Finance - Business Revision Notes

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Finance 4

Business Budgeting: Cash Flow Forecast 4

How to Increase Cash Receipts 4

Reduce Cash Payments 4

Household Budgeting 4

Why do Households Prepare a Budget? 5

Maximise Investments 5

Sources of Finance 5

Short Term Sources of Finance 5

Medium Term Sources of Finance 7

Long Term Sources of Finance 8

Criteria in Assessing a Loan 9

Character 9

Credit Rating 10

Security 10

Capacity 10

What Factors Should be Considered When Choosing Finance? 10

Cost 10

Tax Implications 10

Control (Business Only): 10

Security 10

Bank Current Accounts- Services Provided 10


Business Budgeting: Cash Flow Forecast

  • This is a written plan where the business lays out its future cash receipts and payments for a period. Indicates if the business will have a surplus or deficit in the future.
  • Cash receipts are received from selling goods, income earned on investment and rent received from tenants.
  • Cash payments include cash paid for buying stock, suppliers, dividends paid out, expenses and taxes paid to Revenue.
  • Predicted cash deficits can be avoided by increasing cash receipts and reducing cash payments.

How to Increase Cash Receipts

  • Use Credit Control Methods: this can be achieved by offering incentives for prompt payments. This will generate more cash for the company.
  • Sell Investments: investments can be sold to raise cash if needed. Selling investment properties etc. will generate cash for the business.
  • Reduce Prices: this should encourage customers to spend more increasing the amount of sales for the business.

Reduce Cash Payments

  • Cutbacks: the business can lower the amount of cash leaving the business through lowering expenses. This can include wage cuts, employing cheaper service providers etc.
  • Reduce Dividend Paid: the amount of dividend paid out to customers could be reduced by offering them additional shares in the company instead. To achieve this, shareholders must have a belief the company will succee...

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