Question 1: Define the term 'cash flow' and explain why it is important for a new business.

Answer: Cash flow refers to the movement of money into and out of a business over a period of time. It is important because it determines whether a business has enough money to cover its expenses and invest in growth.

Question 2: Identify three sources of finance that a startup business might use to raise funds.

Answer: Personal savings, bank loans, angel investors, crowdfunding, or government grants.

Question 3: Explain the difference between fixed costs and variable costs, providing two examples of each.

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

Question 4: Calculate the total revenue if a business sells 150 units of a product at £20 each.

Answer: Total revenue = 150 units x £20 = £3000.

Question 5: Describe what a break-even point is and why it is important for a new enterprise.

Answer: The break-even point is the level of sales at which total revenue equals total costs, meaning the business makes neither profit nor loss. It helps entrepreneurs understand how much they need to sell to start making a profit.

Question 6: Sketch a simple profit and loss graph showing total revenue and total costs over sales volume. Label the axes and key points.

Answer: A graph with sales volume on the x-axis and amount (£) on the y-axis. A line for total revenue starting at the origin and increasing linearly. A separate line for total costs starting at fixed costs and increasing, crossing the revenue line at the break-even point.

Question 7: List and briefly explain two financial documents a business uses to monitor its finances.

Answer: Income statement (profit and loss account) shows the business’s revenues, expenses, and profit over a period. Balance sheet provides a snapshot of the business’s assets, liabilities, and owner’s equity at a specific point in time.

Question 8: Draw a simple diagram of a cash flow forecast, indicating inflows and outflows over a month.

Answer: A table or flowchart with columns for each week or day; arrows or boxes showing expected inflows (sales, loans) and outflows (rent, wages, supplies). The diagram should clearly distinguish between incoming and outgoing money.

Question 9: Explain the purpose of budgeting in a business and one benefit it provides.

Answer: Budgeting involves planning future income and expenses to manage finances effectively. It helps prevent overspending and ensures funds are available for essential activities.

Question 10: Identify two risks associated with poor financial management in an enterprise and suggest how to mitigate them.

Answer: Risks include cash flow shortages and accumulating unsustainable debt. Mitigation strategies include regular financial monitoring and maintaining sufficient reserves.