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• Businesses need finance to start trading, pay for day-to-day operations, and fund expansion.
• Short-term finance is used to cover current liabilities and everyday running costs such as wages, rent, utilities, and payments to suppliers.
• Short-term finance is usually repaid within one year and is most suitable for temporary cash flow shortages.
• Long-term finance is used to buy non-current assets such as machinery, vehicles, land, and buildings, or to fund major expansion.
• Long-term finance is usually repaid over more than one year and is suited to large sums of money.
• New businesses often need start-up finance to buy equipment, premises, and opening stock before sales revenue begins.
• Established businesses may need finance to replace assets, expand capacity, enter new markets, or survive a period of low cash inflow.
• An internal source of finance is money raised from within the business rather than borrowed or invested from outside.
• Retained profit is profit kept in the business after owners have received their share and can be reinvested without paying interest.
• Retained profit is only available to businesses that have already made profits, so it is not a source of finance for most start-ups.
• Selling unwanted assets is an internal source of finance that raises cash but may reduce the business's future operating capacity.
• Internal sources of finance usually give owners more control and lower direct cost than external finance, but they may not provide enough money for major expansion.
• An external source of finance is money that comes into the business from lenders, investors, or other outside organisations.
• Family and friends are a common source of finance for new businesses because the money may be quick to obtain and may be offered on flexible terms.
• Finance from family and friends can create conflict if the business cannot repay the money on time or if lenders expect influence over decisions.
• An overdraft allows a business to withdraw more money from its bank account than the current balance, up to an agreed limit.
• An overdraft is a flexible source of short-term finance for temporary cash flow problems, but interest charges can become high and the bank can withdraw the facility.
• Trade credit allows a business to buy goods or services now and pay the supplier later, which improves short-term cash flow.
• Trade credit is usually easier and cheaper than a loan for short-term finance, but late payment can damage supplier relationships and new businesses may find it harder to obtain.
• A loan is a fixed amount of money borrowed and repaid with interest over an agreed period.
• A loan is suitable when a business needs a known sum for a clear purpose, but interest and repayments increase costs and put pressure on cash flow.
• A mortgage is a long-term loan secured against land or buildings and is used to finance the purchase of property.
• A mortgage spreads the cost of property over many years, but total repayment can be high because of interest.
• A new share issue raises finance by selling shares in a company, which provides long-term capital without loan repayments.
• A new share issue can only be used by companies that can issue shares, and it dilutes existing ownership and control.
• Hire purchase allows a business to acquire an asset immediately and pay for it in instalments over time.
• Hire purchase is useful when a business needs equipment but cannot pay the full cost upfront, although the total cost is usually higher than buying outright.
• Government grants are sums of money given by government or public bodies for specific purposes and usually do not need to be repaid.
• Government grants can reduce the cost of expansion, but they are limited, competitive, and often come with conditions.
• The most suitable source of finance depends on the purpose of the finance, the amount needed, the time period, the cost, the risk, and the effect on ownership and cash flow.
• New businesses are more likely to rely on personal funds, family and friends, loans, or grants because they have no retained profit and little trading history.
• Established businesses are more likely to use retained profit, trade credit, overdrafts, loans, mortgages, asset sales, or share issues because they have a trading record and assets.
• The purpose of the finance affects the choice of source because fixed assets usually need long-term finance while day-to-day costs often need short-term finance.
• The timescale for repayment affects the choice of finance because overdrafts suit short-term needs while mortgages suit long-term needs.
• The amount of finance required affects the choice of source because shares can raise large sums while overdrafts and credit cards usually raise smaller sums.
• The legal structure of a business affects the sources of finance available because only limited companies can issue shares or debentures.
• The existing level of debt affects the choice of finance because highly geared businesses may be seen as riskier by lenders.
• The desired level of control affects the choice of finance because issuing more shares can reduce the owners' control of the business.
• Borrowing usually allows existing owners to retain control, but borrowing creates interest costs and repayment obligations.
• Profit is the difference between revenue and total costs over a period of time.
• Cash flow is the movement of cash into and out of a business over a period of time.
• A business can make a profit but still run short of cash because cash inflows and cash outflows often happen at different times.
• Credit sales can increase profit before the customer pays, so delayed customer payments can cause cash flow problems.
• Cash is a liquid asset because it is immediately available to pay for business expenses.
• Cash is essential for paying wages, suppliers, rent, utility bills, tax and other day-to-day operating costs.
• Cash reserves help a business cope with unexpected costs such as urgent repairs or replacement equipment.
• New businesses often have to pay suppliers quickly because they have not yet built enough trust to receive trade credit.
• Trade credit improves short-term cash flow by allowing a business to receive stock or materials now and pay the supplier later.
• Cash inflows include money received from sources such as sales, loans and owner investment.
• Cash outflows include money paid out for sources such as stock, wages, rent, utility bills and loan repayments.
• A business that runs out of cash may be unable to pay workers or suppliers, which can disrupt operations or stop trading.
• Insolvency occurs when a business cannot meet its financial obligations as they fall due.
• A business with persistent cash flow problems may be forced into liquidation even if it has recently made a profit.
• Positive cash flow makes it easier for a business to pay its bills on time and reduces the risk of insolvency.
• A cash flow forecast predicts expected cash inflows, cash outflows and balances for future time periods, usually month by month.
• Cash inflows in a cash flow forecast can include sales receipts, loans, interest received and capital invested by the owners.
• Cash outflows in a cash flow forecast can include payments for stock, wages, salaries, rent, utility bills and loan repayments.
• A business plan often includes a cash flow forecast to show the likely cash position over time.
• Cash flow forecasts help owners and managers identify future cash shortages before they happen.
• Cash flow forecasts are especially important for new businesses because they show how much cash is needed in the early months of trading.
• Cash flow forecasts help existing businesses plan for seasonal falls in sales or temporary increases in costs.
• Lenders and investors may use a cash flow forecast to judge whether a business needs finance and is likely to repay it.
• The opening balance in a cash flow forecast is the cash position at the start of the period.
• The opening balance in the first period may come from cash already held, owner investment or borrowed funds.
• The opening balance for each later period is the previous period's closing balance.
• Total cash inflow for a period is the sum of all cash receipts expected in that period.
• Total cash outflow for a period is the sum of all cash payments expected in that period.
• Net cash flow for a period is calculated by subtracting total cash outflows from total cash inflows.
• The closing balance for a period is calculated by adding the net cash flow for the period to the opening balance.
• A cash flow forecast usually includes total inflows, total outflows, net cash flow, opening balance and closing balance for each period.
• Cash flow forecasts are estimates, so unexpected changes in sales, costs or payment timings can make them inaccurate.
• A positive net cash flow means that cash inflows are greater than cash outflows in that period.
• A negative net cash flow means that cash outflows are greater than cash inflows in that period.
• A positive closing balance means the business expects to have cash left at the end of the period.
• A negative closing balance means the business is expected to face a cash shortage at the end of the period.
• Interpreting a cash flow forecast requires focusing on the closing balance because it shows whether the business is expected to end the period with enough cash.
• A business can have a negative net cash flow in one period without becoming insolvent if it starts the period with enough cash.
• A forecast negative closing balance shows that a business may need short-term finance or action to improve cash flow.
• An overdraft can solve a short-term cash flow problem because it allows a business to borrow flexibly up to an agreed limit.
• Re-scheduling payments to suppliers can improve cash flow by delaying cash outflows, although suppliers may refuse or charge penalties.
• Reducing the credit period offered to customers can improve cash flow by bringing cash into the business more quickly, although it may make the business less attractive to some customers.
• Selling for cash rather than on credit improves cash flow because the business receives money immediately.
• Reducing stock levels can improve cash flow by releasing cash tied up in unsold goods, although stock shortages may then occur.
• Delaying or cutting non-essential spending can improve cash flow by reducing cash outflows, although this may limit growth or efficiency.
• Introducing additional capital, taking a loan or using sale and leaseback can improve cash flow by bringing extra cash into the business.
• A positive closing balance does not prove that a business is profitable, because cash flow and profit are different measures.
• Positive cash flow can allow a business to invest, take advantage of opportunities and avoid relying on expensive emergency finance.
• Business costs are the expenses a business pays to produce and sell its goods or services.
• Fixed costs are business costs that do not change with the level of output in the short term.
• Fixed costs must still be paid even when output is zero.
• Rent, insurance and management salaries are typical examples of fixed costs.
• Variable costs are business costs that change directly with the level of output.
• Raw materials and wages paid to workers directly involved in production are typical examples of variable costs.
• Total variable cost is calculated by multiplying variable cost per unit by the number of units produced.
• Total cost is calculated by adding fixed costs to total variable costs.
• Revenue is the money a business receives from selling goods or services.
• Revenue is calculated by multiplying selling price by quantity sold.
• Profit is calculated by subtracting total cost from revenue.
• A loss occurs when total cost is greater than revenue.
• A business can increase profit by increasing revenue, reducing costs, or doing both.
• Break-even output is the level of output or sales at which total revenue equals total cost.
• At the break-even point, a business makes neither a profit nor a loss.
• Break-even analysis estimates the minimum output a business must sell to cover all of its costs.
• Break-even analysis can help managers decide whether a product or investment is likely to be financially viable.
• Break-even analysis can help managers set sales targets and monitor whether actual performance is above or below the break-even point.
• Break-even analysis is limited because it relies on forecasts, so inaccurate estimates of price, cost or demand make the result unreliable.
• Break-even analysis usually assumes that all output produced is sold.
• Break-even analysis is less useful for businesses that sell many different products because each product may have different prices and costs.
• Break-even analysis can be misleading when costs or revenue do not change in a straight-line way as output changes.
• A break-even chart shows fixed costs, total costs and total revenue at different levels of output.
• The fixed cost line on a break-even chart is horizontal because fixed costs stay the same as output changes.
• The total cost line starts at the level of fixed costs because some costs exist even when output is zero.
• The total revenue line starts at zero because no sales generate no revenue.
• The break-even point on a break-even chart is where the total cost line and the total revenue line intersect.
• Output below the break-even point represents a loss because total cost is greater than total revenue.
• Output above the break-even point represents a profit because total revenue is greater than total cost.
• Margin of safety is the difference between current or forecast sales and break-even sales.
• A larger margin of safety means a business can withstand a bigger fall in sales before making a loss.
• On a break-even chart, the vertical distance between the total revenue line and the total cost line shows the size of the profit or loss at a given output.
• Investment projects involve spending on long-term assets or activities that are expected to improve future business performance.
• Businesses often invest in machinery, buildings and vehicles to increase capacity, improve efficiency or replace outdated assets.
• Average rate of return measures the expected average annual profit from an investment as a percentage of the cost of the investment.
• Average rate of return is calculated as average annual profit divided by cost of investment multiplied by 100.
• Average annual profit can be calculated by subtracting the cost of the investment from total forecast returns and dividing the result by the number of years of use.
• A higher average rate of return suggests an investment is more attractive than an alternative with a lower average rate of return.
• Average rate of return is useful because it is easy to calculate and compare across different investment projects.
• Average rate of return is limited because it depends on forecast profits, which may be inaccurate.
• Average rate of return does not show when profits are received, so it ignores the timing of returns.
• Financial statements are formal records that show a business's financial performance and financial position.
• Businesses use financial statements to meet legal requirements, assess performance, support decisions and communicate with stakeholders.
• Limited companies must file annual financial statements with Companies House.
• The two main financial statements at GCSE Business are the income statement and the statement of financial position.
• An income statement shows revenue, costs and profit or loss over an accounting period, usually one year.
• A statement of financial position shows a business's assets, liabilities and capital or equity on a specific date.
• A statement of financial position is a snapshot in time, whereas an income statement covers a period of time.
• Shareholders, managers, employees, lenders and suppliers can all use financial statements to judge business performance and risk.
• An income statement is also known as a profit-and-loss account.
• Sales revenue is the money a business receives from selling goods or services.
• Sales revenue is calculated by multiplying selling price by quantity sold.
• Cost of sales is the direct cost of the goods or services sold during the accounting period.
• Gross profit is sales revenue minus cost of sales.
• Overheads are indirect business costs that are not directly linked to making each unit of output.
• Operating profit is the profit left after overheads have been deducted from gross profit.
• Net profit is the profit remaining after interest and tax have been deducted.
• Limited companies must account for corporation tax in the income statement.
• An income statement can be compared with earlier income statements to identify changes in performance over time.
• Profitability measures how effectively a business turns revenue into profit.
• Gross profit margin is the percentage of sales revenue kept as gross profit.
• Gross profit margin is calculated by dividing gross profit by revenue and multiplying by 100.
• Net profit margin is the percentage of sales revenue kept as net profit.
• Net profit margin is calculated by dividing net profit by revenue and multiplying by 100.
• Profit margins are shown as percentages so that profitability can be compared across years and between businesses.
• A rising gross profit margin can indicate that a business has increased selling prices or reduced direct costs.
• A falling gross profit margin can indicate that cost of sales is rising faster than revenue or that selling prices are under pressure.
• A rising net profit margin shows that a business is keeping more of each pound of revenue as final profit.
• A falling net profit margin can indicate that overheads, interest or tax are taking a larger share of revenue.
• A business can increase revenue but still reduce net profit if its costs rise faster than its revenue.
• Comparing profitability with previous years helps a business judge whether financial performance is improving or worsening.
• Comparing profitability with competitors is most useful when the businesses are similar in size and operate in the same market.
• Managers use income statement data to set objectives, make forecasts and decide how to improve performance.
• Investors use income statement data to judge the potential return and risk of investing in a business.
• A statement of financial position is also known as a balance sheet.
• Assets are resources owned by a business that have monetary value.
• Non-current assets are assets that a business expects to keep and use for more than one year.
• Non-current assets include items such as land, buildings, machinery and vehicles.
• Current assets are cash or assets that are expected to be turned into cash within 12 months.
• Current assets include cash, inventory and trade receivables.
• Liabilities are amounts that a business owes to others.
• Current liabilities are debts that must usually be paid within 12 months.
• Current liabilities include trade payables and bank overdrafts.
• Non-current liabilities are debts that are due after more than 12 months.
• Non-current liabilities include long-term loans and mortgages.
• Equity or capital is the value left after total liabilities are deducted from total assets.
• A statement of financial position helps stakeholders judge what a business owns, what it owes and how it is financed.
• A business with current assets greater than current liabilities is more likely to be able to pay its short-term debts.
• Financial performance should be judged by using a range of measures rather than relying on a single figure.
• Performance can be evaluated against current objectives, previous years and competitor results.
• A business may appear successful because revenue is high, but weak profit margins can still show poor financial performance.
• Strong profit margins with lower revenue can indicate better financial performance than weak profit margins with higher revenue.
• Lenders and suppliers use financial statements to judge whether a business is likely to repay what it owes.
• Employees use financial statements to judge job security and the business's ability to afford higher pay.
• Shareholders use financial statements to judge profitability, financial strength and the likely return on their investment.

• Classify finance needs as short term or long term from the purpose and repayment period.
• Select an appropriate source of finance for a new business from options such as family and friends, loans, or grants.
• Select an appropriate source of finance for an established business from options such as retained profit, trade credit, overdrafts, loans, mortgages, asset sales, or share issues.
• Justify a source of finance by referring to amount needed, timescale, cost, risk, control, and cash-flow impact.
• Distinguish between internal and external sources of finance in given business scenarios.
• Calculate cash inflows, cash outflows, net cash flow, and closing balance from forecast data.
• Complete a cash flow forecast by carrying forward each closing balance as the next period's opening balance.
• Interpret a cash flow forecast to identify periods of surplus, shortage, and possible insolvency risk.
• Recommend actions to improve cash flow, including using an overdraft, delaying non-essential spending, reducing stock, or changing credit terms.
• Calculate total variable cost, total cost, revenue, profit, and loss from cost and sales data.
• Calculate break-even output from fixed costs and contribution per unit.
• Plot fixed cost, total cost, and total revenue lines on a break-even chart from given figures.
• Identify the break-even point, profit area, loss area, and margin of safety on a break-even chart.
• Assess how changes in price, variable cost, or fixed cost would shift break-even output and margin of safety.
• Calculate average annual profit and average rate of return for an investment project.
• Compare investment options by using average rate of return alongside the limits of forecast data and timing.
• Extract gross profit, operating profit, and net profit from an income statement.
• Calculate gross profit margin and net profit margin as percentages.
• Identify current assets, non-current assets, current liabilities, non-current liabilities, and equity from a statement of financial position.
• Evaluate business performance by comparing profitability and financial position with previous years, competitors, and objectives.