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A level edexcel Business 2024 > real Theme 2 > Flashcards

real Theme 2 Flashcards

(80 cards)

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1
Q

What is Internal finance

A

Internal finance comes from the owner’s capital, retained profit, or the sale of assets

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2
Q

Sources of internal finance

A

Owner’s capital: personal savings
Retained profit
Sale of assets

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3
Q

Benefits for internal finance

A

+ Often free,does not involve payment of interest or charges
+ doesnt involve third parties
+ quick
+ access no matter credit check

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4
Q

Drawbacks for internal finance

A
  • Significant opportunity cost
  • May not be sufficient
  • Rarely tax-efficient
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5
Q

Sources of external finance

A

Family and friends
Banks
Peer-to-peer funding
business angels
Crowd funding
Other businesses

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6
Q

The Advantages & Disadvantages of Family and Friends as a Source of Finance

A

+ Cheap
+ No strings attached
- Damage relationships

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7
Q

The Advantages of Bank Loans

A

+ Offer short and long therm finance
+ Provide advice
+ Small sums borrowed from unsecured

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8
Q

Disadvantages of Bank Loans

A
  • Requires business plan
    -Banks are cautious
  • interest
  • businesses must be customers of the bank
  • for large amount; provide security to be granted loan
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9
Q

Peer-to-peer funding

A

Individuals with available savings pool it with others in a peer investment scheme such as Funding Circle

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10
Q

+ and - of Peer-to-peer funding

A

+ Quick
+ No strings attached
- Borrowers charged small fee, pay interest same way as a bank loan

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11
Q

+ and - of Business angels

A

+ WIlling to take risk
+ Advice
+ For determined period of time
- Finding right ones -> networking
- Own stake in business, make decisions

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12
Q

+ and - of Crowdfunding

A

+ organic customer base
+ no credit rating required
- provide persuasive business plan
- negative publicity if not successful

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13
Q

+ and - of using Other businesses

A

+ access to processes and market knowledge
+ large amount of finance
- profits shared
- decision making handed over

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14
Q

Methods of external finance

A

Loans
Leasing
Share capital
Trade credit
Venture Capital
Grants
Overdrafts

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15
Q

Method of Finance - Bank loans

A

Bank loans are usually unsecured
+ interest fixed
+ repayments made equally
- interest rates depend on business
- non-current liabilities increase

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16
Q

Method of Finance - Mortgages

A

Mortgages are long-term secured loans
+ Purchase expensive property without large amount of capital
- missed payments lead to repossession
- Repayments variable, linked to current interest rates

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17
Q

Debentures

A

Debentures are long-term agreements between a business and a lender
+ control retained
+ interest fixed
- high interest
- deter investors if fail

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18
Q

Overdrafts

A

An arrangement for business current account holders to spend more money than it has in their account
+ short term
- Called in

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19
Q

Share Capital

A

Share capital is finance raised from the sale of shares in a limited company
+ Large amount of shares
+ interest is not payable
- Shareholders have power

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20
Q

Venture Capital

A

Funds provided by specialist investors
+ Allows for another option if refused from other sources
- requires a stake in the business

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21
Q

Leasing

A

An asset such as a piece of machinery or a vehicle used by the business in return for regular payments|
+doesnt own so not responsible for maintenance
- leasing more expensive in long run

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22
Q

Trade Credit

A

An agreement is made with suppliers to buy stock which is paid for at a later date
+ usually interest free
- discounts for early payment not available

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23
Q

Grants

A

Governments and industry trusts may offer grants to businesses that meet specific criteria
+ Don’t need to be repaid
- May be used not for intended purpose

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24
Q

Appropriate internal Finance for Limited Businesses

A

Retained profit
Debentures
Share capital

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25
Appropriate external Finance for Limited Businesses
Venture capitalists Business angels
26
Unlimited liability business sources of finance
Personal savings Retained profit Unsecured loan Overdraft Mortgage Trade credit Leasing Peer-to-peer Crowd funding Grants
27
Business Plan
document produced by the owner at start-up, which provides forecasts of items such as sales, costs and cash flow
28
Sales Forecasts
predict future revenues based on past sales figures
29
Factors Affecting Sales Forecasts
Seasonal Fashion Long term trends Economic growth Inflation Unemployment Interest rates Exchange rates Actions of competitors
30
Difficulties of Sales Forecasting
Skill Time Bias Ignore stakeholders
31
Reasons for Using Budgets
Planning & monitoring Control Coordination and communication Motivation and efficiency
32
Historical figure budgets
Budgets are usually based on historical data (e.g sales and costs data from previous years) and allow for factors such as Inflation and other relevant economic indicators
33
Zero based budgeting
requires all spending to be justified which means that many unnecessary costs can be eliminated + Cut costs - Time consuming -requires skill
34
Variance Analysis
difference between a figure budgeted and the actual figure achieved by the end of the budgetary period
35
Favourable variance
actual figure achieved is better than the budgeted figure
36
adverse variance
actual figure achieved is worse than the budgeted figure
37
difficulties of budgeting
Data must be up to date, accurate and free of bias Skills required - > specialist staff
38
How to improve profitabily
Increase prices Reduce one-off costs & interest (zero budgeting) Reduce variable costs (purchase in bulk) Reduce expenses (replace inefficient fixed assets)
39
Profit
the difference between revenue generated and business costs
40
Cash
measured by taking into account the full range of money flowing in and out of a business
41
Statement of Financial Position (Balance Sheet)
the financial structure of a business at a specific point in time, draw conclusions about the liquidity of the business
42
Ways to Improve Liquidity
Reduce the credit period offered to customers Ask suppliers for an extended repayment period Make use of Overdraft facilities or short-term loans Sell off excess stock Sell assets and lease fixed assets instead Introduce new capital and reduce drawings from the business
43
Working capital
the money that a business has to fund its day to day activities
44
Internal Causes of Business Failure
Poor planning Lack of leadership Ineffective marketing Cash flow problems Lack of funds
45
External Causes of Business Failure
Economic failure Changes in consumer tastes Legal factors Market challenges Technological change
46
Methods of production
Job production Flow production Batch production Cell production
47
Job production
Manufacturers produce one product at a time as ordered by the customer + High quality + motivated skilled workers + tailored - slow - labour costs high
48
Flow Production
Continuous manufacturing of standardised products, usually on a production line + low unit costs, economies of scale + rapid + automated, capital intensive - not tailored - expensive
49
Batch Production
Groups of the same product are produced as a batch + workers can specialise + takes place when previous batch runs out - coordination - products need to be stored
50
Cell Production
workers being organised into multi-skilled teams, with each team responsible for a particular part of the production process + efficient + motivation, team - logistics - dependant on workers
51
Factors that Influence Productivity
Employee motivation Training staff Business organisation Investment in capital equipment
52
The Link Between Productivity & Competitiveness
Businesses that are competitive are likely to have the financial resources required to continue investing in improvements to their productivity
53
Factors that Influence Efficiency
Standardisation of the production process Relocation or downsizing Investment in capital equipment Organisational restructuring Outsourcing Adoption of lean production techniques, Kaizen, just in time
54
Capital Intensive
uses machinery and technology in the production of goods/services + low cost, out put high + consistent and precise + run without breaks - maintence - breakdowsns - lack of flexibility
55
Labour Intensive
uses physical labour in the production of goods/services + low cost + workers are creative + flexible - unreliable, need breaks - incentives - training costs
56
Ways of Improving Capacity Utilisation
Increase usage Outsourcing Reduce capacity Redeployment Increase sales
57
Buffer Stocks
quantity of goods/raw materials kept in case of stock shortages + stability + avoid shortages + security + competitive - cost - obsolete - ties up capital
58
Implications of too much Stock
Storage costs Spoilage, stock shrinkage
59
Implications of too little Stock
Run out of stock Demand may not be met
60
Just in time
raw materials are not stored onsite but ordered as required and delivered by suppliers 'just in time' for production + cost minimsation + cash flow improved + teamwork - bulk buying increases costs, eos not possible - respond to demand - logistics
61
Ways to minimise waste
Storage Planning Sales tactics
62
Competitive Advantage from Lean Production
Less time required to produce Fewer materials Less labour reduced space low unit costs achieved
63
Lean Production
focuses on cutting out waste, whilst ensuring quality.
64
Quality Control
Inspecting the quality of output at the end of the production process
65
Quality Assurance
Inspecting the quality of production throughout the process
66
Quality Circles
Groups of workers meet regularly to solve quality problems
67
Inflation
general rise in prices in an economy over time
68
Problems Caused by Inflation
Increased costs Higher repayments on loans Consumers change spending habits International competitiveness reduces Uncertainty
69
Impact of appreciation to an exporting business
Sales likely to fall May need to lower prices and accept lower profit margins
70
Impact of appreciation to an importing business
Costs likely to fall Expand the pool of overseas suppliers
71
Impact of depreciation to an exporting business
Sales likely to rise Increase selling prices
72
Impact of depreciation to an importing business
costs likely to rise seek domestic suppliers
73
interest rate
reward offered for saving money and the percentage charged for borrowing money
74
What happens if interest rates rise
businesses will have to pay more on new or variable rate borrowing which will increase their costs
75
The Impact of an Increase in Taxation on revenue
Revenue will fall increased tax will reduce disposable income of customers increased VART will make products more expensive and want to switch
76
The Impact of an Increase in Taxation on costs
Operating costs will rise Higher costs, charge higher price May mean lower sales
77
The Impact of an Increase in Taxation on business decisions
Operations decisions Spending and investment avoid taxation
78
Changes in the business cycle
Expansion Boom Down turn Low growth Recsession Slump/depression Recovery
79
Legislation
laws and regulations passed by governments that require businesses and individuals to conduct their behaviour in a particular manner
80
The Effects on Businesses of Legislation
Consumer protection Employee protection Environmental protection Competition policy Health and Safety

A level edexcel Business 2024 (10 decks)

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