1.3 Putting a business idea into practice

Question 1

Aims

Answer 1

a general statement of where you’re heading, for example “to get to university”

Question 2

Market share

Answer 2

the percentage of a market held by one company or brand

Question 3

Objectives

Answer 3

a clear, measurable goal, so success or failure is clear to see

Question 4

SMART objectives

Answer 4

targets that are Specific, Measurable, Achievable, Realistic and Time-bound

Question 5

Survival

Answer 5

keeeping the business going, which ultimately depends on determination and cash

Question 6

Fixed costs

Answer 6

costs that don’t vary just because output varies, for example rent

Question 7

Interest

Answer 7

the charges made by banks for the cash they have lent to a business, for example six cent per ear

Question 8

Profit (definition)

Answer 8

the difference between the revenue and total costs; if the figure is negative the business is making a loss

Question 9

Revenue

Answer 9

the total value of sales made within a set period of time, such as a moonth

Question 10

Total costs (definition)

Answer 10

all the costs that vary as output varies

Question 11

Variable costs

Answer 11

costs that vary as output varies, such as raw materials

Question 12

Sales revenue

Answer 12

price * quantity sold

Question 13

Total costs (formula)

Answer 13

variable costs + fixed costs

Question 14

Profit (formula)

Answer 14

total revenue - total costs

Question 15

Break-even

Answer 15

the level of sales at which total costs are equal to total revenue. At this point the business is making neither a profit nor a loss

Question 16

Break-even chart

Answer 16

a graph showing a company’s revenue and total costs at all possible levels of output

Question 17

Margin of safety

Answer 17

the amount by which demand can fall before the business starts making losses

Question 18

Break-even output

Answer 18

fixed costs / price - variable sosts per unit

Question 19

Margin of safety (formula)

Answer 19

sales - break-even output

Question 20

cash

Answer 20

the money the firm holds in notes and coins, and in its bank accounts

Question 21

cash flow

Answer 21

the movement of money into and out of the firm’s bank account

Question 22

insolvency

Answer 22

when a business lacks the cash to
pay its debts

Question 23

overdraft

Answer 23

the amount of the agreed overdraft
facility that the business uses

Question 24

overdraft facility

Answer 24

an agreed maximum level of
overdraft

Question 25

cash flow forecast

Answer 25

estimating the likely flows of cash over the coming months and, therefore, the overall state of one’s bank balance

Question 26

closing balance

Answer 26

the amount of cash left in the bank at the end of the month

Question 27

negative cash flow

Answer 27

when cash outflows are greater than cash inflows

Question 28

net cash flow

Answer 28

cash in minus cash out over the course of a month

Question 29

opening balance

Answer 29

the amount of cash in the bank at the start of the month

Question 30

crowdfunding

Answer 30

raising capital online from many small investors (but not through the stock market)

Question 31

dividends

Answer 31

payments made to shareholders from the company’s yearly profits. The directors of the company decide how large a dividend payment to make; in a bad year they can decide on zero

Question 32

retained profit

Answer 32

profit kept within the business (not paid out in dividends); this is the best source of finance for expansion

Question 33

share capital

Answer 33

raising finance by selling part- in the business. Shareholders have the right to question the directors and to receive part of the yearly profits

Question 34

trade credit

Answer 34

when a supplier provides goods but is willing to wait to be paid – for perhaps up to three months. This helps with cash flow