1.3 Putting a business idea into practice Flashcards
Aims
Aims: a general statement of where you’re
heading, for example ‘to get to university’.
Market share
Market share: the percentage of a market held
by one company or brand.
Objectives:
Objectives: a clear, measurable goal, so
success or failure is clear to see.
Smart objectives
SMART objectives: targets that are specific,
measurable, achievable, realistic and time-bound.
Survival
Survival: keeping the business going, which
ultimately depends on determination and cash.
Fixed costs
Fixed costs: costs that don’t vary just because
output varies, for example rent.
Variable costs
Variable costs: costs that vary as output varies,
such as raw materials.
Total costs
Total costs: all the costs for a set period of time,
such as a month.
Profit
Profit: the difference between revenue and total
costs; if the figure is negative the business is
making a loss.
Interest
Interest: the charges made by banks for the
cash they have lent to a business, for example six
per cent per year.
Revenue
Revenue: the total value of the sales made within
a set period of time, such as a month.
Break-even
Break-even: 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.
Break-even chart
Break-even chart: a graph showing a company’s
revenue and total costs at all possible levels of
output.
Margin of safety
Margin of safety: the amount by which demand
can fall before the business starts making losses.
Formula for margin of safety and break even output
Formulae
Break-even output = fixed costs/
price – variable costs
per unit
Margin of safety = sales – break-even output
Cash
Cash: the money the firm holds in notes and
coins, and in its bank accounts.
Cash flow
Cash flow: the movement of money into and out
of the firm’s bank account.
Insolvency
Insolvency: when a business lacks the cash to
pay its debts.
Overdraft
Overdraft: the amount of the agreed overdraft
facility that the business uses.
Overdraft Facility
Overdraft facility: an agreed maximum level of
overdraft.
Cash flow forecast
Cash flow forecast: estimating the likely flows
of cash over the coming months and, therefore,
the overall state of one’s bank balance.
Closing balance
Closing balance: the amount of cash left in the
bank at the end of the month.
Negative cash flow
Negative cash fl ow: when cash outflows are
greater than cash inflows.
Net cash flow
Net cash flow: cash in minus cash out over the course of a month.
Opening balance
Opening balance: the amount of cash in the
bank at the start of the month.
Crowdfunding
Crowdfunding: raising capital online from many small investors (but not through the stock market).
Dividends
Dividends: 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.
Retained profit
Retained profit : profit kept within the business
(not paid out in dividends); this is the best
source of finance for expansion.
Share capital
Share capital: raising finance by selling part-ownership in the business. Shareholders have the right to question the directors and to receive part of the yearly profits.
Trade credit
Trade credit: when a supplier provides goods but is willing to wait to be paid – for perhaps up to three months. This helps with
cash fl ow.
Venture capital
Venture capital: a combination of share capital and loan capital, provided by an investor willing
to take a chance on the success of a small to medium-sized business.
