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

Answer: Cash flow refers to the movement of money into and out of a business, representing the amount of cash available at any given time.

Question 2: List three sources of finance that a new business might use to raise capital.

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

Question 3: 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, such as rent or salaries. Variable costs change depending on production volume, such as raw materials or packaging costs.

Question 4: A business earns revenue of £10,000 in a month and has total costs of £7,000. What is its profit for that month?

Answer: Profit = Revenue - Costs = £10,000 - £7,000 = £3,000.

Question 5: Describe what a cash flow forecast is and why it is important for a business.

Answer: A cash flow forecast predicts future cash inflows and outflows over a period, helping businesses plan for shortages or surpluses and make informed financial decisions.

Question 6: Identify and explain two financial documents a business uses to monitor its finances.

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

Question 7: Sketch a simple diagram illustrating the flow of money in a business, including sales, expenses, and profit.

Answer: A flow diagram showing sales revenue coming into the business, expenses going out, and the remaining amount representing profit.

Question 8: Explain what is meant by 'breakeven point' and why it is important for a new business.

Answer: The breakeven point is when total revenue equals total costs, meaning the business is neither making a profit nor a loss. It helps determine how much sales are needed to start making profit.

Question 9: Draw a simple bar chart to compare fixed costs and variable costs for a small business.

Answer: A bar chart with two bars: one representing fixed costs at a higher level and another representing variable costs at a lower level, clearly labeled.

Question 10: Identify three key factors that influence the choice of sources of finance for a business.

Answer: Amount of money needed, repayment terms, and the level of risk involved.