Theme 2.1: Raising Finance

Question 1

Share Capital

Answer 1

Comes from the sale of shares

Question 2

Venture Capitalists

Answer 2

People who invest in the early stages of a business on the hope that the value of the business goes up so they can sell the shares for a profit

Question 3

Leasing

Answer 3

Regular monthly payment given to an outside business in exchange for the use of an asset such as a machine

Question 4

Trade Credit

Answer 4

Loans in the form of assets and raw materials that are paid for a later date

Question 5

Grants

Answer 5

A sum of money usually given by the government to a business in exchange for them creating jobs and an economy in a certain area e.g areas with low employment may have local businesses receive grants to expand their business and strengthen the local economy

Question 6

Sole Trader characteristics

Answer 6

. Single person runs the business
. Unlimited liability
. Legally liable for all debts of the business

Question 7

Partnership characterisitcs

Answer 7

. 2 - 20 people
. Unlimited liability
. Legally liable for all debts of the business

Question 8

Limited Companies

Answer 8

Companies with limited liability have all the loss associated with them limited to the business and not the owners themselves

Question 9

Private Limited Companies (LTD) characteristics

Answer 9

. Has up to 50 shareholders
. Shares can only be sold with consent of all other shareholders, usually sold to family and friends.
. Not on the stock exchange
. Small to medium sized enterprises but sometimes large

Question 10

Public Limited Companies (PLC) characteristics

Answer 10

. Shares can be bought by everyone
. Sold to the general public through the stock exchange
. Whoever owns the most shares is the owner, usually 50.1%
. Accounts available to the public
. Owner looses some control
. Dividends given to shareholders

Question 11

Unlimited Liability

Answer 11

All debts accumulated by the business are liable to be payed by the owners of the business even if this means selling personal assets such as houses or vehicles. Businesses with limited are sole traders and partnerships.

Question 12

Limited Liability

Answer 12

The liability of the business is limited to the business itself and the owners or shareholders personal assets are protected as the business is a separate legal entity. Used by public and private limited companies.

Question 13

Insolvency

Answer 13

When a company cannot pay its debts because it’s making a loss.

Question 14

Liquidation

Answer 14

When a business is clearly insolvent (can’t pay debts) so has to close down. It’s assets or part of the company is usually sold so that they are able to pay of at least some of their debts

Question 15

Share Capital

Answer 15

Money gained from the selling of shares used by limited companies but not sole traders and partnerships.

Question 16

Business plan

Answer 16

A document that sets out what the business is, what it does, what it wants to achieve and how it is going to achieve this usually used in order to secure finance through investors such as the bank. Basically a blue print used to plan a businesses development.

Question 17

What are some of the contents of a business plan?

Answer 17

. Summary - Brief overview of the business also know as the executive summary
. List of products or services
. The market and its competitors
. Marketing plan
. Organisational details I.e Human Resources
. Production plan
. Past financial data
. Future financial forecast (THE MOST IMPORTANT PART) cash forecast, break even analysis and the statement of comprehensive income
. Existing sources of finance

Question 18

Cash flow forecast

Answer 18

A statement of the expected cash coming in and out of a business taking into account the costs going out, sales going in and so on.

Question 19

Net Cash Flow

Answer 19

The difference between cash inflows and outflows e.g if 10,000 is coming in and 6,500 coming out the net cash flow is 3,500

Question 20

Opening balance

Answer 20

Money at the start of the month

Question 21

Total cash inflow

Answer 21

Total amount of money coming into the business over the month

Question 22

Total cash outflow

Answer 22

Total amount of money coming out of the business in a month

Question 23

Closing balance

Answer 23

Money at the end of a month, opening balance for the next month

Question 24

Uses of a cash flow forecast

Answer 24

. To gain finance off the bank
. To predict when is best for expansion
. To look at when profits are low and figure out ways to prepare for that
. To estimate future trends in the amount of money they have

Question 25

Limitations of cash flow

Answer 25

. Only an estimate / prediction
. Unforeseen circumstances cannot be planned for
. Costs of materials, production and so on change over time meaning it’s accuracy is limited the older it gets

Question 26

What is a Creditor?

Answer 26

Someone who is owed money

Question 27

What is a debtor?

Answer 27

Someone who owes money

Question 28

What is Insolvency?

Answer 28

Occurs when a company is unable to pay its debts because it is making a loss

Question 29

What is Liquidation?

Answer 29

Occurs when a business is clearly insolvent and has to close down. Its assets or part of the company are sometimes sold to raise cash to pay at least some of the debts

Question 30

What do businesses need finance for?

Answer 30

Start Up Costs
Depreciation
Day to Day expenses
Expansion