Theme 2 - Managing Business Activities (1/2)

• Source of finance


  A source, either within or outside of a business, from which a business can get access to money
• Internal source of finance

  A source of finance that comes from within a business
• Personal funds


  An internal source of finance where the business owner's personal wealth is used in the business
• Retained profit


  An internal source of finance where the profits from the previous year are used in the business
• Sale of assets


  An internal source of finance where the business sells assets that they own (buildings, vehicles, equipment) to raise money
• External source of finance

  A source of finance that comes from outside of the business
• Loan capital


  An external source of finance where the business borrows money for an agreed length of time
• Overdraft


  An external source of finance (loan capital) where a business is able to go into an agreed negative balance on their current account. This is a short term measure
• Bank loan


  An external source of finance (loan capital) where a business borrows an agreed amount of money from a bank, but must pay back interest
• Share capital


  An external source of finance where a business sells a share in the business in exchange for money
• Venture capitalist


  An investor or business specialist who seeks to invest in businesses they feel can make them a profit
• Leasing


  Where a business rents the use of something (buildings, vehicles, equipment) for a monthly fee for a fixed period of time
• Government grants


  Where a business receives an amount of money from Government for a specific purpose. These are usually provided when Government benefits from the operation of the business.
• Trade credit


  Where a business is given a period of time to pay for something, effectively receiving a loan of the items with payment at a later date. This is often 30 days
• Debentures


  A long term source of finance where a business takes out a long-term loan from another company
• Crowdfunding


  An example of peer to peer funding where a business can raise money from a larger "crowd" of investors, who each take a small stake through contributing a small amount each
• Working capital


  The money invested into a business for use in day to day operations. Usually calculated by current assets - current liabilities.
• Short term finance


  Finance available for the next 12 months
• Medium term finance


  Finance available for between 1 and 5 years
• Long term finance


  Finance available for more than 5 years
• Unlimited liability


  Where the owner of a business is liable for all debts of the business. This is the case for unincorporated businesses
• Limited liability


  Where the business is only liable for debts up to the value of the assets and capital of the business. This is the case for incorporated businesses
• Business plan


  A document setting out the format of the business idea, including projected aims, objectives, information on the product/service and finance projections
• Business model


  The plan implemented by a company to generate revenue and make a profit from operations
• Cash flow


  The money that comes in to and out of a business
• Cash inflow


  Money coming into a business
• Cash outflow


  Money going out of a business
• Cash flow forecast


  A projection of cash inflows and outflows over a period of time (6 months or a year)
• Net cash flow


  Cash inflows - Cash Outflows. This shows how much cash you should have at the end of a period of time given how much money is coming in and going out.
• Sales forecast


  A projection of how many sales a business is expecting to receive over a period of time
• Consumer trends


  Patterns in consumer behaviour that show the popularity or growth/decline of a product/service
• Economic variables


  Something that has an impact on a forecast involving the economy. For example, an increase in inflation, in interest rates, in foreign exchange rates.
• Competitor actions


  Actions carried out by competing businesses that will impact on a business
• Extrapolation


  Using trends established by historical data to make predictions about future values, assuming that trend will continue going forwards
• Correlation


  A method of sales forecasting, looking at the strength of a relationship between two variables
• Independent variable


  A variable that causes another variable to change
• Dependent variable


  A variable that is influenced by another variable
• Positive correlation


  When the independent variable increases, so does the dependent variable
• Negative correlation


  When the independent variable increases, the dependent variable falls
• No correlation


  When there is no relationship between two variables