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Question 1

why do businesses fail

Answer 1

• poor financial control
• lack of knowledge of the market
• loack of knowledge of competitor behaviour
• lack of a clear and unique selling point
• concentration risk (relying on a major supplier)
• flawed business plan

Question 2

what can businesses raise funds from?

Answer 2

internal source / external source

Question 3

what are the two financial terms

Answer 3

short-term / long-term

Question 4

what do the choices of finance depend on?

Answer 4

• the availability of finance
• the cost of finance
• the reason finance is required

Question 5

what is the availability of finance for a new business

Answer 5

• in its first year of trading does not reserves

Question 6

what is the availability of finance for a sole trader and partnership

Answer 6

cannont share issuing shares

Question 7

what is the availability of finance for a mortgage

Answer 7

only available to businesses borrowing against property

Question 8

what is the availability of financial for a financial record

Answer 8

unlikely to be able to borrow money from a bank

Question 9

what is the difference between internal and external sources of finance

Answer 9

internal sources of finance are usually cheaper than external sources of finance

Question 10

what are reason finance is required

Answer 10

• start-up
• replace outdated machinery
• buy out a competitors business
• purchase a new building
• deal with a cash flow crisis
• buy raw materials

Question 11

what are internal sources of finance

Answer 11

• owners savings
• reserves

Question 12

owners savings advantages

Answer 12

advantages - no need to repay the money - low costs, no interest to be paid

Question 13

owners savings

Answer 13

• short / long term finance
• sole traders and partnerships

Question 14

reserves

Answer 14

• long term of finance
• all businesses

Question 15

reserves advantages

Answer 15

advantages - no need to repay the money - low costs, no interest paid

Question 16

owners savings disadvantages

Answer 16

disadvantages - owners may not have enough savings - may leave the owners with insufficient savings for personal use

Question 17

reserves disadvantages

Answer 17

disadvantages - not available to new businesses in their first year to trading - not available to businesses that have made losses

Question 18

external sources of finances

Answer 18

• trade credit
• hire purchase
• credit card
• overdraft
• loan
• mortgage
• venture capital
• share issue
• crowd funding

Question 19

trade credit

Answer 19

• short term of finance
• all businesses

Question 20

trade credit advantages

Answer 20

advantages - improves cash flow by buying now and paying later - no interest charged if paid within agreed timescale

Question 21

hire purchase

Answer 21

• short term source of finance
• all businesses

Question 22

credit card disadvantages

Answer 22

disadvantages - interest charged if not repaid within the interest-free period - high interest rates, leading to spiralling debt

Question 23

overdraft

Answer 23

• short term source of finance
• all businesses

Question 24

loan

Answer 24

• long term source of finance
• all businesses

Question 25

mortgage advantages

Answer 25

advantages - can obtain premises that could not be afforded otherwise - repayments are spread over a long period of time

Question 26

venture capital

Answer 26

- long term source of finance - all businesses

Question 27

share issue

Answer 27

- long term source of finance - companies only

Question 28

crowdfunding

Answer 28

- long term source of finance - all businesses

Question 29

crowdfunding advantages

Answer 29

advantages - financial coupled with promotion of the businesses - available to businesses struggling to secure funding by conventional methods

Question 30

share issue advantages

Answer 30

advantages - no need to repay the money - no interest to be paid

Question 31

venture capital advantages

Answer 31

advantages - finance coupled with advice and expertise - business connections which can help the business grow

Question 32

mortgage

Answer 32

- long term source of finance - all businesses

Question 33

loan advantages

Answer 33

advantages - repayments are spread over a period of time - fixed instalments help with cash flow management

Question 34

overdraft disadvantages

Answer 34

disadvantages - interest rates are usually high - prolonged use makes it expensive -if you regularly go over the overdraft limit it will affect your credit score

Question 35

credit card advantages

Answer 35

advantages - if repaid within the time payment period, the borrowing is free - payment protection (money can be claimed back if there is a problem with a purchase -can help you build a positive credit score - be prepared for emergencies - borrow money withought paying interest

Question 36

trade credit disadvantages

Answer 36

disadvantages - bag debt if not paid on time - any discounts available for cash / early payment will be lost -need for credit management - suppliers may refuse credit - if not paid on time - reduce of amount to spend on costs - less products

Question 37

hire purchase advantages

Answer 37

advantages - payments are spread over a period of time - can obtain equipment that could not be able to afford otherwise

Question 38

credit card

Answer 38

- short term source of finance - all businesses

Question 39

hire purchase disadvantages

Answer 39

disadvantages - interest and additional charges make it expensive - can only be used to obtain equipment and machinery

Question 40

overdraft advantages

Answer 40

advantages - flexible - can help with short-term cash flow problems - interest is only charged on the daily amount overdrawn (not the overdraft limit)

Question 41

loan disadvantages

Answer 41

disadvantages - the length of the loan and the interest rate can make it expensive - the lender may require security on the loan -interest can be higher than alternatives -increased debt load - additinal monthly payments

Question 42

mortgage disadvantages

Answer 42

disadvantages - can only be used to purchase a property - if repayments are not kept up then the property will be repossessed

Question 43

venture capital disadvantages

Answer 43

disadvantages - equity funded. the venture capitalist becomes an owner - reduced control over decision making for current owners -can be expensive - requires setting up a board of directors

Question 44

share issue disadavntages

Answer 44

disadvantages - shareholders need to be paid dividends out of profit - issuing more shares may dilute the control of existing shareholders

Question 45

crowdfunding disadvantages

Answer 45

disadvantages - cost of providing appropriate reward to investors - businesses intentions made public, so may be copied if not fully protected

Question 46

how can a business plan help a business

Answer 46

- clarify the details of a proposal to business owners - judge the viability of a business venture for business owners - attract potential investors - obtain grant funding from charities and government sources - support a loan application to a bank or other lender - share business objectives with employees

Question 47

what should a business plan contain?

Answer 47

- Executive summary - overview of the contents of the business plan - intended product / services - e.g. new products / service / extension - unique selling point - i.e. what makes the business stand out - protection of the product / services - e.g. need to confidentiality during planning stage - prioritisation of business objectives - e.g. profit, market share, reputation - market research - e.g. competitor analysis - resource requirements - e.g. finance, number of employees and skills of employees - financial plan - e.g. the sources of finance, cash flow forecast, break-even point

Question 48

what is trade credit

Answer 48

a customer is allowed to purchase goods or services and pay the supplier at a later scheduled date.

Question 49

what is hire purchase

Answer 49

an arrangement for buying machinery or equipment, where the buyer makes an initial down payment and pays the balance plus interest in instalments.

Question 50

what is a loan

Answer 50

a thing that is borrowed, especially a sum of money that is expected to be paid back with interest.

Question 51

what is a credit card

Answer 51

a line of credit that can be used to make purchases, balance transfers and/or cash advances and requiring that you pay back the loan amount in the future.

Question 52

what is an overdraft

Answer 52

occurs when an account lacks the funds to cover a withdrawal, but the bank allows the transaction to go through anyway

Question 53

what is crowdfunding

Answer 53

the practice of funding a project or venture by raising money from a large number of people who each contribute a relatively small amount, typically via the internet.

Question 54

what is share issue

Answer 54

the procedure in which enterprises allocate new shares to the shareholders

Question 55

what is venture capital

Answer 55

a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential.

Question 56

what is a mortgage

Answer 56

an agreement between you and a lender that gives the lender the right to take your property if you fail to repay the money you've borrowed plus interest