inflow
Money that goes into your account
Outflow
Money that goes out of your account
Opening balance
The amount of money you start with at the start of the month
Closing balance
The amount of money you Finnish with at the end of the month
Cash flow forecast
A forecast of all the expected future income and outgoings from an account over a period of usually a year
Cash flow statement
A record of past income and outgoings from an account over a period of usually a year
Ways to improve cash flow
Reduce outflows and increase inflows
Equation for profit
Profit= total revenue - total costs
Breakeven
When a business makes neither a profit nor loss
Advantages of break even (3)
- Allows managers to see the effects of a change in costs
- shows managers the effect of a change in price
- producing break even charts helps to persuade investors that you have planned how to make your business successful
Disadvantages of break even
- assumes that the business sell all the products it produces
- prices and costs can change rapidly in some markets, so the break even charts become out of date quickly.
Price
The amount a business asked a customer to pay for a single product
Sales
The number of products sold by a business over some time period
Costs
Spending that is necessary to set up and run the business
Fixed costs
Costs that do not vary with outflow e.g. rent
Variable costs
Costs that can change
