Theme 2
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each of the black spaces below before clicking
on it to display the answer.
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| show | Internal i.e. from within the business
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| Explain External Finance | show 🗑
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| Describe Owners Capital | show 🗑
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| Define Retained Profit | show 🗑
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| Define Current Assets and give an examples | show 🗑
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| Explain Sale of Assets | show 🗑
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| Describe Fixed Assets | show 🗑
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| Explain Family and Friends as a source of finance | show 🗑
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| show | 1. May be expensive in the long run if need to lease the asset back 2. Loss of use of the asset and future value 3.Is only a one off option
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| Give two Sale of Assets benefits | show 🗑
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| show | 1. Only an option if sufficient retained profit exists within the business 2. May cause shareholder dissatisfaction if this is at the expense of dividend payments
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| show | 1. Avoids interest repayments 2. Does not dilute the business ownership
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| What are two benefits of Owners Capital? | show 🗑
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| show | 1. May only be limited amounts available 2. Threat to personal finances and family
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| show | Financial institutions that are licenced to take deposits, pay interest, make loans and act as an intermediary in financial transactions, as well as provide other financial services to their customers
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| show | Wealthy individuals make personal investments into start-up businesses in return for a share of the business i.e. percentage equity
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| Describe Crowdfunding | show 🗑
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| show | The practise of an individual lending to other individuals (peers) with whom there is no relationship or contact
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| Explain Loans | show 🗑
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| Describe two things to do with Share Capital | show 🗑
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| Define Venture Capitalists | show 🗑
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| Define an Overdraft | show 🗑
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| show | 1. Allows a business to benefit from the use of an asset without owning it or buying it outright 2. The business pays a set amount in instalments to lease the asset for a pre determined period of time
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| show | 1. Paying suppliers a period of time after the goods or services have been received 2. In effect the supplier is providing the business with finance for the period of the trade credit e.g. 30 days
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| Define Grants | show 🗑
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| show | 1. Quick and easy to secure 2. Fixed interest rates allow firms to budget 3.Improved cash flow 4. The borrower retains ownership of the company
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| Give two drawbacks of Loans | show 🗑
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| show | 1. Only need to pay dividends if a profit is being made and the amount of dividend is not fixed 2.Possible to raise large amounts of finance 3.No interest repayments
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| show | . Loss of ownership as shareholders are part owners 2.Potential risk of loss of control for a Plc with a threat of hostile takeovers 3. Complex and costly process of issuing shares, especially for a Plc
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| Give three benefits of Venture Capital | show 🗑
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| State three drawbacks of Venture Capital | show 🗑
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| show | 1. Only borrowed when required allowing flexibility 2. Only pay for the money borrowed 3. Quick and easy to arrange 4. No charges for paying off the overdraft
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| show | 1. The bank can call it in at any time 2. Only available from a current bank account 3. Interest payments tend to be variable making it more difficult to budget 4. Banks may secure the overdraft against the business’ assets
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| What is limited Liability? | show 🗑
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| show | The owners of a business are responsible for the total amount of debt of the business
The owner may lose their personal belongings, e.g. home and cars, if the value of these is needed to cover the debts of the business
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| show | Cash sales
Payments from debtors
Owners’ capital invested
Sale of assets
Bank loan
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| What are examples of cash outflows? | show 🗑
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| What is a cash flow forecast? | show 🗑
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| What is a cash flow statement? | show 🗑
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| State three causes of cash flow problems | show 🗑
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| Why it is important for a business to have sufficient cash ? | show 🗑
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| show | What is expertise of entrepreneur?
How have estimates been calculated?
Is it a new product or service?
How might competitors react?
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| Why is it difficult to forecast cash outflows? | show 🗑
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| show | To identify the timing and significance of any potential shortfalls
To identify possible corrective action
To help secure finance from potential investors or the bank
To provide a guide against which to measure actual cash flow
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| How can cash inflow be improved? | show 🗑
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| How can cash outflow be improved? | show 🗑
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| show | Damage to the firm’s reputation
Potential loss of customers if payment terms affect competitiveness
Administrative costs and time
Loss of discounts or need to offer discounts
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| show | Identify potential problems before they arise
Control spending
Help to raise finance
Negotiate trade credit
Plan to meet day to day expenses
Where necessary take corrective action
Set cash flow targets
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| State two drawbacks of cash flow forecasts | show 🗑
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| What does a business plan consist of? | show 🗑
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| show | To secure external funding e.g. banks,venture capitalists, business angels
Ensure that the firm develops a healthy financial structure
Help identify problem areas the business might face
As a focus to set targets and check on the firms development
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| show | When raising finance a business plan acts as a sales document/brochure for the business telling potential investors how and why the business will succeed and how and why it will be able to repay loans or reward equity investors e.g. pay dividends
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| What is the benefit of a business plan to an investor? | show 🗑
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| show | Capital expenditure is spending on fixed assets such as equipment, buildings, IT equipment and vehicles/Revenue expenditure is spending on raw materials or day to day expenses such as wages or utilities
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| show | A business may access finance via a joint venture with another business, such as a key customer /supplier e.g. In 2018 Mike Ashley,(Sports Direct) acquired a stake of 30% of Debenhams, a troubled high street retailer, to eventually take over the company
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| show | Debentures are long-term agreements between a business and a lender to repay a specified amount (with a fixed rate of interest) by a certain date
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| show | (1) They may be small, (2) own few business assets (e.g. to use as collateral) or have a (3) limited trading record. (4) Lenders (e.g. banks) prefer to lend to more established businesses that own assets)
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| State the formula for Net Cash Flow | show 🗑
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| What is the Opening Balance in the Cash Flow? | show 🗑
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| Explain how Closing Balance in the Cash Flow Forecast is calculated? | show 🗑
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| State two advantages of Cash Flow Forecasts | show 🗑
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| show | (1) Forecasts are usually based on estimates and in reality inflows and outflows may differ significantly from the estimates
(2) Cash flow forecasts require appropriate skills, insight, research and time to prepare and update adequately
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Created by:
durquhart1
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