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

Answer: Cash flow refers to the movement of money into and out of a business. It is important because it affects the company's ability to pay bills, invest, and grow. Positive cash flow indicates more money coming in than going out, ensuring financial stability.

Question 2: Identify and describe three different sources of finance that a new business might use to raise capital.

Answer: Possible sources include: 1) Bank loans - borrowing money that must be repaid with interest; 2) Investors or venture capital - funds provided in exchange for ownership shares; 3) Personal savings - using the owner’s own money to finance the business.

Question 3: Calculate the profit if a business has total sales of £50,000 and total costs of £35,000.

Answer: Profit = Total sales - Total costs = £50,000 - £35,000 = £15,000.

Question 4: List two advantages and two disadvantages of using credit for business transactions.

Answer: Advantages: 1) Improves cash flow management; 2) Allows purchases without immediate cash outlay. Disadvantages: 1) Can lead to debt if not managed properly; 2) May incur interest charges or fees.

Question 5: Describe what a business budget is and its purpose.

Answer: A business budget is a financial plan that estimates income and expenditure over a period. Its purpose is to control spending, plan for future growth, and ensure the business remains financially sustainable.

Question 6: Explain the difference between fixed costs and variable costs with examples.

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

Question 7: Sketch a simple profit and loss statement layout. Label the sections clearly.

Answer: A correct sketch would include sections titled 'Sales Revenue', 'Cost of Goods Sold', 'Gross Profit', 'Expenses', and 'Net Profit'. The layout should show deductions from revenue leading to net profit, with space for figures under each heading.

Question 8: Identify two financial risks a small enterprise might face and suggest ways to mitigate these risks.

Answer: Risks include cash flow shortages and bad debts. Mitigation strategies could be: maintaining a cash reserve and implementing credit checks on customers to reduce bad debts.

Question 9: Discuss why it is important for a business to keep accurate financial records.

Answer: Accurate financial records are essential for tracking business performance, preparing tax returns, securing funding, and making informed decisions to ensure the business’s success.