1.3 Business

Question 1

Aims:

Answer 1

a general statement of where you’re
heading, for example ‘to get to university’.

Question 2

Market share:

Answer 2

the percentage of a market held
by one company or brand.

Question 3

Objectives:

Answer 3

a clear, measurable goal, so
success or failure is clear to see.

Question 4

SMART objectives:

Answer 4

targets that are specific,
measurable, achievable, realistic and time-bound.

Question 5

Survival:

Answer 5

keeping the business going, which
ultimately depends on determination and cash.

Question 6

Fixed costs:

Answer 6

costs that don’t vary just because
output varies, for example rent.

Question 7

Interest:

Answer 7

the charges made by banks for the
cash they have lent to a business, for example six
per cent per year

Question 8

Profit:

Answer 8

the difference between revenue and total
costs; if the figure is negative the business is
making a loss.

Question 9

Revenue:

Answer 9

the total value of the sales made within
a set period of time, such as a month

Question 10

Total costs:

Answer 10

all the costs for a set period of time,
such as a month.

Question 11

Variable costs:

Answer 11

costs that vary as output varies,
such as raw materials.

Question 12

Sales revenue=

Answer 12

price × quantity sold

Question 13

Total costs =

Answer 13

variable costs + fixed costs

Question 14

Profit = total revenue – total costs

Answer 14

total revenue – total costs

Question 15

Break-even chart:

Answer 15

a graph showing a company’s
revenue and total costs at all possible levels of
output.

Question 16

Break-even:

Answer 16

the level of sales at which total
costs are equal to total revenue. At this point
the business is making neither a profi t nor a
loss.

Question 17

Margin of safety:

Answer 17

the amount by which demand
can fall before the business starts making losses.

Question 18

Break-even output =

Answer 18

price – variable costs per unit

Question 19

Margin of safety =

Answer 19

sales – break-even output

Question 20

Cash:

Answer 20

the money the firm holds in notes and
coins, and in its bank accounts.

Question 21

Cash flow:

Answer 21

the movement of money into and out
of the firm’s bank account.

Question 22

Insolvency:

Answer 22

when a business lacks the cash to
pay its debts.

Question 23

Overdraft:

Answer 23

the amount of the agreed overdraft
facility that the business uses.

Question 24

Overdraft facility:

Answer 24

an agreed maximum level of
overdraft.

Question 25

Cash flow forecast:

Answer 25

estimating the likely flows
of cash over the coming months and, therefore,
the overall state of one’s bank balance

Question 26

Closing balance:

Answer 26

the amount of cash left in the
bank at the end of the month.

Question 27

Negative cash flow:

Answer 27

when cash outflows are
greater than cash inflows.

Question 28

Net cash flow:

Answer 28

cash in minus cash out over the
course of a month.

Question 29

Opening balance:

Answer 29

the amount of cash in the
bank at the start of the month.

Question 30

Crowdfunding:

Answer 30

raising capital online from
many small investors (but not through the stock
market).

Question 31

Dividends:

Answer 31

payments made to shareholders
from the company’s yearly profits. The
directors of the company decide how large a
dividend payment to make; in a bad year they
can decide on zero.

Question 32

Retained profit:

Answer 32

profit kept within the business
(not paid out in dividends); this is the best
source of finance for expansion.

Question 33

Share capital:

Answer 33

raising finance by selling partownership in the business. Shareholders
have the right to question the directors and to
receive part of the yearly profits.

Question 34

Trade credit:

Answer 34

when a supplier provides
goods but is willing to wait to be paid – for
perhaps up to three months. This helps with
cash fl ow.

Question 35

Venture capital:

Answer 35

a combination of share capital
and loan capital, provided by an investor willing
to take a chance on the success of a small to
medium-sized business.