1.3 - Putting a business idea into practice Flashcards

1.3.1 - Business aims and objectives 1.3.2 - Business revenues, costs and profits 1.3.3 - Cash and cash flow 1.3.4 - Sources of business finance

1
Q

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

A

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

  • Survival
  • Profit
  • Wealth
  • Income
  • Financial Security

Market Share

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2
Q

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

A

Targets that are not expressed in money terms:

  • Personal Satisfaction
  • Challenge
  • Independence
  • Control
  • Helping Others
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3
Q

1.3.2 - What is the formula for profit?

A

Sales Revenue – Total Cost

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4
Q

1.3.2 - What is the formula for sales revenue?

A

Selling Price x Sales Volume

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5
Q

1.3.2 - What is the formula for total costs

A

Fixed Cost + Variable Cost

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6
Q

1.3.2 - What is the formula for variable cost?

A

Cost per Unit x Sales Volume

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7
Q

1.3.2 - How do you calculate interest?

A

Total Repayment – Borrowed Amount
Interest = _______________________________
Borrowed Amount x 100

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8
Q

1.3.2 - What is the break-even point and how do you calculate it?

A

The level of output where total revenues are equal to total costs; this is where neither a profit or loss is being made:
Fixed costs
__________________________
Sales price - Variable cost per unit

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9
Q

1.3.2 - What is a margin of safety?

A

The amount of output between the actual level of output where profit is being made and the break even level of output.

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10
Q
  1. 3.2 - What happens to the break even point if:
    a) Costs go up
    b) Your sale price goes up
A

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

b) It becomes smaller (Closer on a chart)

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11
Q

1.3.3 - What is cash flow?

A

The movement of money into and out of the business. Cash is used to pay the day-to-day expenses of a business.

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12
Q

1.3.3 - Why is cash flow important to a business?

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

- The prevent business failure (insolvency)

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13
Q

1.3.3 - How is net cash flow calculated?

A

Total cash flow in - Total cash flow out

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14
Q

1.3.4 - What is the difference between long and short - term sources of finance?

A

LT: Sources of money for businesses that are borrowed or invested typically for more than a year.
ST: Sources of money for businesses that may have to be repaid either immediately or fairly quickly, such as an overdraft, usually within a year.

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15
Q

1.3.4 - What is Overdraft Facility?

A

Borrowing money from a bank by drawing

more money than is actually in your account. Interest is charged on the amount overdrawn.

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16
Q

1.3.4 - What is Trade credit?

A

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.

17
Q

1.3.4 - What is Factoring?

A

A factor (financial company) buys a debt from a business and pays the business typically 90% of the value of this debt. Therefore the business gets paid immediately. The factor charges a fee for this.

18
Q

1.3.4 - What are some Long term sources of finance?

A
  • Personal savings
  • Venture capital
  • Share capital
  • Loans
  • Retained profit
  • Crowdfunding
  • Leasing (renting out)
19
Q

1.3.4 - What is venture and share capital?

A

SC: The monetary value of a company which belongs to its shareholders.
VC: An individual or company which buys shares in what they hope will be a fast growing company with a long-term view of selling the shares at a profit.

20
Q

1.3.4 - What is crowdfunding?

A

Obtaining external finance from many individual, small investments, usually through a web-based appeal.