Edexcel Business A Level Revision

Cash flow forecast - is a statement of the expected cash inflow coming from the sales revenue and expected cash outflow needed to cover production costs. The difference between the inflow and the outflow is the net cash flow , a crucial indicator of the ability of a business to cover its day-to-day running costs. Cash flow is important to a business as it needs it to ensure a positive cash balance in order to meet day to day expenses. It roughly estimates cash flow for up to about two years into the future. The forecast will help potential lenders (including banks) to see what the likely financial needs of the business will amount to.  CALCULATING CASH FLOW Opening Balance = what is in the bank on the first day of the month Total cash inflow = all cash entering the business in that month Total cash outflow = all cash leaving the business in that month Net cash flow = Total cash inflow - Total cash outflow Closing balance = Opening balance + Net cash flow FIGUR...

Loans - A set amount of money provided for a specific purpose, to be repaid with interest, over a set period of time. Loans are vital for many businesses, providing long term funds for a given period to help finance investment projects. A fixed sum including interest and repayment is payable monthly, making planning and managing the cash flow much easier. Loans may be secured against an asset and if there is a default on repayments the asset can be taken. Financial institutions can vary interest rates depending on the amount of risk placed on a loan An external source of finance generally considered to be more suitable for longer-term projects. However, this will depend upon the size of the loan and the repayment period. ADVANTAGES OF LOANS Quick and easy to secure Fixed interest rates allow a firm to budget Improved cash flow The borrower retains ownership of the company. Appropriate method of financing fixed assets DISADVANTAGES OF LOANS Interest must be paid r...

Crowdfunding - raises finance by inviting lots of people to lend small sums of money via web sites listing businesses seeking loans. The business uses the internet to explain how much money is required, how it will be used and the exit strategy stating predicted return on the investment. The investor is only tied into their contribution if the total amount is raised. ADVANTAGES OF CROWDFUDNING Millions of potential funders can be reached all over the world. DISADVANTAGES OF CROWDFUNDING No guarantee that Crowdfunding will raise sufficient finance BEST FOR ...   Unusual ideas and projects that might not attract other forms of finance.

Banks - Financial institutions that are licenced to the deposits, pay interests,  make loans and act as an intermediary in financial transactions, as well as provide other financial services to their customers. Banks will have departments and employees who specialise in business banking including offering advice on topics such as methods of Finance and business planning. ADVANTAGES • Fixed sum available via loans • Easy to plan for fixed repayments DISADVANTAGES • Often difficult to persuade banks to lend • May not be flexible • Requires interest payments • May require collateral BEST FOR... Established businesses with a credit record.Overdrafts for short term cash flow problems.