Question 1: Define the term 'cash flow' in the context of a business enterprise.

Answer: Cash flow refers to the movement of money into and out of a business over a specific period, including all cash receipts and payments.

Question 2: 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. Variable costs fluctuate with production volume, like raw materials or wages based on hours worked.

Question 3: A small business has total costs of £50,000 and total revenue of £70,000. Calculate the profit made by the business.

Answer: Profit = Total Revenue - Total Costs = £70,000 - £50,000 = £20,000.

Question 4: Describe three different sources of finance that a new start-up business might use to raise funds.

Answer: Sources of finance for a start-up include personal savings, bank loans, and investments from friends or family. Other options can include government grants or crowdfunding.

Question 5: Identify and explain two risks associated with business finance.

Answer: One risk is over-reliance on borrowing, which can lead to debt if the business cannot generate enough revenue. Another risk is fluctuating interest rates, which can increase repayment costs.

Question 6: Sketch a simple cash flow forecast chart for a small business showing expected cash inflows and outflows over three months.

Answer: A clear sketch would include a horizontal axis labeled with months (Month 1, 2, 3), and vertical bars or lines representing cash inflows above the baseline and cash outflows below the baseline for each month, with appropriate labels.

Question 7: List three financial documents that a business must prepare regularly and state their purpose.

Answer: Balance sheet – shows the financial position at a specific point in time; Income statement – shows profit or loss over a period; Cash flow statement – details cash inflows and outflows.

Question 8: A business plans to expand and needs £100,000. What are two methods it could use to secure this funding? Describe briefly each method.

Answer: The business could take out a bank loan, which involves borrowing money that must be repaid with interest. Alternatively, it could seek investment from venture capitalists or angel investors in exchange for equity in the company.

Question 9: Draw a basic diagram of how a business's income and expenses can be categorized to monitor financial health. Label each section clearly.

Answer: A correct diagram would show two main sections: Income (e.g., sales revenue, investment income) and Expenses (e.g., wages, rent, utilities). Each section should be clearly labeled and separated, illustrating the flow of money.