1.3 - putting a business idea into practice

Question 1

business aims and objectives

Answer 1

financial:
- survival
- profit
- sales
- gain market share
- financial security

non-financial:
- social objectives
- personal satisfaction
- challenge
- independence
- control

Question 2

calculate revenue

Answer 2

profit - costs
OR
number of sales x sale price

Question 3

calculate total costs

Answer 3

fixed costs + variable costs

Question 4

calculate profit

Answer 4

revenue - cost

Question 5

define ‘break-even level of output’

Answer 5

informs a business of how many products it needs to sell to reach the break-even point

Question 6

calculate breakeven point

Answer 6

fixed costs / (sales price per unit - variable cost per unit)

Question 7

define ‘break-even point’ (BEP)

Answer 7

point at which revenue and total costs are the same, the business is making neither a profit nor a loss

Question 8

define ‘margin of safety’

Answer 8

the amount that sales can fall by before the break-even point is reached and the business makes no profit

Question 9

why is cash important?

Answer 9

• pay suppliers, overheads, employees
• prevent business failure

Question 10

difference between cash (flow) and profit

Answer 10

cash flows shows how much money moves in and out if the business, profit is how much money is left after paying all expenses

Question 11

short term sources of finance

Answer 11

• overdraft
• trade credit

Question 12

long term sources of finance

Answer 12

• personal savings
• venture capital
• share capital
• loans
• retained profit
• crowdfunding

Question 13

disadvantages of overdraft

Answer 13

• high interest rates
• leads to higher fixed costs
• profits may fall

OR

• short term
• not secure for long term
• therefore cannot be used to invest in things like buildings for business

Question 14

advantages of short term finance

Answer 14

• easier to apply for
• can respond quickly to opportunities or cash flow shortages