2.1 Raising Finance

Question 1

What are the three main sources of internal finance

Answer 1

Owner’s capital (personal savings), retained profit and sale of assets

Question 2

Name three external sources of finance

Answer 2

Banks, peer to peer funding, and crowdfunding

Question 3

What is the difference between a loan and share capital as a method of finance

Answer 3

A loan is borrowed money that must be repaid with interest, while share capital involves selling shares in the business to investors in exchange for ownership

Question 4

What is the implication of unlimited liability for a business owner

Answer 4

Unlimited liability means the owner is personally responsible for all business debts, which could lead to a loss of personal assets

Question 5

Why is the business plan important when raising finance

Answer 5

A business plan helps convince lenders or investors of the viability of the business and how the funds will be used

Question 6

What is the purpose of a cash-flow forecast

Answer 6

To predict the inflows and outflows of cash in a business, helping to identify potential shortfalls or surpluses