Finance — AQA GCSE Business

Finance is about how a business raises money, controls costs, and measures its financial performance.

Sources of finance

Internal sources — retained profit, selling assets, owner's savings.
External sources — loans, overdrafts, share capital, venture capital, crowdfunding, trade credit, leasing and grants.

Short-term sources (e.g. overdraft) suit short-term needs; long-term sources (e.g. loans, shares) suit long-term investment. The choice depends on cost, risk, the amount needed and the type of business.

Costs, revenue and profit

Fixed costs — do not change with output (e.g. rent).
Variable costs — change with output (e.g. raw materials).
Total costs = fixed + variable costs.
Revenue = price × quantity sold.
Profit = revenue − total costs.

Break-even

The break-even point is the level of output where total revenue equals total costs (no profit or loss): $$\text{break-even} = \frac{\text{fixed costs}}{\text{selling price} - \text{variable cost per unit}}$$ The margin of safety is how far current output is above break-even. Break-even charts help with planning, but assume all output is sold at one price.

Cash flow

Cash flow is the money flowing in and out of a business. A cash-flow forecast predicts inflows and outflows to spot shortfalls. A business can be profitable but still fail if it runs out of cash (a liquidity problem).

Financial performance

Performance is judged using income statements (revenue, costs, profit) and ratios such as gross and net profit margins and average rate of return on investment. These help owners and stakeholders make decisions.

Exam tips

Distinguish internal vs external and short- vs long-term sources of finance.
Learn fixed vs variable costs, and profit = revenue − total costs.
Calculate the break-even point and margin of safety.
Explain why cash flow matters even for a profitable business.