CH13Mindmap
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π Cash Flow Forecast
Reasons to Prepare a Cash Flow Forecast
Better Financial Control
Live within means; compare actual spending versus budget and take corrective action where needed.
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Help Avoid Deficits
Spot a future excess of expenditure over income (deficit) in advance so corrective action can be taken and scarce resources used well.
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Help Highlight Surplus
Plan how to use surplus income e.g. fund expansion or place funds in a savings account.
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Help Access Finance
Use as part of a business plan to show projected cash positions to investors or banks.
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Ways to Fix a Cash Flow Deficit
Access Short-Term Finance
Apply for an overdraft; seek extended trade credit from suppliers.
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Review and Control Costs
Source cheaper raw materials; reduce wages where possible.
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Spread Payments
Pay for an asset over time e.g. monthly instalments rather than a single upfront payment.
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Increase Receipts
Use the marketing mix to improve sales e.g. an advertising campaign, sales promotion or price reduction.
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π³ Sources of Finance
Short-Term Finance (up to 1 year)
Short-Term Finance
Finance available for up to one year. Used for working capital needs such as paying wages, bills and buying stock.
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Bank Overdraft
Negotiate a limit to go below zero in a current account. Flexible but expensive due to high interest rates.
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Accrued Expenses
Delay paying bills for a period to use the money for other short-term needs.
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Trade Credit
Buy or receive goods now and pay the supplier later. Interest-free if paid within the agreed period.
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Factoring
Sell your debtors to a debt collection company for an upfront payment. Immediate cash but at a discount.
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Medium-Term Finance (1β5 years)
Medium-Term Finance
Finance available for 1β5 years. Used for machinery, computers and vehicles with a lifespan of 1β5 years.
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Leasing
Renting an asset β you never own it. No large initial payment needed. Suits assets that become outdated quickly.
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Hire Purchase
Buying an asset over time in instalments. You use the asset immediately but ownership only transfers after the final payment.
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Medium-Term Loan
1β5 year loan repaid in regular equal instalments including interest. Interest payments are tax deductible for a business.
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Long-Term Finance (over 5 years)
Long-Term Finance
Finance available for over 5 years. Used to fund growth and expansion such as a new store, warehouse or long-term machinery.
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Reserves
Profits left over from trading that are reinvested in the business. Retained earnings β no cost and no loss of control.
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Government Grant
Money given to a business for a specific purpose β does not have to be repaid. e.g. from LEOs or Enterprise Ireland.
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Long-Term Loan
Repayable in regular monthly instalments plus interest to a bank. Over 5 years.
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Debenture
A loan where interest is repaid regularly and the initial principal is repaid in full at the end of the term.
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Equity Capital
Share capital raised by selling shares to investors. No repayment required but ownership is diluted.
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π Factors Choosing Finance / Qualifying for a Loan
Factors When Choosing a Source of Finance
Cost of Borrowing
An APR (annual percentage rate) is charged for borrowing β lower rates are cheaper. Debt finance means monthly repayments; equity avoids these.
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Purpose / Matching Principle
Match the source to the correct use β short-term needs need short-term finance (e.g. overdraft for stock). Long-term needs require long-term sources (e.g. debenture for a new premises).
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Amount Required
If large amounts are needed, long-term sources are usually chosen as costs can be spread over a longer period.
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Control
Raising equity capital by issuing shares dilutes ownership and gives voting rights to new shareholders β loss of control for the founders.
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Collateral
The borrower may need to offer assets as security. If the business lacks sufficient assets, some sources may be unavailable.
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Factors That Affect Ability to Get a Loan (The 4 C's)
Collateral
Lack of security/assets to offer in case a debt cannot be repaid reduces ability to get credit.
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Capacity
The borrower's ability to repay the loan β assessed by looking at market research, cash flow forecast and current income.
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Character
The creditworthiness of the borrower β credit history and credit rating. A poor credit history reduces approval chances.
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Purpose
Loans are more likely to be approved if the money is spent on items that will lead to higher future sales and improved cash flow.
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2025 Q7(C)
Discuss medium-term sources of finance for Anthem Transport Ltd. (20)
βΌ
Anthem Transport Ltd, a courier company with an ageing IT system, needs to upgrade its fleet and technology. Discuss how Anthem Transport Ltd could use different medium-term sources of finance for their medium-term needs. (20 marks β 2 Γ 10)
βοΈ Suggested Answer
Leasing (new delivery vehicles): Leasing involves renting an asset from a finance company β Anthem Transport never owns the vehicles. There is no large upfront cost, payments are tax deductible, and when vehicles become outdated after 3β5 years Anthem can lease newer models. This suits their courier fleet which depreciates quickly and requires regular updating to stay competitive.
Medium-Term Loan (IT system upgrade): A bank loan repaid in regular equal instalments over 1β5 years, including interest. Interest is tax deductible. Anthem Transport could use this to purchase and install a new IT management system β the loan term matches the useful life of the technology, following the matching principle. Control of the business is not affected.
π Exam tip: Discuss = develop each point fully. Two points at 10 marks each β name the source, define it, explain why it suits the business scenario. Anthem Transport must be referenced β it is in the marking scheme. Apply the matching principle where relevant.
2022 Q7(B)
Discuss factors a business should consider when choosing a source of finance. (20)
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Apart from the Debt/Equity Ratio, discuss the factors a business should consider when choosing a source of finance. (20 marks β 4 Γ 5 marks, 2+3 per point)
βοΈ Suggested Answer
Purpose / Matching Principle: The reason for the finance must be considered. Short-term needs must be financed from short-term sources (e.g. a bank overdraft to buy stock) while long-term expansion requires long-term sources (e.g. a debenture or equity capital for a new premises).
Cost of borrowing: The APR (annual percentage rate) represents the true annual cost of borrowing. Debt finance involves monthly repayments of capital and interest, while retained earnings and equity capital avoid these costly payments.
Control: Raising equity capital by issuing new shares dilutes ownership β new shareholders gain voting rights and are entitled to dividends, reducing the founders' level of control over business decisions.
Collateral: Some sources of finance require the business to pledge assets as security. If the business has insufficient fixed assets, access to certain sources (e.g. a long-term bank loan) may be restricted.
π Marking scheme notation: 4 Γ 5m (2+3) means name/state the factor (2 marks) + explain/develop it (3 marks). Four well-named and explained factors earn full marks. No Irish business example required here β it is a general discuss question.
2019 Q5(C)
Two situations requiring short-term finance for a start-up. (20)
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Describe two distinct situations requiring short-term finance for a start-up business and explain the most appropriate source of short-term finance in each situation. (20 marks β 2 Γ 10, each: 4+3+3)
βοΈ Suggested Answer
Situation 1 β Paying employee wages: A start-up may not have sufficient revenue yet to meet its weekly payroll. A bank overdraft is the most appropriate source β the business negotiates a limit to go below zero in its current account, giving it the flexibility to pay wages during low-income periods. Interest is only charged on the amount overdrawn, making it a cost-effective short-term solution.
Situation 2 β Purchasing stock to sell: A start-up needs stock before it can generate sales revenue. Trade credit is the most appropriate source β the business receives goods from suppliers now and pays for them at an agreed later date (e.g. 30β60 days). This gives the business time to sell the stock and generate revenue before the payment is due, avoiding the need to borrow cash.
π Structure tip: Each 10-mark answer = Situation (4) + Source named and defined (3) + Why it is appropriate for that situation (3). The "why appropriate" mark is where students lose marks β always link the source back to the specific situation described.
2024 Q6(A)
Reasons to prepare a cash flow forecast + fix a deficit. (20)
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(i) Outline two reasons why a business should prepare a cash flow forecast. (10 marks)
(ii) Outline two ways a business could improve a cash flow deficit. (10 marks)
(ii) Outline two ways a business could improve a cash flow deficit. (10 marks)
βοΈ Part (i) β Two Reasons to Prepare a CFF
Help avoid deficits: A cash flow forecast allows a business to identify a future excess of expenditure over income (a deficit) before it occurs. The business can then take corrective action in advance, making better use of its scarce financial resources.
Help access finance: A cash flow forecast forms a key part of a business plan when applying to a bank or investor for finance. It demonstrates that the business has projected its future cash position and can show the lender when and how any loan will be repaid.
βοΈ Part (ii) β Two Ways to Fix a Cash Flow Deficit
Access short-term finance: The business could apply for a bank overdraft or negotiate extended trade credit from suppliers to bridge the gap between income and expenditure until the position improves.
Increase receipts: Use the marketing mix to improve sales income β for example, launch an advertising campaign, run a sales promotion, or reduce price temporarily to boost volume and bring more cash into the business.
π Common error: Students define a cash flow forecast instead of giving reasons to prepare one. The question asks why β always lead with the benefit to the business, not the definition of the document.
ABQ β Polished on the Go Ltd
Identify and describe sources of finance (short, medium, long). (30)
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Jenna's mobile beauty studio needed upfront equipment costs covered by going into a negative balance at the bank. Now expanding to a permanent premises with a bank loan and an LEO grant.
(i) Explain short-term finance. (6 marks)
(ii) Identify and describe the most appropriate sources of finance for Jenna's relocation β refer to short, medium and long term. (24 marks)
(i) Explain short-term finance. (6 marks)
(ii) Identify and describe the most appropriate sources of finance for Jenna's relocation β refer to short, medium and long term. (24 marks)
βοΈ Part (i) β Short-Term Finance
Short-term finance is finance available for a period of up to one year. It should be repaid within twelve months and is used for short-term working capital needs such as paying wages, utility bills and buying stock.
βοΈ Part (ii) β Three Sources (one per timeframe)
Short term β Bank Overdraft: A facility that allows Jenna's business to go below zero in her current account. She only borrows what she needs and when she needs it. High interest rates apply but it is flexible and suits the early cash flow needs of her business. Direct quote: "she applied to her bank to be allowed to go in to a negative balance at times."
Medium term β Leasing: Jenna rents the custom-fitted van from a finance company without ever owning it. No lump sum is required, payments are tax deductible and she can upgrade to a newer van at the end of the lease period. Direct quote: "Jenna was able to get a custom-fitted van to serve as her studio."
Long term β Government Grant (LEO): Money given to Jenna's business for the specific purpose of relocation β it does not have to be repaid. Local Enterprise Offices provide grant funding for small businesses to help them grow and create employment. Direct quote: "She plans to apply for a grant from her Local Enterprise Office."
π ABQ technique: Each source earns marks for: State (name it) + Explain (define it) + Direct Quote from the passage. Always use a direct quote from the text β it is worth marks in ABQ questions on finance.
The following topics are identified as 2026 must-knows for Chapter 13: Finance based on past paper frequency analysis, examiner reports and the 2026 trend master sheet.
ABQ: Sources of Finance Hot
Top-listed must-know. In the ABQ you must identify the correct short, medium and long-term source from clues in the passage text and use a direct quote to support each answer. Past papers: 2017 ABQ(B), 2013 ABQ(A), 2012 ABQ(A), 2007 ABQ(B). Practise the Polished on the Go ABQ in the Past Qs tab β it is the perfect template.
Top-listed must-know. In the ABQ you must identify the correct short, medium and long-term source from clues in the passage text and use a direct quote to support each answer. Past papers: 2017 ABQ(B), 2013 ABQ(A), 2012 ABQ(A), 2007 ABQ(B). Practise the Polished on the Go ABQ in the Past Qs tab β it is the perfect template.
Factors when choosing a source of finance / applying for a loan Hot
Has appeared in almost every exam cycle. Know the 4 C's (Collateral, Capacity, Character, Purpose) for loan qualification AND the broader factors (Cost, Purpose, Control, Collateral, Amount) for choosing finance. Past papers: 2022 Q7(B), 2020 Q6(A)(ii), 2017 Q7(C), 2014 Q6(B), 2010 Q6(C).
Has appeared in almost every exam cycle. Know the 4 C's (Collateral, Capacity, Character, Purpose) for loan qualification AND the broader factors (Cost, Purpose, Control, Collateral, Amount) for choosing finance. Past papers: 2022 Q7(B), 2020 Q6(A)(ii), 2017 Q7(C), 2014 Q6(B), 2010 Q6(C).
Cash Flow Forecast β reasons to prepare and how to fix a deficit Watch
Has appeared in long and short questions. Reasons to prepare: 2024 Q6(A), 2022 Q7(B), 2015 Q6(C), 2009 Q6(C), 2007 Q6(B). Fixing a deficit: 2024 Q6(A), 2019 Q5(A), 2016 ABQ(B). Know all four reasons and all four fixes β they appear frequently as two-point (10-mark) questions.
Has appeared in long and short questions. Reasons to prepare: 2024 Q6(A), 2022 Q7(B), 2015 Q6(C), 2009 Q6(C), 2007 Q6(B). Fixing a deficit: 2024 Q6(A), 2019 Q5(A), 2016 ABQ(B). Know all four reasons and all four fixes β they appear frequently as two-point (10-mark) questions.
Medium-term sources of finance β applied to a business scenario Watch
2025 saw Anthem Transport as the business context. Expect a similar applied question in 2026 β know Leasing vs Hire Purchase vs Medium-Term Loan and when each is most appropriate. The matching principle (match source to purpose) is the core examiner test here.
2025 saw Anthem Transport as the business context. Expect a similar applied question in 2026 β know Leasing vs Hire Purchase vs Medium-Term Loan and when each is most appropriate. The matching principle (match source to purpose) is the core examiner test here.
Short-term finance for a start-up β two situations Possible
2019 Q5(C) asked for two distinct start-up situations and appropriate sources. Could reappear in short question or ABQ format. Know Bank Overdraft (wages), Trade Credit (stock) and Accrued Expenses (utilities) with clear reasons why each source is appropriate to each situation.
2019 Q5(C) asked for two distinct start-up situations and appropriate sources. Could reappear in short question or ABQ format. Know Bank Overdraft (wages), Trade Credit (stock) and Accrued Expenses (utilities) with clear reasons why each source is appropriate to each situation.
Discuss
Develop each point fully
State the factor, then explain its impact on the business in 2β3 sentences. One-line answers will not earn full marks. Marks are awarded for depth β three well-developed points beat six shallow ones.
e.g. "Discuss factors when choosing finance" β name the factor (Cost of Borrowing) + explain what APR means + explain the impact on the business's cash flow.
Outline
State + Explain
State the point clearly, then explain it in 1β2 sentences. No example required unless the question says "illustrate". Match your number of points to the marks β a 10-mark question typically needs 2 points at 5 each.
e.g. "Outline two reasons to prepare a CFF" β name the reason + explain why it helps the business specifically.
Matching Principle
Match source to purpose
Short-term needs = short-term finance. Medium-term needs = medium-term finance. Long-term needs = long-term finance. Examiners penalise answers that use a long-term loan to buy stock, or an overdraft to buy a building.
e.g. Buying a delivery van (3-year life) β Leasing or Hire Purchase. Buying a premises (30-year life) β Long-term loan or Debenture.
ABQ Finance
State + Explain + Direct Quote
In ABQ finance questions, every source of finance answer earns marks for: naming it, defining/explaining it, AND including a direct quote from the passage. Missing the quote loses 2β3 marks per source.
e.g. "Bank Overdraft β [definition] β supported by: 'she applied to her bank to be allowed to go in to a negative balance at times.'"
Leasing vs HP
The key distinction
This distinction appears repeatedly. Leasing = you never own the asset. Hire Purchase = ownership transfers after the final payment. Both are medium-term. The examiner tests whether students know the ownership difference β state it clearly every time.
e.g. "With leasing, Anthem Transport rents the van and never owns it. With hire purchase, ownership transfers after the final instalment is paid."
Mark Schemes
How marks are split in Ch13
Know the common notations: 2Γ10 (for discuss questions), 4Γ5 (2+3) for factor questions, 3Γ8 (3+3+2) for ABQ source questions. Always count your points β a 20-mark question answered with one point cannot score above 10.
e.g. 2022 Q7(B) = 4 factors Γ 5 marks (2 for naming + 3 for explaining). Name it clearly then develop it β both parts are marked.