1.3 Putting a Business Idea into Practice

Question 1

Definition of “Aim”

Answer 1

What a business wants to achieve

Question 2

Definition of “Objective”

Answer 2

A smaller step to achieve the aim. (Should be measurable)

Question 3

Revenue Formula

Answer 3

Selling Price X Quantity Sold

Question 4

Total Costs Formula

Answer 4

Fixed Costs + Variable Costs

Question 5

Examples of fixed costs

Answer 5

Overheads, Bills, Utilities

Question 6

Examples of Variable Costs

Answer 6

Raw materials, ingredients, components

Question 7

Gross Profit Formula

Answer 7

Revenue - Cost of Goods Sold

Question 8

Net Profit Formula

Answer 8

Gross Profit - Operating Expenses

Question 9

When does Break Even Occur

Answer 9

When total costs = total revenue

Question 10

What is Break Even

Answer 10

The amount of units required to be sold to cover all costs

Question 11

Short Term Sources of Finance

Answer 11

Overdraft, Trade Credit

Question 12

3 Long Term Sources of Finance

Answer 12

Personal Savings, Venture Capital, Share Capital

Question 13

3 Long Term Sources of Finance

Answer 13

Loan, Retained Profit, Crowdfunding

Question 14

Trade Credit

Answer 14

External, Help improve cash flow, Late payments could damage relationship.

Question 15

Overdraft

Answer 15

External, Provides instant access to cash to pay short-term debts, High Interest Rates.

Question 16

Retained Profit

Answer 16

Internal, Doesn’t create any debt, Dividends wont be paid to shareholders.

Question 17

Venture Capital

Answer 17

External, Benefit from experience of venture capitalist, Venture Capitalist will expect part ownership

Question 18

Share Capital

Answer 18

External, Large sums of finance that doesn’t need to be repaid, Shareholders can influence the decisions the business makes.

Question 19

Bank Loan

Answer 19

External, Quick access to large sums of money, Need to be repaid with interest.

Question 20

Crowdfunding

Answer 20

External, Can raise large sums of finance to cover start up costs, Sacrifice part ownership of the business.

Question 21

Personal Savings

Answer 21

Internal, doesn’t create any debt for the business, may not be enough to cover costs.