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finance unit Flashcards

(62 cards)

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1
Q

what is a bank overdraft

A

Allows a business to overdraw an amount of money from their bank account

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2
Q

advantages of a bank overdraft

A
  • Easy to set-up
  • Quick to access finance
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3
Q

disadvantages of a bank overdraft

A

Must be paid back quickly or can be expensive due to high interest rates

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4
Q

what sources of finance would be used in private sector

A
  • bank overdraft
  • government grant
  • retained profits
    -leasing
    -bank loan
  • share issue
  • mortgage
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5
Q

what sources of finance would be used in third sector

A
  • government grant
  • retained profits
    -bank loan
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6
Q

what is a government grant

A

A government grant is finance granted to a business from the government. This is often given to encourage entrepreneurs to start up a new business or open a business in a particular area

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7
Q

advantages of a government grant

A

Provides finance which does not have to be repaid

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8
Q

disadvantages of a government grant

A
  • One off payments
  • Will have criteria the business must fulfil in order to obtain the grant e.g. provide employment in an area
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9
Q

what is retained profits

A

This is when a business saves a portion of its profits and reinvests back into the company.

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10
Q

advantages of retained profits

A

Profits belong to the company, so owner is in control

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11
Q

disadvantages of retained profits

A
  • Relying on profits is risky, as some months a business may not make profits
  • May run out of retained profits quickly
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12
Q

what is leasing

A

A business can lease (or rent) vehicles or machinery from another company. They pay a monthly fee and the leasing company takes care of the maintency.

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13
Q

advantages of leasing

A
  • The leasing company will repair and maintain the machinery which saves the business costs.
  • If a business has limited finance this does not require a large initial payment
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14
Q

disadvantages of leasing

A
  • The business will never own the asset
  • In the long run the monthly costs will total to more than it would have cost to buy the asset outright.
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15
Q

what is a bank loan

A

A bank loan is when a financial institution such as a bank or building society will lend a business money over a set period of time. Usually 5 to 20 years.

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16
Q

advantages of a bank loan

A
  • Payments are in regular fixed instalments
  • This makes it easier for the business to budget
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17
Q

disadvantages of a bank loan

A
  • Interest must be paid along with the amount borrowed
  • Small business tend to pay higher interest rates
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18
Q

what is a share issue

A

Selling more shares raises capital for the business

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19
Q

advantages of share issue

A
  • Large sums of money can be raised
  • This does not need to be paid back
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20
Q

disadvantages of share issue

A
  • More shareholders means more dividends (profits are shared)
  • Selling shares may result in less control of the business
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21
Q

what is a mortgage

A

A loan from the bank which can only be used to buy property. This is paid back in monthly installments.

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22
Q

advantages of a mortgage

A
  • The business can borrow a large sum of money over a long period of time e.g. 25 years.
  • Monthly payments are agreed with the bank which makes it easier for the business to budget.
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23
Q

disadvantages of a mortgage

A

Interest has to be paid on top of repaying the mortgage.

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24
Q

what is a fixed cost

A

These are the expenses the business incurs which do not change with output.

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25
what is a variable cost
These are the expenses which change according to the level of output, therefore, the more the business produces the higher the variable costs will be.
26
examples of fixed costs
- rent - advertising - rates - salaries
27
examples of variable costs
- raw materials - electrisity
28
what is the break even point
A business breaks even if it does not make a profit or a loss. The breakeven point is where TOTAL
29
what is the break even formula
fixed costs/ contribution ( selling price - VC) = break even
30
break even graph
look at graph
31
how to calculate sales revenue
selling price x units sold = sales revenue
32
how to calcualte profit or loss
slaves revenue - total cost = profit/loss
33
how to calculate selling price
output/sales revenue = selling price
34
how do business generate cash
making profit from what they sell e.g sales
35
examples of how business spend money
- advertising - wages - rent - purchases
36
why do business have to have enough cash
so they can purchase stock pay wages, rent, advertising
37
cash flow problems
- sales decreasing - purchases increasing - wages are increasing - closing balance is decreasing - paying for an assest in full
38
how to solve the cash flow problems
- sales decreasing - increase selling price , increase promotions - purchases increasing - find a cheaper supplier, ask for bulk buying discount, ask for trade credit - wages are increasing - put employees on 0 hour contracts or make staff redundant, offer no overtime - closing balance is decreasing - reduce the number of payments - paying for an assest in full- lease or use a hire purchaes
39
what is a gross profit and how to calcualte it
Sales income less the cost of sales Profit from buying and selling
40
how to calcualte profit of the year
Gross Profit less expenses Overall profit that has been made that year
41
what are expenses
the expenses incurred in running the business, for example, wages, salaries and utility bills (gas, electricity)
42
how to reduce costs
● Find a cheaper supplier of stock ● Reduce number of employees ●Reduce number of hours worked by employees (eg overtime) ●Find a cheaper supplier of utilities ●Buy stock in bulk to receive discounts
43
how to increase sales revenue
●Increased advertising ●Short term promotions eg BOGOF ●increase price
44
spreadsheets
- Formulae can be used to perform calculations This reduces calculation errors e.g. using autosum - Charts can be created to display information This can make the information easier to understand - Templates can be used to create income statements or cash budgets - documents can be used by multiple employees
45
email
- can be used to remind customers when there payments are due - can be used to send information to people
46
powerpoint
- can be used to display financial data to shareholders - for presenting financial data to staff
47
accounting sofware
-Specialist software can be used to process financial information quickly, eg Sage. - Reports can be produced using templates to ensure consistency. - Some packages can link to HMRC to calculate how much tax is due to be paid
48
What is trade credit
This is when a business can purchase goods from suppliers with a delayed payment
49
Advantages of trade credit
Can sell goods using materials not yet paid for. Improving cash flow
50
Disadvantages of trade credit
-if a business does not play on time there may be a charge - if this happens repeatedly the business may get a poor credit rating and be refused credit in the future
51
What is a hire purchase
Allows a business to buy an assets and pay it back over a period of time e.g 36minths. An initial deposit is required
52
Advantages of an hire purchase
Allows a business to buy expensive machinery with only an initial deposit
53
Dusadvtages of hire purchase
- the business does not own the assets until the finial monthly payment - interest also must be paid which can make the asset more expensive in the long run
54
What is Personal savings
Owners use their own saving to invest in to the business
55
Advantages of personal savings
- the owner has complete control - reduces the amount which needs to be borrowed
56
Disadvantages of personal savings
- savings could be small and may not last long - owners with unlimited liability would risk losing their savings
57
What is a loan from family and friends
A business owner can borrow money from family or friends
58
Advantages from family or friends
The owner may not have to pay interest on the loan
59
Disadvantages of a loan from family or friends
This could lead to arguments or disagreements
60
What is debt factoring
This is when a business sells their debts to a debt factoring company
61
Advantages of debt-factoring
- the business will recoup some of the debt that they are owed - they save time of having to chase up customers to pay the debt
62
Disadvantages of debt factoring
- the business will not receive the full amount of debt that they are owed

business managment (6 decks)

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