Studied by 0 peopleloans pros+cons
pros- helpful when money isn’t available, usually fixed interest rate so the business can plan ahead
cons- high interest, can say no, bank takes collateral
collateral
what a bank takes that they can sell in the event a business cannot repay a loan
overdraft pros+cons
pros- can use money when needed so is flexible
cons- bank can demand full payment, high variable interest rates, expensive, can be suddenly stopped
hire purchase pros+cons
pros- good for expensive goods
cons- high interest, not owned until final payment
venture capital pros+cons
pros- expertise and advice, money added to business
cons- expect shares and returns, can threaten to pull investment, may end up too involved
share capital pros+cons
pros- permenant capital so the business will have the money
cons- investors receive no dividends if there is a poor year, new businesses are unlike;y to have established names for shares
owner capital pros+cons
pros- convenient, interest free, dont have to borrow and keep track
cons- runs out, may not have enough
retained profits pros+cons
pros- quick, easy, interest free
cons- once its gone its gone, not good for unexpected issues
selling assets pros+cons
pros- space for profitability, quick, saves unused equipment
cons- may not get full market value, may need to have asset later in business
government grants pros+cons
pros- doesn’t need to be paid back, good for new small businesses
cons- need to convince the business is worth investing in, applications are time consuming, criteria may not be met
morgages pros+cons
pros- paid back over long periods, helps with very expensive costs
cons- continuous interest, collateral can be sold if payments arent made
trade credit pros+cons
pros- materials can be accessed immediately, interest free
cons- short term and usually only small amounts
cash inflow
cash coming into a business
cash outflow
cash coming out of a business
what does poor cash flow cause
failure of business
what are the benefits of positive cash flow
avoid interest charges, better chance of getting a long term loan as you are deemed more responsible, less risk of failure
cash flow forecast
plan of a businesses expected cash inflows and outflows over time
cash flow statement
record of a businesses cash inflows and outflows over time
how do you work out total cash outflow
add all cash inflows together
net cash flow
cash a business will hold
how do you work out net cash flow
total cash inflow - total cash outflow
opening balance
amount help by business at the start of the trading month
how do you work out the opening balance
balance of the last trading day of the previous month
closing balance
funds available when at the end of a trading period when an account is closed
how to work out the closing balance
opening balance + net cash flow
what do [ ] mean in a cash flow forecast
negative balance
cost
anything a business has to pay for
fixed cost
costs that do not change
variable cost
costs that change depending on a business’ output
how to work out total cost
all the costs of a business
fixed+variable costs
how to work out revenue
any money that is made from businesses selling their products and services
selling price x quantity sold
how to work out profit
money left over after costs are paid / money made
revenue-total costs
loss
where profit is a negative because costs are higher than revenue
average rate of return
a percentage calculated that is a way of deducing the profitability of an investment
how to calculate average rate of return
average yearly profit x 100 / cost of investment
what is average rate of return stated in
\n a percentage
break even
the point where a business sells enough units to fully cover its costs
equilibrium point
where revenue = cost
break even chart
a chart that shows the financial activity of a business
what are the 6 things a break even chart requires / shows
total revenue, total costs, fixed costs, margin of safety, area of profit and loss, break even point
margin of safety
period of time after the break even point is reached and sales are being made, helps business be safe
how do we calculate margin of safety
actual sales in units- break even output level
what are four advantages of using a break even chart
know how many sales to break even, helps pricing decisions, sets targets to motivate employees, identifies key business information, identifies when costs are too high
what are two disadvantages of using a break even chart
doesn’t take into account variations of costs or selling price, forecasted sales aren’t guaranteed, high targets cause stress and uncertainty
assets
tangible product a business holds that has value e.g property, machinery
what are the two financial statements
income statement, statement of financial position
advantage of financial statement
spot trends in business, allow comparison with other businesses, give a clear financial overview of business
disadvantages of financial statements
time consuming to prepare, difficult to hide financial information from competitors or investors
income statement
financial performance of a business usually over 12 months based on income
gross profit
revenue - cost of sales, doesnt take into account any other expenses involved in running a business
net profit
gross profit- expenses, final stage in an income statement
what is another term for a statement of financial position
balance sheet
balance sheet
document demonstrating the financial position of a business at a given time
current assets
assets that are owned for a short amount of time (usually less than a year) such as stock, raw materials, cash
fixed assets
assets that are owned for a long period of time (usually over a year) such as vehicles, equiptment and buildings
current liability
short term debts that a business will need to pay back within a year such as an overdraft, trade credit, short-term loan
calculation for net profit margin
( net profit / sales revenue ) x 100
net profit margin
proportion of sales revenue that is left once all costs have been paid, basically how much net profit is made for every pound of sales revenue
calculation for gross profit margin
( gross profit / sales revenue ) x 100
gross profit margin
percentage of sales revenue that is left once the cost of sales has been paid, basically how much gross profit is made for every pound of sales revenue
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