1.3: Putting a business idea into practice

Question 1

What is the difference between an aim and an objective

Answer 1

Aims are general goals, while objectives are specific goals that contribute to aims

Question 2

What are some financial objectives

Answer 2

• Survival
• Sales and revenue
• Profit
• Market share
• Financial security

Question 3

What are some non-financial objectives

Answer 3

• Personal satisfaction
• Independence and control
• Challenge
• Social benefits/goals
• Customer satisfaction
• Recognition

Question 4

What can profits be used for

Answer 4

• Survival
• Investment for expansion
• Security and savings
• Rewards for employeed
• Wealth

Question 5

How do you calculate the interest of loans

Answer 5

(Total repayment-borrowed amount)/borrowed amount x 100

Question 6

What is the formula for the break-even point in units

Answer 6

Fixed cost/(Sales price-variable cost)

Question 7

What is the formula for break-even point in revenue/costs

Answer 7

Break-even in units x sales price

Question 8

What is cash used for

Answer 8

• paying suppliers
• paying debts
• repaying loans
• paying wages
• buying raw materials and products
• promoting the business

Question 9

What can impact cashflow

Answer 9

• Demand
• Costs
• Season
• Expansion/entrenchment
• Stock levels
• Credit terms

Question 10

What is the difference between a short and long-term source of finance

Answer 10

ST sources are repaid immediately or quite quickly
LT sources are repaid over a longer time period

Question 11

What is a bank overdraft

Answer 11

A quick loan gotten when you have insufficient cash, often with high interest

Question 12

What are some pros + cons of bank overdrafts

Answer 12

Pros:
* Flexible
* Interest only on amount used
* Good for short-term cashflow problems
Cons:
* Can be withdrawn any time
* High interest

Question 13

What are some pros/cons of trade credit

Answer 13

Pros:
* You can pay after selling goods
* Improves cashflow
Cons:
* Danger of bad relationship with supplier
* Negotiations required

Question 14

What are some pros/cons of personal savings

Answer 14

Pros:
* Shows commitment for investors
* No interest
* Full control
Cons:
* Limited
* Must be supplemented through other sources

Question 15

What are some pro/cons for a loan from family/friends

Answer 15

Pros:
* Quick
* Low interest
* Decently flexible
Cons:
* Stressful
* May be disagreements
* Limited

Question 16

What are some pros/cons for a bank loan

Answer 16

Pros:
* Guaranteed
* Shareless
* Easy to forecast
* Can be paid over time
Cons:
* Time-consuming
* Inflexible
* Requires handing over assets

Question 17

What are some pros/cons of share capital

Answer 17

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

Question 18

What is venture capital

Answer 18

Money invested into a new high-risk business by investors who see potential in it

Question 19

What are some pros/cons of venture capital

Answer 19

Pros:
* Investors give skills and experience
* Large amount of funds
Cons
* Usually requires part ownership
* Tricky and unreliable

Question 20

What are some pros/cons of crowdfunding

Answer 20

Pros:
* Publicity
* Can easily be monitored
* Cheap to start
Cons:
* Risky
* Investors need something in return