What are the three broad reasons why all businesses need finance ?

All businesses need finance to get started , to grow and to fund their continuing activity .

What is short-term finance used for?

Short-term finance is used to meet regular costs , such as paying for utilities, suppliers and employee wages . These are usually small amounts that are rarely needed beyond a year.

If sales revenue does not cover day-to-day expenses, a business may use short-term sources such as overdrafts or __________.

If sales revenue does not cover day-to-day expenses, a business may use short-term sources such as overdrafts or trade credit .

True or False? Long-term finance is mainly used to pay employee wages each month.

False. Long-term finance funds the purchase of non-current assets , such as buildings, or the acquisition of other businesses . These are large sums needed for a significant period of time.

Which sources might a business use for long-term needs if retained profit is not enough?

It may consider taking out long-term loans or mortgages , or raising share capital .

What is start-up finance needed for?

Start-up finance pays for the non-current assets and current assets , such as stock, that a new business needs before it can begin trading .

The amount of start-up finance a new business needs is identified in its ___________.

The amount of start-up finance a new business needs is identified in its business plan .

True or False? Owners often invest their own capital into a new business.

True. Owners commonly put their own capital into a new business, and some small business owners also obtain a start-up loan to cover initial costs.

What might a growing business need to buy with its expansion finance ?

It may need more machinery, buildings, IT infrastructure or vehicles to help it increase output .

Why might a business that grows by developing new products need large amounts of finance?

It may need to invest heavily in research and development (R&D) to create the new products.

Define internal source of finance .

An internal source of finance is money that comes from within a business , such as personal savings or the sale of assets.

Define retained profit .

Retained profit is the surplus of revenue over costs generated in previous years that has not been distributed to owners .

True or False? Reinvesting retained profit has no opportunity cost for a business.

False. Reinvesting it avoids interest and fees, but there is an opportunity cost : shareholders do not receive that extra profit for their investment.

What is a sale and leaseback arrangement?

A business sells a non-current asset , usually a building, to raise cash. It then rents the asset back from the new owner so it can keep using it.

True or False? Internal finance may not be enough to meet the needs of a business.

True. Internal sources are limited , so they may not be sufficient to meet the business's needs.

Define external source of finance .

An external source of finance is money that is introduced into the business from outside .

An overdraft is a flexible arrangement with a bank that allows a business to spend more money than it has in its account .

True or False? Using an overdraft for a long period is a cheap way to finance a business.

False. Overdraft interest is usually charged at a daily rate , so long-term use can be expensive compared to other methods.

An agreement with a supplier to receive goods now and pay for them at a later date is called __________.

An agreement with a supplier to receive goods now and pay for them at a later date is called trade credit .

________ are long-term loan certificates issued by limited companies that must be repaid with a fixed rate of interest.

Debentures are long-term loan certificates issued by limited companies that must be repaid with a fixed rate of interest.

When does a business own an asset acquired through hire purchase ?

A business only owns a hire-purchase asset once the final payment has been made.

Define government grant .

A government grant is a sum of money given to a business for a defined purpose that usually does not have to be repaid .

What type of finance is most suitable for buying fixed assets ?

Fixed assets usually need a long-term source of finance , such as a bank loan .

True or False? Borrowing money means the owners of a limited company lose some control of the business.

False. Borrowing retains control , although interest is payable. It is issuing too many shares that can cause current owners to lose control.

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Sources of Finance (AQA GCSE Business): Flashcards

Exam code: 8132

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FrontThe Need for Finance
What are the three broad reasons why all businesses need finance?

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What are the three broad reasons why all businesses need finance?
All businesses need finance to get started, to grow and to fund their continuing activity.
What is short-term finance used for?
Short-term finance is used to meet regular costs, such as paying for utilities, suppliers and employee wages. These are usually small amounts that are rarely needed beyond a year.
If sales revenue does not cover day-to-day expenses, a business may use short-term sources such as overdrafts or __________.
If sales revenue does not cover day-to-day expenses, a business may use short-term sources such as overdrafts or trade credit.
True or False?
Long-term finance is mainly used to pay employee wages each month.
False.
Long-term finance funds the purchase of non-current assets, such as buildings, or the acquisition of other businesses. These are large sums needed for a significant period of time.
Which sources might a business use for long-term needs if retained profit is not enough?
It may consider taking out long-term loans or mortgages, or raising share capital.
What is start-up finance needed for?
Start-up finance pays for the non-current assets and current assets, such as stock, that a new business needs before it can begin trading.
The amount of start-up finance a new business needs is identified in its ___________.
The amount of start-up finance a new business needs is identified in its business plan.
True or False?
Owners often invest their own capital into a new business.
True.
Owners commonly put their own capital into a new business, and some small business owners also obtain a start-up loan to cover initial costs.
What might a growing business need to buy with its expansion finance?
It may need more machinery, buildings, IT infrastructure or vehicles to help it increase output.
Why might a business that grows by developing new products need large amounts of finance?
It may need to invest heavily in research and development (R&D) to create the new products.
Define internal source of finance.
An internal source of finance is money that comes from within a business, such as personal savings or the sale of assets.
Define retained profit.
Retained profit is the surplus of revenue over costs generated in previous years that has not been distributed to owners.
True or False?
Reinvesting retained profit has no opportunity cost for a business.
False.
Reinvesting it avoids interest and fees, but there is an opportunity cost: shareholders do not receive that extra profit for their investment.
What is a sale and leaseback arrangement?
A business sells a non-current asset, usually a building, to raise cash. It then rents the asset back from the new owner so it can keep using it.
True or False?
Internal finance may not be enough to meet the needs of a business.
True.
Internal sources are limited, so they may not be sufficient to meet the business's needs.
Define external source of finance.
An external source of finance is money that is introduced into the business from outside.
Define overdraft.
An overdraft is a flexible arrangement with a bank that allows a business to spend more money than it has in its account.
True or False?
Using an overdraft for a long period is a cheap way to finance a business.
False.
Overdraft interest is usually charged at a daily rate, so long-term use can be expensive compared to other methods.
An agreement with a supplier to receive goods now and pay for them at a later date is called __________.
An agreement with a supplier to receive goods now and pay for them at a later date is called trade credit.
________ are long-term loan certificates issued by limited companies that must be repaid with a fixed rate of interest.
Debentures are long-term loan certificates issued by limited companies that must be repaid with a fixed rate of interest.
When does a business own an asset acquired through hire purchase?
A business only owns a hire-purchase asset once the final payment has been made.
Define government grant.
A government grant is a sum of money given to a business for a defined purpose that usually does not have to be repaid.
What type of finance is most suitable for buying fixed assets?
Fixed assets usually need a long-term source of finance, such as a bank loan.
True or False?
Borrowing money means the owners of a limited company lose some control of the business.
False.
Borrowing retains control, although interest is payable. It is issuing too many shares that can cause current owners to lose control.

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