Business a level paper 2 2025
BUSINESS A- LEVEL PAPER 2
VERIFIED QUESTION AND APPROVED ANSWERS
2ND EDITION 2025
Retained profits - ✔✔profits that the owners have reinvested into the business after paying costs
and taxes
Owners' funds - ✔✔money put in by the owners themselves
Sale of assets - ✔✔a one-off way to raise money, generally used during financial struggles
pg. 1
, Business a level paper 2 2025
Benefits of owners funds - ✔✔Avoids interest on loans
Owners keep complete control
Disadvantages of owners funds - ✔✔If it fails after remortgaging, they could lose their house
Limit to amount raised
Short term finance examples - ✔✔overdrafts for daily expenses
Medium term finance examples - ✔✔loans, hire purchase, trade credit, debt factoring used to pay
for repairs, paid back after 1-5 years
Long term finance examples - ✔✔issuing shares, debentures, mortgages, grants used to pay for
major expenditure, paid back over many years
Selling assets - ✔✔Can sell machines, buildings, land
Limited buyers
Advertising costs
Sold cheaply
Loans - ✔✔High interest rates
Usually requires security in the form of assets which will be taken away if they don't make the
repayments
Needs regular updates
Grants - ✔✔No repayment
May be recalled if conditions aren't met
May not cover full amount
pg. 2
, Business a level paper 2 2025
Hire purchase / leasing - ✔✔Must pay deposit and monthly
Own assets at the end
Leasing does not lead to ownership
Must pay interest
Will be re-claimed if not paid for
Issuing shares - ✔✔Only for a limited company (ltd, plc)
No risk but must pay yearly dividends
Shareholders at risk as shares fluctuate
Shareholders have influence
Venture capital - ✔✔Large businesses lend to smaller (not plc) businesses
Lender becomes shareholder
Aim to grow business so share price increases
Lenders play active role
Revenues - ✔✔the amount of product that a customer actually buys
Total revenue equation - ✔✔volume sold x average selling price
Profit as an objective - ✔✔Profit is the most important source of cash flow and finance
Can be other reasons for running a business than profit
Why profit is important - ✔✔A return on investment
A reward for taking risks
pg. 3
, Business a level paper 2 2025
A key source of finance
A measure of business success
A motivating factor
Profit equation - ✔✔total sales - total costs
Costs - ✔✔amounts that a business incurs in order to make goods/services
Costs are important because - ✔✔They drain away profit
Change profit margins
Main causes of cash flow problems
Changes with output
Variable costs - ✔✔Change as output varies
Lower risk for startups
Variable cost examples - ✔✔Raw materials
Brought in stocks
Wages based on hours
Marketing costs based on sales
Fixed costs - ✔✔Don't change with output
Higher risk for startups
Fixed cost examples - ✔✔Rent & rates
Salaries
pg. 4
BUSINESS A- LEVEL PAPER 2
VERIFIED QUESTION AND APPROVED ANSWERS
2ND EDITION 2025
Retained profits - ✔✔profits that the owners have reinvested into the business after paying costs
and taxes
Owners' funds - ✔✔money put in by the owners themselves
Sale of assets - ✔✔a one-off way to raise money, generally used during financial struggles
pg. 1
, Business a level paper 2 2025
Benefits of owners funds - ✔✔Avoids interest on loans
Owners keep complete control
Disadvantages of owners funds - ✔✔If it fails after remortgaging, they could lose their house
Limit to amount raised
Short term finance examples - ✔✔overdrafts for daily expenses
Medium term finance examples - ✔✔loans, hire purchase, trade credit, debt factoring used to pay
for repairs, paid back after 1-5 years
Long term finance examples - ✔✔issuing shares, debentures, mortgages, grants used to pay for
major expenditure, paid back over many years
Selling assets - ✔✔Can sell machines, buildings, land
Limited buyers
Advertising costs
Sold cheaply
Loans - ✔✔High interest rates
Usually requires security in the form of assets which will be taken away if they don't make the
repayments
Needs regular updates
Grants - ✔✔No repayment
May be recalled if conditions aren't met
May not cover full amount
pg. 2
, Business a level paper 2 2025
Hire purchase / leasing - ✔✔Must pay deposit and monthly
Own assets at the end
Leasing does not lead to ownership
Must pay interest
Will be re-claimed if not paid for
Issuing shares - ✔✔Only for a limited company (ltd, plc)
No risk but must pay yearly dividends
Shareholders at risk as shares fluctuate
Shareholders have influence
Venture capital - ✔✔Large businesses lend to smaller (not plc) businesses
Lender becomes shareholder
Aim to grow business so share price increases
Lenders play active role
Revenues - ✔✔the amount of product that a customer actually buys
Total revenue equation - ✔✔volume sold x average selling price
Profit as an objective - ✔✔Profit is the most important source of cash flow and finance
Can be other reasons for running a business than profit
Why profit is important - ✔✔A return on investment
A reward for taking risks
pg. 3
, Business a level paper 2 2025
A key source of finance
A measure of business success
A motivating factor
Profit equation - ✔✔total sales - total costs
Costs - ✔✔amounts that a business incurs in order to make goods/services
Costs are important because - ✔✔They drain away profit
Change profit margins
Main causes of cash flow problems
Changes with output
Variable costs - ✔✔Change as output varies
Lower risk for startups
Variable cost examples - ✔✔Raw materials
Brought in stocks
Wages based on hours
Marketing costs based on sales
Fixed costs - ✔✔Don't change with output
Higher risk for startups
Fixed cost examples - ✔✔Rent & rates
Salaries
pg. 4
