Theme 2 Finance Flashcards
(56 cards)
Internal sources of fincance
Owners capital
+doesn’t require you to pay back.
-might not have enough savings for the use needed.
Retained profit
A businesses net income that isn’t paid out to shareholders.
+ safety net for emergencies
-potentially turning off shareholders by retaining money that could used for dividends.
Sale of assets
Selling fixed assets (machinery)other than stock
+ can quickly raise money from unused equipment
- might not get the full market value
Family and friends
External sources of fincnace
+ may not need to be paid back
- arguments may occur
Business angel
Someone with high ent worth and business experience who invests into growing businesses.
+ use of expertise and guidance.
- loss of control.
Crowdfunding
+ money may not need to be repaid.
- not in control of who’s donating.
Other businesses
+ expertise.
-may need to be paid back.
Method- Share capital
Shareholders invest into company in return to gain a share.
+ only pay dividends if profit is being made.
- reduces control.
Method- Venture capital
Money invested usually to a start up or have substantial element of risk.
+ they may offer help and advice
- they may different visions for the business.
Method - Over drafts
+ allows emergency purchases.
-Hugh interest rates.
Method-Leasing
Using assets but renting for them
+ leasing company responsible for repairs and maintenance.
- assets aren’t owned.
Method-Trade credit
Business to business, pay the supplier later.
+access to supplies and no interest, can sell before pay back.
- must be paid off quick.
Method-Grant
Maybe supplied by government for a purpose like training.
+ doesn’t need to be paid back.
-time consuming to apply , paperwork.
Difference between limited and unlimited liability+-
L- shareholders and owners can only loose the amount invested e.g private and public limited company.+ - expensive to start up
UL- business owners are liable for all business debts and all personal belongings are at risk-
What’s a business plan and cash flow forecast
BP-written documents that describes how a business, usually a new one, will achieve its goals.
CFF- is a forecast if the cash inflows and outflows of a business over time.
Positives and negatives of business plans and CFF
BP
+generate confidence to potential lenders as risk will be lower.
- expensive and time consuming to create.
CFF
+ allows suppliers and employees to be paid on time.
-estimates, doesn’t factor in unforeseen events.
Purpose of sales forecasts
To set budgets and plan workforce needed
Use past data and market data
Correlation- postive e.g warmer weather higher sales in ice cream.
Extrapolation- making predictions based on trends.
Moving average- smooths out fluctuations in data.
Factors effecting sales forecasts
Consumer trends
Seasonality
Competitors
Fixed and variable costs
FC- rent, salaries and insurance
VC- raw materials, hourly wages
What’s a break even analysis
Determines the number of units or amount of revenue needed to cover your businesses costs.
BE- not making profit or loss, surviving.
2limitations of break even analysis
-it assumes selling price remains constant.
- variable costs like raw materials re likely to change as output increases, such as benefits of bulk buying as volume increases.
+can predict if there will be sales.
2 types of budgeting
Historical and zero nased all departments start on zero
Purpose of budgeting
Allows performance to be measured by monitoring spending against a target. This provides guidance for manager on how much to sound how they should spend it, limiting waste and I,proving efficiency.
problems and positives of budgeting
Accuracy, they are only as good as data used to Create them.
Time consuming to prepare.
Reecues overspending and waste
