Business Theme 2

Question 1

What are the advantages of using personal savings?

Answer 1

Cash is easily accessed
May take greater care in business as its their own money being invested

Question 2

What are the disadvantages of using personal savings?

Answer 2

Loss of profits for the business are a serious loss for the owner
Owners can be over controlling

Question 3

What are the advantages of retained profit?

Answer 3

Makes it easier for the business to get a loan as it shows as its profitable
Makes business appear more valuable so attracts further investment

Question 4

What are the disadvantages of retained profits

Answer 4

might affect shareholders badly as they aren’t receiving higher dividends

Question 5

what are the advantages of using sales of assets

Answer 5

allows businesses to focus on development
freely available to the business

Question 6

what are the disadvantages of using sale of assets

Answer 6

business may still need access to assets
hindrance to profitability

Question 7

What are the advantages of using family and friends as a source of finance?

Answer 7

Businesses owners can negotiate the payback period
Securing finance is relatively quick as both business owner and family member / friend, already know eachother

Question 8

What are the disadvantages of using friends and family as a source of finance

Answer 8

family and friends have a share in the businesses profits
family and friends have a say in the business activities, by investing a friend would essentially have a substantial share in the business and would be able to influence how things are run.

Question 9

Whata are the advantages of using a bank as a source of finance

Answer 9

Access to large amounts of money
The bank would not be a shareholder, and wouldn’t have a say in how the business is run

Question 10

What are the disadvantages to using a bank as a source of finance

Answer 10

Strict payback plans
Interest rates can increase

Question 11

What are the advantages of using peer to peer funding

Answer 11

few financial costs involved
acts as a forum for business forums, if business is not financed, may suggest that there is a problem

Question 12

what are the disadvantages of using peer to peer funding

Answer 12

Time dependent process
Takes alot of effort to create and promote the proposal

Question 13

What are the advantages of using Business angels as a source of finance

Answer 13

Offer management advice
Last resort for businesses

Question 14

What are the disadvantage of using Business angels as a source of finance?

Answer 14

Negotiates a deal that suits them over the business
May gain a significant share of the business

Question 15

What are the advantages of using crowd funding as a source of finance?

Answer 15

Few financial costs involved for the business
similar to peer to peer funding if there is no funding there may be a problem with the business itself

Question 16

what are the disadvantages of using crowd funding as a source finance?

Answer 16

Time dependent process
takes a lot of time and effort to promote a crowd funding proposal

Question 17

What are the advantages of using other businesses as a source of finance?

Answer 17

Bigger businesses have more funding available to support
Can grant access to marketing power and commercial contacts making it easier to grow further

Question 18

What are the disadvantages of using other businesses as a source of finance?

Answer 18

By giving other businesses significant shares in the business may cause conflict in the organization with different opinions and interests

Question 19

What are the advantages of using an over draft as a method of finance

Answer 19

Flexible
No need for a proposal

Question 20

Disadvantages of using an overdraft

Answer 20

Interest rates are very high
Amount of money given is often limited

Question 21

What are the advantages of using loans as a method of finance

Answer 21

Payback is negotiable between the business and loan provider
interest rates are generally lower than that of an overdraft

Question 22

What are the disadvantages of using loans as a method of finance

Answer 22

Usually have to have a security deposit for loans
Loan amount is limited to size of business

Question 23

What are the advantages of using share capital as a method of finance

Answer 23

Companies only pay shareholders if they were profitable
Investors have limited liability

Question 24

What are the Disadvantages of share capital as a method of finance?

Answer 24

Investors gain an element of control
Shareholders expect dividends, so less money will go into development for the business

Question 25

What are the advantages of using venture capital?

Answer 25

Venture capitalists are successful business leaders and can act as valuable advisors for businesses
Also tend to take big risks and are more willing to fund smaller businesses

Question 26

What are the disadvantages of using venture capitalists

Answer 26

Lose shares in the company to the venture capitalist
Can cause conflicts of interest

Question 27

What are the disadvantages of leasing as a method of finance?

Answer 27

Continual cost for the business
owner of the leased item may decide to sell it away

Question 27

What are the advantages of using leasing as a method of finance?

Answer 27

Don’t have money wrapped in assets so can have cash left over for development
Business is not responsible for the maintenance of the property
Cheaper in the short term

Question 28

What are the advantages of using trade credit for a method of finance

Answer 28

Businesses can negotiate different terms with different suppliers
ensures the business has cash available as the payback agreement is not instant

Question 29

What are the disadvantages of using trade credit as a source of finance?

Answer 29

penalties can be applied if payment is not made on time
With that fewer suppliers will work with the business if original supplier talks badly about them

Question 31

What are the advantages of using grants as a method of finance?

Answer 31

Funding does not cost the business anything
Provider is not looking for a stake in the business

Question 32

What are the disadvantages of using grants as a method of finance ?

Answer 32

Can be difficult to meet requirements for the grant
Local council may offer funding to businesses that pledge to move their production line to that particular area

Question 33

What does it mean to have unlimited liability

Answer 33

The owner 8s responsible for all assets and finance, if the business gets into trouble, it would mean that the owner will be responsible to pay for all of the losses

Question 34

What does it mean to have limited liability

Answer 34

The owner is not responsible for the losses made by the business, where each shareholder of the company is a partial owner of the business