1. FINANCE REVISION – UNIT 1
GCSE BUSINESS STUDIES
FINANCE REVISION – UNIT 1

2. RAISING FINANCE STARTER – What are ‘Interest rates’?
Methods of raising finance include:
Bank Loan
Overdraft
Mortgage
Own Savings
Loan from Family or Friends
Sell shares
Government grant
Q1. Can you define / explain each of the above?
Q2. Can you give advantages & disadvantages of each of the above?

3. Sources of Finance
Mandy used to work as a costume designer at her local theatre until she left work 3 years ago to bring up her daughter Natalie, now 4 years old. Mandy now works from her house in Slough where she provides, makes and sells hand made glove puppets. At the moment she sells at local craft fairs and through word of mouth. She now wants to expand her business to include an on line shop and also to provide puppet shows for children’s parties and puppet making workshops for slightly older children's parties.
Question time
Identify 2 reasons why Mandy may need to raise finance. (2 marks)
Explain 1 advantage and 1 disadvantage of taking out a bank loan (4 marks)
Mandy is considering applying for an additional mortgage on her house to finance the business expansion. Do you think this is a good idea? Justify your answer (9 marks)
Remember for the 9 mark question you need to weigh up both sides before reaching a conclusion.
3.1 Finance and support

4. Answer guidance Q3 (Justify) - 9 marks Define mortgage
Give 2/3 reasons why it is good:
One good thing about a mortgage is ……….. This means …….. This is good because ………..
Give 2/3 reasons why it is bad:
One bad thing about a mortgage is ……….. This means …….. This is good because ………..
Consider 1 /2 alternatives:
An alternative source of finance that Mandy could consider is ……………. This may be better than a mortgage because …….
Reach a conclusion
In conclusion I think that Mandy should ………… This is because …………..
Remember – 1 point per mark
Relate your answer to the details in the question
Q2 – Explain (4 marks)
1 advantage to Mandy of taking out a bank loan is ………. This is an advantage because …………
Another advantage to Mandy of a bank loan is ………………… This is an advantage because …………….

5. What is meant by the following Financial Terms?
Price
Sales
Revenue
Costs
Profit
3.2 Terms and Calculations

6. Financial Calculations
Terry sells luxury bathrobes to boutique retailers across the UK.
Each robe sells to retailers at £90 and costs £40 in towelling and other raw materials used to make the product.
He sells 800 robes per month
His monthly costs are:
Distribution £1500
Wages £4500
Marketing £1250
Equipment £2000
Calculate Terry’s profit or loss. You must show all your workings.
3.2 Terms and Calculations

7. Cash flow statement
A cash flow statement for the first 4 months of Geoffrey’s farm shop.
Jan (£)
Feb (£)
Mar (£)
Jun (£)
Cash In
(Receipts)
4000
4500
5500
6500
Cash Out
(Payments)
13000
2250
2000
2500
Opening Balance
-9000
-6750
-3250
Closing Balance
- 9000
750
Can you explain the following figures?
Why is his closing balance negative in January?
Why might having a negative closing balance be a problem?
Recap 3.1
What is an overdraft?
How might an overdraft help Geoffrey?
3.3 Cash Flow

8. The importance of cash flow statements
Cash Flow Forecasts
Businesses normally produce a forecast of their expected cash flow before the start of the year
This allows them to spot any potential cash shortfalls in advance
They can then look to avoid this
They can then make plans for this i.e. a pre arranged overdraft
Can monitor actual cash flow against predicted
BBC News The bank that likes to say 'cheese
An unusual solution to cash flow problems!
3.3 Cash Flow