Define internal sources of finance .

Internal sources of finance are funds raised from within the business itself , without borrowing from banks or seeking investment from investors.

True or False? Internal sources are usually the most expensive way for a business to raise money.

False. They involve no interest payments and no loss of ownership , so they are generally the cheapest and simplest option. However, they are limited by what the business already has available.

Define owners' investment .

Owners' investment is when the owner puts their own personal savings or wealth directly into the business.

What is the main personal risk for an owner who puts their own savings into the business?

The owner's personal finances are put at risk if the business struggles.

Define retained profit .

Retained profit is the profit a business has earned and chosen to keep within the business rather than paying out to owners or shareholders as dividends .

Retained profit is not an option for start-ups or _________ businesses.

Retained profit is not an option for start-ups or loss-making businesses.

Define sale of assets .

Sale of assets is raising funds by selling items the business owns but no longer needs , such as old machinery, vehicles or property.

Why can selling assets under financial pressure be risky?

The business may have to accept a lower price than expected if it needs to sell quickly. The sale can also signal distress to customers, suppliers and competitors.

Define sale and leaseback .

Sale and leaseback is when a business sells an asset , such as a building, to a buyer and then immediately leases it back , paying rent to continue using it.

True or False? After a sale and leaseback, the business cannot benefit if the asset's value rises.

True. The business no longer owns the asset , so it cannot benefit if its value increases over time. It must also meet ongoing lease payments regardless of trading conditions.

Define working capital .

Working capital is the money available for a business's day-to-day operations . Working capital = Current assets − Current liabilities

What are three ways a business can improve its working capital ?

It can chase debtors more quickly , negotiate longer payment terms with suppliers and reduce stock levels .

True or False? Reducing stock levels to free up cash carries no risk for a business.

False. Holding too little stock risks running out and losing sales .

Define external sources of finance .

External sources of finance are funds raised from outside the business , from lenders, investors, suppliers or the public.

Define trade credit .

Trade credit is an arrangement where a business receives goods or services from a supplier now but pays for them later , typically after 30, 60 or 90 days.

True or False? Trade credit gives a business extra cash to spend.

False. Trade credit does not provide actual cash . It only delays a cash outflow , giving the business more time to generate revenue before payment is due.

Define share capital .

Share capital is money raised by selling shares in a business. Investors who buy shares become shareholders and own a portion of the business.

Share capital is only available to _______, not to other types of business.

Share capital is only available to companies , not to other types of business.

Define bank overdraft .

A bank overdraft allows a business to spend more than it currently has in its bank account, up to an agreed limit .

Why is an overdraft unsuitable for funding long-term investment?

Overdrafts are designed to cover short-term cash shortfalls . Their interest rates are typically high , and the bank can reduce or withdraw the facility at short notice .

A bank loan is a fixed amount of money borrowed from a lender and repaid over an agreed period, with interest .

What is the difference between a secured and an unsecured loan?

With a secured loan, the lender holds an asset as collateral , such as property. An unsecured loan needs no collateral but typically has higher interest rates .

Define business angels .

Business angels are wealthy private individuals who invest their own money into early-stage or growing businesses, usually in exchange for a share of ownership .

True or False? Private equity firms typically invest in established businesses rather than start-ups.

True. Private equity firms invest pooled money from multiple investors and typically target more established businesses rather than start-ups.

How do private equity investors usually plan to exit their investment?

They usually plan to exit after a set period, often 5 to 7 years , by selling their stake at a profit .

Define crowd funding .

Crowd funding is raising money from a large number of individuals , typically through an online platform , with each contributing a relatively small amount.

In ____ crowd funding, backers receive a product, experience or recognition in return.

In reward crowd funding, backers receive a product, experience or recognition in return.

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Sources of Finance (AQA A Level Business): Flashcards

Exam code: 7132

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FrontInternal Sources of Finance
Define internal sources of finance.

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Cards in this collection (27)

Define internal sources of finance.
Internal sources of finance are funds raised from within the business itself, without borrowing from banks or seeking investment from investors.
True or False?
Internal sources are usually the most expensive way for a business to raise money.
False.
They involve no interest payments and no loss of ownership, so they are generally the cheapest and simplest option. However, they are limited by what the business already has available.
Define owners' investment.
Owners' investment is when the owner puts their own personal savings or wealth directly into the business.
What is the main personal risk for an owner who puts their own savings into the business?
The owner's personal finances are put at risk if the business struggles.
Define retained profit.
Retained profit is the profit a business has earned and chosen to keep within the business rather than paying out to owners or shareholders as dividends.
Retained profit is not an option for start-ups or _________ businesses.
Retained profit is not an option for start-ups or loss-making businesses.
Define sale of assets.
Sale of assets is raising funds by selling items the business owns but no longer needs, such as old machinery, vehicles or property.
Why can selling assets under financial pressure be risky?
The business may have to accept a lower price than expected if it needs to sell quickly. The sale can also signal distress to customers, suppliers and competitors.
Define sale and leaseback.
Sale and leaseback is when a business sells an asset, such as a building, to a buyer and then immediately leases it back, paying rent to continue using it.
True or False?
After a sale and leaseback, the business cannot benefit if the asset's value rises.
True.
The business no longer owns the asset, so it cannot benefit if its value increases over time. It must also meet ongoing lease payments regardless of trading conditions.
Define working capital.
Working capital is the money available for a business's day-to-day operations.
Working capital = Current assets − Current liabilities
What are three ways a business can improve its working capital?
It can chase debtors more quickly, negotiate longer payment terms with suppliers and reduce stock levels.
True or False?
Reducing stock levels to free up cash carries no risk for a business.
False.
Holding too little stock risks running out and losing sales.
Define external sources of finance.
External sources of finance are funds raised from outside the business, from lenders, investors, suppliers or the public.
Define trade credit.
Trade credit is an arrangement where a business receives goods or services from a supplier now but pays for them later, typically after 30, 60 or 90 days.
True or False?
Trade credit gives a business extra cash to spend.
False.
Trade credit does not provide actual cash. It only delays a cash outflow, giving the business more time to generate revenue before payment is due.
Define share capital.
Share capital is money raised by selling shares in a business. Investors who buy shares become shareholders and own a portion of the business.
Share capital is only available to _______, not to other types of business.
Share capital is only available to companies, not to other types of business.
Define bank overdraft.
A bank overdraft allows a business to spend more than it currently has in its bank account, up to an agreed limit.
Why is an overdraft unsuitable for funding long-term investment?
Overdrafts are designed to cover short-term cash shortfalls. Their interest rates are typically high, and the bank can reduce or withdraw the facility at short notice.
Define bank loan.
A bank loan is a fixed amount of money borrowed from a lender and repaid over an agreed period, with interest.
What is the difference between a secured and an unsecured loan?
With a secured loan, the lender holds an asset as collateral, such as property. An unsecured loan needs no collateral but typically has higher interest rates.
Define business angels.
Business angels are wealthy private individuals who invest their own money into early-stage or growing businesses, usually in exchange for a share of ownership.
True or False?
Private equity firms typically invest in established businesses rather than start-ups.
True.
Private equity firms invest pooled money from multiple investors and typically target more established businesses rather than start-ups.
How do private equity investors usually plan to exit their investment?
They usually plan to exit after a set period, often 5 to 7 years, by selling their stake at a profit.
Define crowd funding.
Crowd funding is raising money from a large number of individuals, typically through an online platform, with each contributing a relatively small amount.
In ____ crowd funding, backers receive a product, experience or recognition in return.
In reward crowd funding, backers receive a product, experience or recognition in return.

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