Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Business BTEC Pearson 2023-2024-2025 > Learning Outcome D > Flashcards

Learning Outcome D Flashcards

1
Q

Give reasons to why a business may need finance?

A

Pay employees, grow the business (expand), buy stock, buy machinery, invest in the business and buy assets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

How many sources of internal finance are there?

A

3.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Name the 3 sources of internal finance

A

Retained profits, net current assets and sale of assets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Retained profit explanation

A

The amount of a businesses net income that is kept within its account to fund future expenses.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Advantages of using retained profits as an internal source of finance

A

+ Not interest charges.
+ Available immediately.
+ Avoids debt.
+ No loss of ownership.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Disadvantages of using retained profits as an internal source of finance

A
  • Only an option if have a sufficient amount of retained profit within the business.
  • Reduces dividends to shareholders.
  • Limited amount.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Net current assets explanation

A

Money available for day-to-day running and operation of a business.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Advantages of using net current assets as an internal source of finance

A

+ No interest repayments.
+ No approvals needed.
+ Low costs.
+ Encourages the business to manage cash flow.
+ No loss of ownership.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Disadvantages of using net current assets as an internal source of finance

A
  • May lower profitability if lose discounts for early repayments.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Sale of assets explanation

A

Sale of a long term fixed asset. A fixed assets will stay in the business for more than a year.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Advantages of using sale of assets as an internal source of finance

A

+ No interest/repayments.
+ May be turning obsolete asset into finance.
+ Immediate lump sum cash injection.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Disadvantages of using sale of assets as an internal source of finance

A
  • May be expensive in the long run if need to lease asset back.
  • Loss of use of asset and future value.
  • It’s only a one off option.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How many sources of external finance are there?

A

13.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Name the 13 sources of external finance

A

Owner’s capital, loans, crowd funding, mortgages, venture capital, debt factoring, hire purchase, leasing, trade credit, grants, donations, peer to peer lending, invoice discounting,

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Owner’s capital description

A

Amount of finance and resources an owner invests into their business from their own personal finance.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Owner’s capital advantages

A

Quick & convenient.
Does not require borrowing finance.
No interest payments to make.
No ownership lost.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Owner’s capital disadvantages

A

Limited amount available.
Owner might not have enough finance.
Owner may need the cash for personal use.
Personal finances at risk.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Loans advantages

A

Easy & quick to access.
Can get a large amount of finance at one time.
Easy to budget.
No ownership lost.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Loans definition

A

Finance borrowed from the bank which needs to be paid back + interest.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Loans disadvantages

A

Have to pay interest.
Difficult for a new business to access.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Crowd funding definition

A

Use of small amounts of capital from a large number of individuals to finance a new business venture.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Crowd funding advantages

A

Money may not need to be repaid.
Funds often come from many investors.
Build a customer base early.
No interest.

23
Q

Crowd funding disadvantages

A

Fees can be steep.
Potential failure to meet goals and not receive finance.
Partial loss of ownership.

24
Q

Mortgages definition

A

A long-term source of finance lent from a bank to purchase a property or land.

25
Q

Mortgages advantages

A

No loss of ownership or control.
Large amounts of finance can be acquired and paid back over a long period of time.
Secured against asset that could be seized.

26
Q

Mortgages disadvantages

A

Pay interest on amount borrowed.
Not suitable as a short term source of finance.

27
Q

Venture capital defintion

A

Money invested in a business by investors (expect to receive high return) usually to start up.

28
Q

Venture capital advantages

A

Finance is made available along with advice/mentoring.
Finance may be easier to obtain as venture capitalists are usually high risk high reward people (want return in their investment).

29
Q

Venture capital disadvantages

A

Loss of ownership/control.
Conflict may occur over the direction of the business.

30
Q

Debt factoring definition

A

When a business sells their invoices to a 3rd party at a discounted price in order to by pass the hefty waiting times which are associated with invoice payments.

31
Q

Debt factoring advantages

A

Get quickly.
Improves the businesses cash flow.
Reduces risk of default on payments.

32
Q

Debt factoring disadvantages

A

Only receive a percentage of the amount the business is owed.

33
Q

Hire purchase definition

A

Used to purchase an asset.
A deposit is paid and the remaining amount for that asset is paid back monthly.

34
Q

Hire purchase advantages

A

Expensive asset can be purchased and paid back over time.
Regular payments = spread out = good for budgeting.

35
Q

Hire purchase disadvantages

A

Interest charged.
Equipment not owned until final payment is made.
Likely to cost more than buying asset outright.
Only suitable for lower cost items.

36
Q

Leasing definition

A

A way of renting an asset that the business requires.
Monthly payments.
Item not owned at the end of the payments by the business.

37
Q

Leasing advantages

A

Large amounts of finance not required up front.
Leasing companies responsible for repairs and maintenance.
Spread cost.

38
Q

Leasing disadvantages

A

Overtime it can be a more expensive way to obtain assets (likely to cost more than buying outright).
Assets are never owned by a business.
Never own asset = payment ongoing.

39
Q

Trade credit definition

A

Must be agreed with a supplier and forms a credit agreement with them. Allows businesses to obtain raw materials and stock but pay for them at a later date.
Mainly used as a short term source of finance.

40
Q

Trade credit advantages

A

Access to suppliers without immediate payment.
No interest.
Helps with cash flow due to delayed payments.
No loss ownership/control.

41
Q

Trade credit disadvantages

A

Short term, must be paid off quickly.
Usually small amounts.
Business may lose discounts for paying cash.

42
Q

Grants definition

A

Fixed amount of money usually awarded by the government, EU (European Union) or charitable organisation.

Grants are given to a business on the condition that they meet certain requirements.

43
Q

Grants advantages

A

Does not need to be repaid.
No interest payments.
No loss of ownership or control.

44
Q

Grants disadvantages

A

Have to meet certain requirements.
Takes a long time to apply.

45
Q

Donations definition

A

Funds given willingly to a charity or social enterprise.

46
Q

Donations advantages

A

No need to repay.
No interest charged.
No loss of ownership/control.

47
Q

Donations disadvantages

A

No reliable.
Usually received in small amounts.

48
Q

Peer to Peer Lending definition

A

A form of direct lending of money to individuals or businesses without an official financial institution participation as an intermediary in the deal.

49
Q

Peer to Peer Lending advantages

A

Interest rates can be lower than a traditional bank.
Easier to budget as repayments are at a fixed rate.

50
Q

Peer to Peer Lending disadvantages

A

Amount available to borrow may be limited.
Short term source.

51
Q

Invoice Discounting definition

A
52
Q

Invoice Discounting advantages

A
53
Q

Invoice Discounting disadvantages

A

Business BTEC Pearson 2023-2024-2025 (13 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions