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Summary Edexcel A level Business Paper 2 Revision Booklet - Theme 2&3

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Course
Unit 3 - Business decisions and strategy

Institution
PEARSON (PEARSON)

This is a revision booklet that summarises the entire syllabus of theme 2 and 3 which helps you prepare for any topic that can come up in paper 2. This can be used for Edexcel students as well as aqa.

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Uploaded on April 2, 2024
Number of pages 71
Written in 2022/2023
Type Summary

a level business
business
a level
paper 2
business paper 2
unit 3
unit 2
theme 2
theme 3
managing business activities
business decisions and strategy

Study Level
A/AS Level
Examinator
PEARSON (PEARSON)
Subject
Business
Unit
Unit 3 - Business decisions and strategy

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Edexcel A level Business Revision Booklet - All Units(1,2,3,4)

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1. Summary - Edexcel a level business paper 1 - theme 1 & 4
2. Summary - Edexcel a level business paper 2 revision booklet - theme 2&3
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Edexcel A level
Business

Paper 2

Theme 2& 3

Revision booklet

1

,2.1 Raising Finance
2.1.1 Internal finance
Raising finance – The process of raising capital in order to fund the business in its early
stages.

Types of internal Finance: (within the business)
Owner’s capital of friends and family – Attaining capital (start-up) money by using your
own funds or borrowing money from either friends or family.
 The entrepreneur does not need to pay interest.
 The money deadline can be discussed, as it is not a formal method of raising
finance.
 Large amount of control with low risk.

 Funds will not be significant, so other methods of raising finance may be required.
 Slow payments, which may damage personal relations of entrepreneur.

Retained profit – Profit kept in the company rather than paid out to shareholders as a
dividend.
 No interest payments.
 Full control -> Business has less stakeholders to appease and entrepreneur is more
motivated due to more profit (no dividends)

 Slow process.
 Opportunity cost -> Less money for when business may need it (E.G Contingency).

Sales of assets – Selling an item of property owned by a person or company in exchange
for cash.
 Best for companies struggling with cash flow.
 Can be used to sell obsolete and redundant goods which are taking up space.

 May not receive full market value for the product, depending on the seller.
 Tax consequences.
 May not be sufficient alone to fund for a business’ project. Assets depreciate over
time

2

,2.1.2 External finance:
Bank loans – Borrowed from a bank for a certain amount of time with an agreed interest
payment.
 The entrepreneur will maintain control of the business.
 Sufficient for funding large scale projects/investments -> Attractive if interest rates
are low
 Can get fixed interest loan to help plan budget
 Lacks flexibility, as you have to pay interest on the whole amount borrowed even if
you don’t need all of it.
 Not guaranteed to get it if you are not considered solvent by the bank
 Interest payments.

Share capital – The amount of money invested by shareholders in exchange for
ownership. Considered a long-term method of finance.
 Sufficient for large scale projects and investments -> Encourages businesses to
reinvest and improve efficiency -> More cost competitive -> Higher sales from lower
prices
 Business can use money straight away.
 Perspectives of shareholders on decisions could be useful -> Most lucrative decision
likely to be made
 Entrepreneur loses control of the business -> Demotivating -> Potentially less
commitment
 Dividend payments to appease shareholders -> Potential stakeholder conflict

Peer-to-peer funding – A group of individuals lending money to a business directly without
a financial intermediary.
 Flexible borrowing (less formal)
 Quicker method of raising finance due to no intermediary
 No equity needs to be given.
 Can be a scam -> Higher risk due to less certainty of lender for borrower
 Damaging to personal relations
 Lender can set their own interest rates which could be high

Crowd funding – The practice of funding a project by raising money from a large number of
people. E.G GoFundMe pages.
 Online so business reaches a wider audience -> Exposure for business, good
promotion -> Helps build brand image immediately
 Loyal customers
 The cost of start-up can be quickly raised depending on promotion
 Only 90 days to raise funds.
 Investors get money back if amount is not reached.

3

, Venture capital – funding is provided by an investor ( could be business angel) in exchange for a
share in the business.
+ The venture capital firm (investor) offers different forms of support including expertise in their
designated market to guide the business throughout their partnership.
+ The money injected by the investor/ VCF does not have to be paid back by the business.
+ The VCF provides recruitment specialists to the business, to find the most effective workers.
-The VCF take a large amount of control in the decisions regarding the business, E.G Adding members
of their workforce to the business’ management.
-The equity agreed means the business has to pay a percentage of their
annual profit to the VCF.
In some cases, the VCF can become the majority shareholder in the business, due to high levels of
investment

Trade credit – An agreement between a business and suppliers to give the business supplies early
without immediate payment. ( buy now pay later eg at the end of month)

 Helps business meet a demand spike -> Higher customer satisfaction and higher market
share
 Used to build trust and relationships between business and supplier.
 Immediate replenishment in resources, suppliers are fast.
 Relationships can deteriorate, if credit is not paid back on time.
 Suppliers may charge their own interest rates.
 Late payments can affect PR of business and reputation.

Leasing – A financial agreement in which a company pays to use something(eg a machine or
technology ) for a particular period of time. Types of leasing are hire purchase and regular leasing.

 Does not have significant impact on cash flow as payments are spread out.
 Lease payments will remain the same regardless of inflation changes.
 With vehicles, businesses can get service/maintenance without paying.
 The business may not be able to own the object after the lease time period.
 Lease is seen as a debt, so it may make securing loans in the future more difficult.

Government grant – A financial award given by a local or national government to an eligible
grantee. The eligible grantee must be financially secure.

 The business does not have to pay the grant money back.
 Huge monetary reward.
 Free promotion/exposure for the business.
 Very competitive, so difficult to achieve grant.
 Long application process.

Overdraft – A short term loan where the bank agrees to allow the customer to make withdrawals
and exceed their normal limit.

 Fast source of finance.
 Flexibility as customer can take as much as they want.
 Good for cash flow, as it is an injection of money.
 High interest rates.
 Risk of property being seized if not paid back on time.
 Unreliability as the bank can ask for money back at any time.

4

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