Finance

Finance

Business Costs
1. Revenue
  1. the income earned by a business
  2. mostly earned by selling their products to customers
  3. sales x price = sales revenue
2. Direct Costs
  1. expenses that can be attributed to making a particular product
    1. e.g labour, raw materials
3. Indirect Costs
  1. the general overheads of running the business
    1. e.g. salaries, phone bills, rent
4. Fixed costs
  1. do not vary with output (indirect)
  2. they have to be paid no matter how much the firm produces
5. Variable Costs
  1. will increase as the firm expands it's output
  2. usually direct costs
Sources of Finance
1. Grants
  1. new/small firms
  2. e.g business in an area of high unemployment
  3. given from government/charities
  4. do not need to be paid back
2. Short Term
  1. Trade Credit
    1. the suppliers issue an invoice so they so not have to pay on delivery
  2. Overdrafts
    1. taking more money than the firm has out of the bank
    2. high interest rates
3. Long Term
  1. Loans
    1. Bank Loans
      1. quick and easy
      2. repaid with interest
      3. bank can repossess if not repaid
    2. Friends and Family
      1. useful alternative
    3. Mortgages
      1. interest is relatively low
      2. risky for sole traders
  2. Venture Capital
    1. invested money by individuals or businesses that specialise in giving finance or expanding new firms
    2. in return they then get a stake of the business
Help and Support
1. Government
  1. they benefit as it reduces the state benefits the government has to pay out
  2. they will also receive taxation revenue when the firm makes profit
  3. funds business link - organisation that offers help and support
  4. new firms can apply for a loans underwritten by the government so if they fail the government will pay back the loan
2. Private Firms
  1. Banks
  2. some businesses are set up to provide advice they usually charge but sometimes offer free advice to new firms
3. Charities
  1. advice
  2. grants
  3. low interest loans
  4. usually for young entrepreneurs
  5. e.g. princes trust
Cash Flow
1. the flow of money going into and out of the business
2. Net Cash Flow
  1. difference between cash inflow and cash outflow over a period of time
3. if you don't have enough money flowing i then you wont have enough money to pay bills
4. Forecasts
  1. help firms anticipate problems
  2. can forecast if they think the firm will face liquidity
  3. they can predict when an ovrdraft may be needed and then plan how to pay it back
  4. they need to be watched carefully so that they can monitor the effect of unexpected cash flows
5. Credit
  1. the cash flow will change if they give their customers longer to pay
  2. credit terms tell you how long after agreeing to buy the product the customer has to pay - this can effect the timings of the cash flow
6. Problems
  1. poor cash flow
    1. lack of working capital
    2. not enough cash to cover day-to-day expenses
  2. staff may not get paid on time
  3. discounts may be offered to prompt payment
  4. some creditors may not wait for payment and take legal action
  5. reasons
    1. poor sales
    2. overtrading
    3. Poor desicions

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	Created by Alice Rogers almost 10 years ago