Finance

1. Compare internal and external sources of finance

   Internal sources come from within: retained profit (kept-back earnings - free, but only if profits exist) and selling unused assets. External sources bring in outside money: bank loans (repaid with interest, in regular instalments), overdrafts (flexible short-term borrowing at higher rates), share issues (no repayment, but ownership is diluted), trade credit, and crowdfunding. Fit the source to the need: an overdraft suits a short cash gap; a ten-year loan or shares suit buying premises. Recommending the right source FOR the given business is the standard exam task.

2. Understand break-even and calculate the break-even point

   Break-even is the output at which total revenue exactly covers total costs - no profit, no loss. The formula: break-even output = fixed costs ÷ (selling price − variable cost per unit). A stall with £200 fixed costs, selling at £5 with £3 variable cost per unit, breaks even at 200 ÷ 2 = 100 units. Show every step of working - method marks survive an arithmetic slip. Then interpret it: sales above 100 make profit; the gap between actual sales and break-even is the margin of safety.

3. Explain cash flow and interpret cash-flow forecasts

   Cash is the money actually available - and a business can be profitable on paper yet run out of cash while waiting for customers to pay. A cash-flow forecast lines up expected inflows and outflows month by month: net cash flow = inflows − outflows, and each closing balance becomes the next month's opening balance. A negative closing balance is the warning light. Fixes include arranging an overdraft, chasing payments sooner, delaying purchases or negotiating longer to pay suppliers - pick the fix that suits the cause.

4. Calculate and interpret gross and net profit

   Gross profit = revenue − cost of sales (the direct costs of what was sold). Net profit = gross profit − all other expenses (rent, wages, marketing, interest). Margins turn them into comparable percentages: gross profit margin = gross profit ÷ revenue × 100, and likewise for net. If revenue is £80,000, cost of sales £30,000 and expenses £34,000: gross profit £50,000 (62.5% margin), net profit £16,000 (20%). Set out each line - examiners award the method as well as the answer.

5. Use financial information to make and judge business decisions

   The numbers become useful when they drive decisions. A healthy gross margin with a thin net margin points at overheads, not pricing. A falling margin over two years is a trend worth quoting: "net margin fell from 20% to 14%, so cutting expenses matters more than boosting sales". Compare against last year and against competitors where the data allows. Every calculation in an answer should end with a sentence saying what it MEANS for this business - a number without an interpretation is only half an answer.

6. Combine calculation, application and judgement in finance answers

   Finance questions bundle all three exam skills. First, calculate accurately with visible working - write the formula, substitute, then solve, so method marks are safe. Second, apply: connect the result to the case study ("break-even of 400 cakes a month is ambitious for a market-stall bakery open two days a week"). Third, judge: for "should the business take the loan?", weigh both sides - the interest cost and repayment risk against what the investment earns - and conclude with the reason that settles it. Calculation, context, conclusion: that trio is the full-mark shape.

More Marketing & finance topics

• Marketing
• Business in the real world
• Influences on business
• Business operations
• Human resources

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