1.3: Putting a business idea into practice Flashcards
What is the difference between an aim and an objective
Aims are general goals, while objectives are specific goals that contribute to aims
What are some financial objectives
- Survival
- Sales and revenue
- Profit
- Market share
- Financial security
What are some non-financial objectives
- Personal satisfaction
- Independence and control
- Challenge
- Social benefits/goals
- Customer satisfaction
- Recognition
What can profits be used for
- Survival
- Investment for expansion
- Security and savings
- Rewards for employeed
- Wealth
How do you calculate the interest of loans
(Total repayment-borrowed amount)/borrowed amount x 100
What is the formula for the break-even point in units
Fixed cost/(Sales price-variable cost)
What is the formula for break-even point in revenue/costs
Break-even in units x sales price
What is cash used for
- paying suppliers
- paying debts
- repaying loans
- paying wages
- buying raw materials and products
- promoting the business
What can impact cashflow
- Demand
- Costs
- Season
- Expansion/entrenchment
- Stock levels
- Credit terms
What is the difference between a short and long-term source of finance
ST sources are repaid immediately or quite quickly
LT sources are repaid over a longer time period
What is a bank overdraft
A quick loan gotten when you have insufficient cash, often with high interest
What are some pros + cons of bank overdrafts
Pros:
* Flexible
* Interest only on amount used
* Good for short-term cashflow problems
Cons:
* Can be withdrawn any time
* High interest
What are some pros/cons of trade credit
Pros:
* You can pay after selling goods
* Improves cashflow
Cons:
* Danger of bad relationship with supplier
* Negotiations required
What are some pros/cons of personal savings
Pros:
* Shows commitment for investors
* No interest
* Full control
Cons:
* Limited
* Must be supplemented through other sources
What are some pro/cons for a loan from family/friends
Pros:
* Quick
* Low interest
* Decently flexible
Cons:
* Stressful
* May be disagreements
* Limited
What are some pros/cons for a bank loan
Pros:
* Guaranteed
* Shareless
* Easy to forecast
* Can be paid over time
Cons:
* Time-consuming
* Inflexible
* Requires handing over assets
What are some pros/cons of share capital
Pros:
* Lots of cash produced
* No repayments/interest
Cons:
* Slow and complicated
* Possible loss of control + risk of takeover
* Business must satisfy shareholders
* Dividends must be paid
What is venture capital
Money invested into a new high-risk business by investors who see potential in it
What are some pros/cons of venture capital
Pros:
* Investors give skills and experience
* Large amount of funds
Cons
* Usually requires part ownership
* Tricky and unreliable
What are some pros/cons of crowdfunding
Pros:
* Publicity
* Can easily be monitored
* Cheap to start
Cons:
* Risky
* Investors need something in return
