Question 1: Define the term 'cash flow' and explain why it is important for an enterprise.

Answer: Cash flow is the movement of money into and out of a business. It is important because it indicates the company's liquidity and ability to meet its financial obligations.

Question 2: Identify three sources of finance that a small business might use to start up.

Answer: Bank loans, personal savings, and family or friends' investments.

Question 3: Describe the difference between fixed costs and variable costs with examples.

Answer: Fixed costs are expenses that do not change with the level of production, such as rent or salaries. Variable costs change with production volume, such as raw materials or packaging costs.

Question 4: Sketch a simple profit and loss statement layout for a small business. Label the sections clearly.

Answer: A correctly labeled sketch should include sections for Revenue, Cost of Goods Sold, Gross Profit, Operating Expenses, and Net Profit. It should have space for entering figures under each category.

Question 5: Explain what is meant by 'break-even point' and why it is critical for an enterprise.

Answer: The break-even point is where total costs equal total revenue, meaning the business is neither making a profit nor a loss. It is critical because it helps determine the minimum sales needed to avoid losing money.

Question 6: List two advantages and two disadvantages of using overdraft as a form of finance.

Answer: Advantages: Flexible access to funds, and interest is paid only on the amount used. Disadvantages: Can lead to high interest costs and may damage the business’s credit rating if overused.

Question 7: Calculate the gross profit if a business has sales of £50,000 and the cost of goods sold is £30,000.

Answer: Gross profit = Sales - Cost of Goods Sold = £50,000 - £30,000 = £20,000.

Question 8: Describe what a profit margin is and how it can be useful for an enterprise.

Answer: Profit margin is the percentage of revenue that remains as profit after all expenses are deducted. It helps assess the profitability efficiency of the business.

Question 9: Sketch a simple cash flow forecast for a month, indicating inflows and outflows. Label the key components.

Answer: A correct sketch should include sections for Inflows (such as sales income, loans) and Outflows (such as wages, rent, supplies). It should show the net cash flow for each period.

Question 10: Explain the purpose of a financial plan in an enterprise.

Answer: A financial plan outlines how a business will manage its finances to achieve its goals. It includes budgeting, forecasting, and strategies for funding and expenditure management.