5.1 Business finance

Peter wants to start up a small business as a photographer who takes photographs at weddings.
He has been told that there is government support available for new businesses. Peter will operate his business as a sole trader. He is considering using crowdfunding as a source of finance. Peter knows that many businesses fail.

d) Explain one advantage and one disadvantage to Peter of using crowdfunding as a source of
finance. [6]

CPW is a private sector business which has many objectives. It sells electrical goods including kettles and ovens in its 36 shops in country X. CPW also offers a delivery service. The business buys all its inventory from local suppliers to avoid import tariffs. The Finance Director is analysing CPW’s statement of financial position. An extract is shown in Table 2.1. He has been asked to find a source of finance to purchase 10 new delivery vehicles.

d) Explain two factors CPW should consider when deciding on a source of finance for the new vehicles. [6]
Factor 1:
Explanation:
Factor 2:
Explanation:

Hal wants to be a successful entrepreneur. He plans to leave his job to start up a bakery. The bakery will operate in the private sector. The business will have many stakeholder groups. Hal has been told it is important for a new business to select an appropriate source of start-up capital. He also knows new businesses are at a greater risk of failure.

(e) Do you think a bank loan is the best source of start-up capital for a new business? Justify your answer. [6]

Amir and Carla are business partners. They own a luxury hotel which operates in a niche market. The business has a short hierarchical structure. Amir and Carla use Herzberg’s theory of motivation to keep their 5 employees well motivated. Amir and Carla are considering opening another hotel in a different city. They will need to identify a suitable source of finance if they decide to expand. Secondary market research can be used to help a business decide whether it should expand.

d) Explain two sources of finance Amir and Carla could use if they decide to expand.[6]
Source 1:
Explanation:

Source 2:
Explanation:

Ramon is an entrepreneur. He plans to start up a home tutoring service to provide students with extra help to learn maths. Ramon is considering buying a franchise. He has prepared a business plan but is concerned about how an increase in the rate of inflation might affect his business. Ramon wants to know whether crowdfunding is the best source of finance for a start-up business to use.

Do you think crowdfunding is the best source of finance for a start-up business to use? Justify your answer.

Mitchell is an entrepreneur. He wants to start up a business selling books. As part of his business plan Mitchell has carried out some market research. An extract is shown in Fig. 2.1. Mitchell will use microfinance as a source of finance. He wants to know whether the opportunities of using ecommerce for a new business are greater than the threats.

c) Outline one advantage and one disadvantage to Mitchell of using microfinance as a source of finance. [4]
Advantage:
Disadvantage:

AH is an insurance business. It operates in a competitive market. AH has 1000 employees including 50 supervisors. The supervisors use an autocratic leadership style. AH currently has a 5% market share and is planning to take over a competitor. The Managing Director is considering how to communicate with AH’s employees about the takeover. There are many sources of finance available to fund business growth.

(e) Explain two sources of finance which could be used to fund business growth. Which source of finance would be the best to use? Justify your answer. [6]

IDT manufactures clothes for the mass market. It is a multinational company with factories in 4 countries. IDT has short-term and long-term financial needs. The Finance Director is analysing IDT’s statement of financial position. An extract is shown in Table 3.1. He has been asked to calculate working capital and to explain how an increase in non-current liabilities might affect IDT.

c) Outline one reason why IDT might need the following types of finance: [4]
Short-term finance:
Long-term finance:

Avtar owns a car repair business which operates in the private sector. It is a small business with 2 full-time employees. Avtar wants to find out the best way for a business to increase added value. Avtar’s business needs finance for many reasons. Avtar wants to know how an economic recession might affect his business.

c) Outline one reason why Avtar might need each of the following types of finance: [4]
Short-term finance:
Long-term finance:

FR is a multinational company. It has hotels in 18 countries. FR wants to expand into a new market and is planning to build another hotel. FR’s Marketing Director is considering how the market can be segmented. FR’s Financial Director is considering which source of finance to use to fund the expansion. He is also constructing a cash-flow forecast for the new hotel’s first year of trading.

b) Identify two factors which might affect the source of finance a business chooses to use. [2]
Factor 1:
Factor 2:

Paolo wants to start up a business making cakes . He plans to sell all of his products to a wholesaler. Paolo knows the packaging for his products will be important. He has prepared some financial and sales data. An extract from this data is shown in Table 1.1. Paolo is considering using crowdfunding as a source of finance. He knows the business will also need working capital .

a) Define ‘working capital’. [2]

d) Explain one advantage and one disadvantage to Paolo’s business of using crowdfunding asa source of finance. [6]
Advantage:
Explanation:

Disadvantage:
Explanation:

Desmond wants to be a successful entrepreneur. He has decided to leave his office job to start up a gardening business cutting grass and planting flowers. It will be an unincorporated business. Desmond is aware that a new business is at greater risk of failure than an established business.
He has identified his business objectives for the first year. Desmond has calculated he will need $750 for his start-up capital.

(e) Do you think owner’s savings are the most suitable source of finance for a start-up business? Justify your answer. [6]