Raising Finance Edexcel A Level Business Flashcards

Flashcards covering internal and external finance, liability, and planning for Edexcel A Level Business.

What are the three sources of internal finance?

Owner's capital, retained profit, and the sale of assets.

What is owner's capital?

Personal savings that owners invest in the business.

What is retained profit?

Profit from previous years that is reinvested back into the business.

What is a sale and leaseback arrangement?

Selling an asset and then renting it back from the new owner.

List three advantages of internal finance.

Often free, does not involve third parties, and can be organized quickly.

List three disadvantages of internal finance.

Significant opportunity cost, may not be sufficient, and rarely tax-efficient.

Name six sources of external finance.

Family and friends, banks, peer-to-peer funding, business angels, crowdfunding, and other businesses.

Name two advantages of using family and friends for finance.

Usually a cheap source of funds and may have flexible terms.

Name one disadvantage of using family and friends for finance.

Relationships may be damaged if the finance is not repaid.

What are two advantages of bank loans?

Offer both short and long-term finance and provide free advice.

What are two disadvantages of bank loans?

Businesses need a business plan and banks can be cautious about lending to new businesses.

What is peer-to-peer funding?

Individuals with savings pool it with others in an investment scheme.

What are business angels?

Individuals who invest in start-up or expanding businesses with advice and guidance.

What is crowdfunding?

Finance provided by a large number of small investors on online platforms.

What is a joint venture?

When a business accesses finance via a partnership with another business.

Name seven methods of external finance.

Loans, share capital, venture capital, overdrafts, leasing, trade credit, and grants.

What are debentures?

Long-term agreements between a business and a lender to repay an amount with a fixed interest rate by a certain date.

What is overdraft?

Arrangement for business current account holders to spend more money than it has in their account.

What is share capital?

Finance raised from the sale of shares in a limited company.

What is venture capital?

Funds from specialist investors in small to medium-sized businesses with significant potential for growth.

What is leasing?

Using an asset such as machinery or a vehicle in return for regular payments.

What is trade credit?

Agreements made with suppliers to buy raw materials with payments at a later date, typically 30 to 90 days later.

What are grants?

Money offered by governments and industry trusts to businesses that meet specific criteria that do not need to be repaid.

What is unlimited liability?

When sole proprietors and partnership owners are fully responsible for all debts owed by the business.

What is limited liability?

When owners of private limited companies and public limited companies can only lose the original amount they invested in the business if it fails.

What is a business plan?

A document produced by the owner at start-up, which provides forecasts of items such as sales, costs and cash flow.

What is a cash flow forecast?

A prediction of the anticipated cash inflows and cash outflows, typically for a six to twelve month period.

What is the net cash flow?

Calculated by subtracting total outflows from total inflows.

What is the opening balance in a cash flow forecast?

The previous month’s closing balance carried forward.

What is the closing balance in a cash flow forecast?

Calculated by adding the net cash flow to the opening balance.

Name 3 uses for cash flow forecasts.

Support a loan application, identify cash shortfalls/surpluses, and aid business planning

Name 3 limitations of cash flow forecasts.

Based on estimates, require appropriate skills and time to prepare, and external factors may not be reflected.