finance

• What is the purpose of business finance?

  To start, grow, and fund activities
• Why do businesses need short-term finance?

  To meet regular costs and day-to-day activities
• What sources of finance can businesses use for short-term needs?

  Overdrafts and trade credit
• What is start-up finance needed for?

  To pay for non-current and current assets
• How can owners fund start-up finance?

  By investing their own capital
• Why might a business need finance for expansion?

  To purchase capital equipment and increase output
• What should be considered when recommending sources of finance?

  The business context and market risks
• What is a potential challenge for newly-established businesses in raising finance?

  Operating in risky markets
• What are the short-term finance needs of a business?

  • Meet regular costs
  • Pay for utilities
  • Pay suppliers
  • Cover employee wages
• What are the long-term finance needs of a business?

  • Purchase non-current assets
  • Acquire other businesses
  • Invest in capital resources
• What factors influence the need for finance in a business?

  • Business size and growth stage
  • Market conditions and risks
  • Type of assets required
• What are the implications of insufficient finance for a business?

  • Inability to cover operational costs
  • Limited growth and expansion opportunities
  • Difficulty in purchasing necessary assets
• What are common sources of finance for businesses?

  • Overdrafts
  • Trade credit
  • Long-term loans
  • Share capital
• What is an internal source of finance?

  Money that comes from within a business
• What are the main sources of internal finance?

  Personal savings, retained profit, sale of assets
• Why do business owners prefer using internal finance?

  It avoids paying interest on borrowing
• What is retained profit?

  Surplus revenue not distributed to owners
• What is the opportunity cost of using retained profit?

  Shareholders do not receive extra profit
• How can selling assets generate finance for a business?

  By selling non-current assets no longer needed
• What is a sale and leaseback arrangement?

  Selling an asset and renting it back
• Why might a business sell inventory at reduced prices?

  To raise additional finance and reduce storage costs
• What are the advantages of using internal finance?

  It is often free and organized quickly
• What are the disadvantages of using internal finance?

  There is a significant opportunity cost involved
• What is the significance of credit checks for bank loans?

  They determine eligibility for external finance
• How does internal finance help businesses that may fail credit checks?

  It provides easier access to funds without third parties
• What happens once retained profit is used?

  Shareholders do not receive extra profit
• What is the purpose of raising additional finance?

  To reduce risk and storage costs
• What is the purpose of a cash flow forecast?

  To predict cash inflows and outflows
• Why must inventory management be done carefully?

  To avoid disappointing customers with low stock
• How do clothing retail businesses manage old inventory?

  By holding January sales
• When is it preferable to use internal finance?

  When a business has sufficient internal funds
• What are the advantages and disadvantages of internal finance?

  Advantages:

  • Often free of interest or charges
  • No third-party influence
  • Quick organization with minimal paperwork
  • Accessible for businesses failing credit checks

  
  

  Disadvantages:

  • Significant opportunity cost
  • May not meet all business needs
  • Less tax-efficient than external methods
• What does a cash inflow include?

  Income from sales and loans received
• What is an external source of finance?

  Money introduced from outside the business
• When is external finance typically used?

  When internal sources cannot fulfill needs
• What are cash outflows?

  Payments for stock, wages, and rent
• What are the main sources of external finance?

  1. Overdrafts
  2. Trade Credit
  3. Loans
  4. Share Capital
  5. Hire Purchase
  6. Government Grants
• What is an overdraft?

  A flexible arrangement to spend beyond account balance
• What is trade credit?

  Agreement to delay payment to suppliers
• What acronym helps remember cash inflows?

  SLIC