1.3 Putting a Business Idea into Practice Flashcards
Definition of “Aim”
What a business wants to achieve
Definition of “Objective”
A smaller step to achieve the aim. (Should be measurable)
Revenue Formula
Selling Price X Quantity Sold
Total Costs Formula
Fixed Costs + Variable Costs
Examples of fixed costs
Overheads, Bills, Utilities
Examples of Variable Costs
Raw materials, ingredients, components
Gross Profit Formula
Revenue - Cost of Goods Sold
Net Profit Formula
Gross Profit - Operating Expenses
When does Break Even Occur
When total costs = total revenue
What is Break Even
The amount of units required to be sold to cover all costs
Short Term Sources of Finance
Overdraft, Trade Credit
3 Long Term Sources of Finance
Personal Savings, Venture Capital, Share Capital
3 Long Term Sources of Finance
Loan, Retained Profit, Crowdfunding
Trade Credit
External, Help improve cash flow, Late payments could damage relationship.
Overdraft
External, Provides instant access to cash to pay short-term debts, High Interest Rates.
Retained Profit
Internal, Doesn’t create any debt, Dividends wont be paid to shareholders.
Venture Capital
External, Benefit from experience of venture capitalist, Venture Capitalist will expect part ownership
Share Capital
External, Large sums of finance that doesn’t need to be repaid, Shareholders can influence the decisions the business makes.
Bank Loan
External, Quick access to large sums of money, Need to be repaid with interest.
Crowdfunding
External, Can raise large sums of finance to cover start up costs, Sacrifice part ownership of the business.
Personal Savings
Internal, doesn’t create any debt for the business, may not be enough to cover costs.
