Explain the principle of matching a source of finance to the use of the money.

Long-term assets should be funded from long-term finance and short-term needs from short-term finance, so that repayments fall due as the asset generates income.

Why is finance more expensive for a start-up than for an established plc?

The start-up has no trading record and is judged riskier, so lenders charge a higher rate of interest to compensate for the greater chance of default.

Explain how a high level of existing borrowing affects a new application for finance.

The business is already highly geared, so lenders see a greater risk of default and may refuse the application or charge a higher rate.

WJEC A-Level Business 601-5238-2

Enterprise and Starting a Business

Topic overview Enterprise and the entrepreneur Stakeholders in a business Business plans and sources of support Legal structures of business The public and private sectors Business location Sources of finance for a new business Business revenue, costs and profit

Markets and Market Research

Topic overview Types of market Market size, market share and market trends Market segmentation The degree of competition in a market Perfect competition and monopolistic competition Oligopoly and monopoly Consumer protection Demand and the demand curve Supply and the supply curve Market equilibrium and changes in price and quantity Price and income elasticity of demand Inferior, normal and luxury goods The value of market research Primary market research Secondary market research Qualitative and quantitative data Sampling and avoiding bias

Marketing

Topic overview Market orientation, product orientation and asset-led marketing The marketing mix Product and the product portfolio Branding, USP and differentiation The product life cycle Extension strategies The product life cycle and cash flow The Boston matrix Pricing strategies Choosing the right pricing strategy Promotion: above the line and below the line Place and distribution channels The marketing mix in different contexts and global marketing New technology in marketing

People in Business

Topic overview The flexible workforce New technology and changing working practices Workforce planning The recruitment process, job analysis and job descriptions Internal and external recruitment Methods of selection Training Appraisal Labour productivity, absenteeism and labour turnover Organisational design and structures Delegation, empowerment and delayering Motivation theories Financial and non-financial methods of motivation Management and management by objectives Leadership styles and theories Employment rights, duties and equal opportunities Trade unions, conflict and dispute resolution

Operations Management

Topic overview Added value Job, batch and flow production Choosing the right method of production Productivity Capacity utilisation New technology in operations Lean production and kaizen Just-in-time and cell production Quality control and quality assurance Total quality management Stock control and stock control diagrams Purchasing and working with suppliers Innovation, research and development Internal economies of scale External economies of scale Diseconomies of scale and the survival of small firms

Business Finance and Accounts

Topic overview Internal sources of finance Loans, overdrafts and trade credit Share capital and venture capital Leasing and debt factoring Choosing an appropriate source of finance Finance for entrepreneurs and SMEs in Wales Revenue, costs and profit Types of cost Contribution and break-even Break-even charts and the margin of safety Budgets and budgeting Cash flow forecasting Improving cash flow The income statement Gross and net profit margins

Business Analysis and Decision-Making

Strategy and Implementation

Topic overview Aims and objectives SMART objectives Mission and vision statements Corporate, divisional and functional strategy Strategy, tactics and corporate plans SWOT analysis Porter's Five Forces The Ansoff matrix Organic growth Mergers and takeovers Horizontal and vertical integration Franchising as a method of growth Location and relocation decisions Rationalisation and outsourcing production

Managing Change and Risk

Topic overview Internal and external causes of change Planned and unplanned change The effects of change on a business Managing change effectively Storey's four approaches to managing change Resistance to change Lewin's three step process Organisational culture and leadership in change Evaluating the management of change The risks a business faces Risk assessment and preventative action Insurable and uninsurable risks Contingency planning and crisis management

The External Environment

Topic overview Government and the framework for business The economic environment Social and demographic change Technology and business Business ethics and corporate social responsibility The legal environment Business and the environment

Global Business

Topic overview International trade and protectionism Globalisation and its causes Global growth strategies and multinationals The European Union and the euro

Business Finance and Accounts

Choosing an appropriate source of finance

3 things to know
AS Unit 2

Overview

How a firm's legal structure limits its choice of finance, how the choice of finance affects a business's stakeholders and why heavy borrowing threatens survival in a downturn.

What you need to know

Answer each one before you reveal it.

Your recallNot started

Key term

State four factors a business should weigh when choosing a source of finance.

Key term

Why would an overdraft be the wrong way to fund a £500,000 factory?

Key term

Explain how a firm's legal structure limits its choice of finance.

Questions from this subtopic

Each one with the model answer underneath.

1
State four factors a business should weigh when choosing a source of finance.
Model answer
The amount of money needed, the length of time it is needed for, the cost of the finance, and the effect on ownership and control.
2
Explain the principle of matching a source of finance to the use of the money.
Model answer
Long-term assets should be funded from long-term finance and short-term needs from short-term finance, so that repayments fall due as the asset generates income.
3
Why would an overdraft be the wrong way to fund a £500,000 factory?
Model answer
An overdraft is short-term and repayable on demand, whereas a factory takes many years to pay for itself.
4
Explain how a firm's legal structure limits its choice of finance.
Model answer
A sole trader or ordinary partnership cannot issue shares, so it must rely on personal capital, loans and other borrowing.
5
Why is finance more expensive for a start-up than for an established plc?
Model answer
The start-up has no trading record and is judged riskier, so lenders charge a higher rate of interest to compensate for the greater chance of default.
6
Explain how a high level of existing borrowing affects a new application for finance.
Model answer
The business is already highly geared, so lenders see a greater risk of default and may refuse the application or charge a higher rate.

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Enterprise and Starting a Business

Markets and Market Research

Marketing

People in Business

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Gross profit = − cost of sales.

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