1.3 Putting a Business Idea into Practice Flashcards
What is a business aim and objective
Aim - The overall target for the business
Objectives - Short-term goals to reach its aim
Objectives often follow the rule:
SMART
5 financial aims and objectives
Business survival
Profit
Sales
Market share
Financial security
5 non-financial aims and objectives
Social objectives - Ethics and sustainability
Personal satisfaction
Challenge
Control
Independence
Why do aims and objectives differ between businesses
Business type
Business size
Revenue is
income from sales
Revenue=
Units sold x Selling price
Fixed costs
Costs that dont change with output
Variable costs
Costs that change with output
Variable costs=
Variable cost per unit x units sold
Total costs=
Variable costs + Fixed costs
Profit=
Revenue - Costs
Loss occurs when
Costs are higher than revenue
Interest is
The price of borrowing or the reward of saving
Break even level of output is
The level of output where revenue and total costs are the same
Break-even level of output=
FC/SP-VC
The margin of safety is
The amount of sales that can fall from current output to reach the BEP
Margin of safety=
Actual output - Break even output
If revenue increases on a BEP graph
The break even point get lower
If total costs increases on a BEP graph
The break even point gets higher
The Break even ouput on a BEP graph
is the point where revenue and costs meet
The margin of safety on a BEP graph
Is the area between actual output and break even output
The profit on a BEP graph is
The area between the revenue and TC line above the BEP
The loss on a BEP graph is
The area between the revenue and TC line below the BEP
3 reasons cash is important to a business
Payments to suppliers
Payments to employees
Paying overheads
Having a negative cash flow can lead to
Insolvency and business failure
The difference between cash and profit
Cash is the amount of capital in the bank for a business at a specified time.
Once all the costs have been paid using this cash, what is left is the profit.
Cash-flow forecasts show
Opening balance
Cash inflows
Cash outflows
Net cash-flow
Closing balance
2 Short-term sources of finance
Overdraft
Trade Credit
6 Long-term sources of finance
Personal savings
Venture capital
Share Capital
Loans
Retained profit
Crowdfunding
