1.3 - Putting a business idea into practice

Question 1

1.3.1 - What are financial objectives and some examples of this?

Answer 1

Targets expressed in money terms such as making a profit, earning income or building wealth:

• Survival
• Profit
• Wealth
• Income
• Financial Security

Market Share

Question 2

1.3.1 - What are non-financial (social) objectives and some examples of this?

Answer 2

Targets that are not expressed in money terms:

• Personal Satisfaction
• Independence
• Control

Question 3

1.3.2 - What is the break-even point?

Answer 3

The level of output where total revenues are equal to total costs; this is where neither a profit or loss is being made

Question 4

1.3.2 - What is a margin of safety?

Answer 4

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

Question 5

1. 3.2 - What happens to the break even point if:
   a) Costs go up
   b) Your sale price goes up

Answer 5

a) It becomes larger (further along on a chart)

b) It becomes smaller (Closer on a chart)

Question 6

1.3.3 - What is cash flow?

Answer 6

The movement of money into and out of the business.

Question 7

1.3.3 - Why is cash flow important to a business?

Answer 7

• To pay its expenses (Suppliers overheads employess etc.)

- The prevent business failure (insolvency)

Question 8

1.3.4 - what are short - term sources of finance?

Answer 8

Sources of money for businesses that may have to be repaid either immediately or fairly quickly, such as an overdraft, usually within a year.

Question 9

1.3.4 - What is Overdraft Facility?

Answer 9

Borrowing money from a bank by drawing more money than is actually in your account. Interest is charged on the amount overdrawn.

Question 10

1.3.4 - What is Trade credit?

Answer 10

Negotiating with suppliers a period of time before goods and services that have been purchased have to be paid for. This is usually 30 days credit.