1.3 Putting a business idea into practice Flashcards

1
Q
  1. What is meant by a business objective?
A
  1. A target a firm is trying to reach e.g. Make large profits. What a business wants to achieve - it’s aim.
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2
Q

2 What does SMART stand for?

A
  1. Specific, measurable, achievable, realistic, time-bound
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3
Q

3 Why do objectives need to be SMART?

A
  1. So that workers, managers and businesses are more likely to succeed in meeting the objective.
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4
Q

4 Give 4 financial objectives a business may have.

A
  1. Profit, survival, market share, sales, financial security
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5
Q

5 Give 4 non-financial objectives a business may have?

A
  1. Social objectives, personal satisfaction, challenge, independence and control
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6
Q

6 Why do businesses need to have aims and objectives?

A
  1. To provide direction to the business, its workers and managers; so the business can progress forward with its plans.
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7
Q

7 Why might aims and objectives differ between businesses?

A
  1. Each business is owned by different people who may have set up/want different elements from the business. Businesses may be different sizes which may cause objectives to differ. Businesses operate in different markets and have different influences.
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8
Q

8 What is meant by survival?

A
  1. This is when a business is able to continue operating on the market.
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9
Q

9 What is meant by market share?

A
  1. The proportion of sales one business has in comparison to the total sales for the market.
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10
Q

10 What is meant by financial security?

A
  1. When the owner of the business is able to gain a steady and stable income from the business.
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11
Q

11 What is meant by social objectives?

A
  1. A social objective is a statement that details a specific desired outcome of a project that is related to the interaction of the individuals, groups, and institutions within a society.
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12
Q

12 What is meant by personal satisfaction?

A
  1. This is the positive satisfaction that the entrepreneur gets from running the business.
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13
Q

13 What is meant by challenge?

A
  1. This is when the entrepreneur feels as though their skills and knowledge are pushed.
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14
Q

14 What is meant by independence and control?

A
  1. The entrepreneur has decision making power and choice over their working life.
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15
Q

15 What is meant by revenue?

A
  1. The total income from sales.
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16
Q

16 What is the calculation for revenue?

A
  1. Quantity Sold x Price
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17
Q

17 How can a business increase revenue?

A
  1. By increasing the quantity sold, and maintaining the same price. By increasing the price and maintaining the quantity sold. By decreasing the price and increasing the quantity sold.
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18
Q

18 What is meant by fixed costs?

A
  1. Costs that do not change with output.
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19
Q

19 Give two examples of fixed costs?

A
  1. Rent, insurance, salaries, advertising
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20
Q

20 What is meant by variable costs?

A
  1. Costs that do change with output
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21
Q

21 Give two examples of variable costs

A
  1. Raw materials, packaging costs, petrol
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22
Q

22 How do you calculate total costs?

A
  1. Total fixed costs + total variable costs.
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23
Q

23 How do you calculate profit/loss?

A
  1. Total revenue – total costs
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24
Q

24 If revenue is higher than costs, is the business making a profit or loss?

A
  1. A profit
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25
Q

25 If costs are higher than revenue, is the business making a profit or loss?

A
  1. A loss
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26
Q

26 How do you calculate interest?

A
  1. Total repayment – borrowed amount / borrowed amount x 100
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27
Q

27 What is meant by interest?

A
  1. The cost of borrowing or the reward for saving.
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28
Q

28 What is meant by break even?

A
  1. When total revenue is equal to total costs, neither a profit or a loss is being made.
29
Q

29 How do you calculate break even?

A
  1. Fixed costs / contribution
30
Q

30 How do you calculate margin of safety?

A
  1. Actual sales level – break even point
31
Q

31 What will happen to the breakeven point, if the price increases?

A
  1. It will decrease
32
Q

32 What will happen to the breakeven point, if the price decreases?

A
  1. It will increase
33
Q

33 What will happen to the breakeven point, if the cost increases?

A
  1. It will increase
34
Q

34 What will happen to the breakeven point, if the cost decreases?

A
  1. It will decrease
35
Q

35 What is meant by cash?

A
  1. The physical money a business has
36
Q

36 Why is cash important to a business?

A
  1. To pay suppliers, overheads and employees; to prevent business failure.
37
Q

37 What is a cash flow forecast?

A
  1. A prediction of the inflows and outflows of a business.
38
Q

38 How do you calculate net cash flow?

A
  1. Total inflows – total outflows
39
Q

39 How do you calculate opening balance?

A
  1. Previous months closing balance
40
Q

40 How do you calculate closing balance?

A
  1. Opening balance + Net cash flow
41
Q

41 What is meant by cash inflows?

A
  1. Cash coming into the business
42
Q

42 What is meant by cash outflows?

A
  1. Cash going out of the business
43
Q

43 Give two sources of short term finance?

A
  1. Trade credit and overdraft
44
Q

44 Give six sources of long term finance

A
  1. Personal savings, venture capital, share capital, loans, retained profit, crowdfunding.
45
Q

45 What is meant by an overdraft?

A
  1. An extension of a current account, when you can spend more than what is in your bank account.
46
Q

46 What are the benefits of an overdraft?

A
  1. Flexible in terms of payback and usage.
47
Q

47 What are the drawbacks of an overdraft?

A
  1. High interest, have to pay it back.
48
Q

48 What is meant by trade credit?

A
  1. When a business can pay for their supplies at a later date- usually 30, 60 or 90 days later.
49
Q

49 What are the benefits of trade credit?

A
  1. Can improve cash flow as money doesn’t leave the business as quickly
50
Q

50 What are the drawbacks of trade credit?

A
  1. Can be taken away with little notice.
51
Q

51 What is meant by personal savings?

A
  1. The capital that an entrepreneur invests into the business from their own saving.
52
Q

52 What are the benefits of personal savings?

A
  1. No interest to be paid, no debt, no repayments, easy to access
53
Q

53 What are the drawbacks of personal savings?

A
  1. Limited in the amount, risk of financial loss
54
Q

54 What is meant by venture capital?

A
  1. A combination of share capital and loan capital, provided by an investor willing to take a chance on the success of a business.
55
Q

55 What are the benefits of venture capital?

A
  1. Gain the experience of the investor, can raise large sums of cash.
56
Q

56 What are the drawbacks of venture capital?

A
  1. May have to give up some ownership of the business, may be difficult to obtain.
57
Q

57 What is meant by share capital?

A
  1. Cash that is raised by the sale of shares (pieces of ownership of the business).
58
Q

58 What are the benefits of share capital?

A
  1. No interest, cash doesn’t need to be paid back, can raise large sums.
59
Q

59 What are the drawbacks of share capital?

A
  1. May have to pay dividends (bonus payments to shareholders), Shareholders will expect returns so focus of the business may have to be profit, loss of ownership.
60
Q

60 What two forms of business can raise share capital?

A
  1. Public limited company (PLC) and a private limited company (LTD)
61
Q

61 What is meant by loans?

A
  1. A sum of cash given which has to be repaid with interest.
62
Q

62 What are the benefits of loans?

A
  1. Fixed repayments- can help a business plan cash flow, can raise large sums
63
Q

63 What are the drawbacks of loans?

A
  1. Interest has to be paid, Cash has to be paid back, the business will be in debt.
64
Q

64 What is meant by retained profit?

A
  1. Profit that the business has made in previous years which can be reinvested back into the firm.
65
Q

65 What are the benefits of retained profit?

A
  1. No interest to be paid, no debt, no repayments.
66
Q

66 What are the drawbacks of retained profit?

A
  1. Limited in amount, opportunity cost of using it.
67
Q

67 What is meant by crowdfunding?

A
  1. Raising capital online from many small investors.
68
Q

68 What are the benefits of crowdfunding?

A
  1. Can raise large amounts, business has choice over which rewards it offers
69
Q

69 What are the drawbacks of crowdfunding?

A
  1. Can take time, if the business doesn’t reach the target amount they don’t get the cash.