1.3 - Putting A Business Idea Into Place Flashcards
What are examples of financial aims of a business?
Survival
Maximise profit
Increase market share
Msaximise sales
Achieve financial security
What is market share?
Tells you what percentage of a market’s total sales a particular product or company has made.
What are examples of non-financial aims of a business?
Personal challenge
Personal satisfaction
Gaining independence and control
Doing what’s right for society - what businesses believe is morally right
Why are having aims important for businesses?
Having aims is important for a business. Managers use aims to make decisions about how the business should be run. Having aims means anyone interested can easily work out what the business is all about
What are objectives?
Objectives are more specific than aims - they’re measurable steps on the way to the aim
What happens once an objective has been set?
They act as clear targets for firms to work towards. They can then be used later to measure whether a firm has been successful or not
How can the size and age of the business affect its aims and objectives?
Many small and new businesses are likely to focus on survival and growth
As firms become more established, they would focus on financial security, increasing sales
Larger businesses might set social aims to avoid bad publicity
How can who owns the business affect its aims and objectives?
Small businesses that are owned by only one/small number of people might have non financial aims of personal satisfaction
Larger businesses owned by many shareholders would need to maximise profit so shareholders get more money
How can the level of competition a business faces affect its aims and objectives?
If a business is in a highly competitive market, it might focus on survival or maximising sales
If a business doesn’t face much competition, it might focus more on increasing market share or maximising profit
Where do businesses earn most of their income from?
Selling their products to customers
How can revenue be calculated?
Revenue = quantity sold x price
What are fixed costs?
Business expenses that have to be paid even if firms produce nothing.
What are variable costs?
Business expenses that change in proportion to how much a company produces or sells
What are examples of fixed costs?
Rent
Insurance
When do variable costs increase?
Rising production
When do variable costs decrease?
Falling production
What are examples of variable costs?
Raw materials
Factory labour
What are the total costs of a firm?
Fixed costs + variable costs
What is the formula of total variable cost?
Total variable cost = quantity sold x variable cost per unit
What is interest?
When a business borrows money, it will usually have to be payed back with interest (charge for borrowing money). So the business will pay back more than borrowed
What is the formula for interest?
Interest = (total repayment - borrowed amount / borrowed amount) x 100
What is the formula of profit?
Revenue - costs
What happens when costs are higher than revenue?
The business will make a loss instead of profit, the answer to the profit formula will also be negative
What is break even analysis?
Allows firms to find the minimum amount they need to sell to get by
What is the break even level of output/break even point?
The level of sales a firm needs in order to just cover its costs
What are the 2 ways that a break even level of output can be measured?
By the number of units a firm needs to sell
By the revenue a firm needs to make to cover its costs
What is the formula of break even point in units?
Fixed costs / sales price - variable cost
What is the formula of break even point in revenue?
Break even point in units x sales price
What would happen if a firm sells more than the break even point?
It’ll make a profit
What is the margin of safety?
its how much the business output can fall before it ACTUALLY starts losing money
What is the formula for margin of safety?
Actual sales - break even sales
What is cash?
The money a company can spend immediately
Why does a business need cash?
To pay:
Employees
Suppliers
Overheads (rent, lighting)
What is profit?
The amount of money a company earns after costs have been taken into account
What is cash flow?
The flow of money into and out of the business.
When is there a cash inflow?
When a firm sells its products, money flows into.
When is there a cash outflow?
When a company buys materials or pays wages, money flows out
What is a positive cash inflow?
More cash inflow than cash outflow
What is the difference between positive cash inflow and profit?
The difference between positive cash inflow and profit is that cash inflow refers to actual money coming into a business (from sales, loans, or investments), while profit is what remains after subtracting all expenses from revenue
What is a cash flow forecast?
Lists all inflows and outflows of cash
When can a cash flow forecast be used?
When a firm may face a lack of cash
Forecast when it will need a short term source of finance to cover its costs
What is credit?
Giving customers longer to pay for products
