1.3 Putting a business idea into practice Flashcards
Competition
Other businesses that offer potential customers similar products or services that meet their needs and wants
The Market
The place where the laws of supply and demand operate and buyers and sellers interact
Expansion
Growing the size, physical presence or revenue of a business, entering new markets. This can be internal or external
Measurements of success
How a business decides whether it is meeting its aims and objectives
Sales
Number of products or services sold multiplied by the price in a given time period, usually a year
Products
The range of different goods and services a business offers
Short term
A limited time, usually a year or within a year
Long term
A larger time span, usually several years
Market Research
Activity that tells a business what the customer wants and needs
Customer surveys
A method of market research that involves asking potential customers sets of questions
Size of the Market
The total number of people or businesses that are potential customers, or the total value of all products and services in the market
Business environment
All the forces, actions and factors that can affect a business
Dynamic
Moving, changing, variable
Mission Statement
A formal presentation of a company’s aims
Market Penetration
A strategy of selling existing goods and services in an existing market
Segmentation
When a market is divided into different parts
Business Aims
The overall goal, what a business wants to achieve long term
Business Objectives
The things a business does to reach its aims
To Grow
To increase the size of the company, product ranges, staff, premises and revenue
To Survive
To keep the business going, paying costs and operating
To gain Market Share
To gain a bigger percentage of the total market, usually taking it away from competitors
To increase Share Value
To increase the value of the company by making its shares more desirable so their price goes up
To make the most Profit
To have the most money left from revenue after paying costs to distribute to the owners
To do what is Ethically right
To do good and not to harm people or the planet
To Satisfy Customers
To give them the right product or service that meets their needs and wants
SMART
Objectives should be Specific, Measurable, Attainable, Relevant and Time Bound
Specific
Be clear and precise
Measurable
Be able to be graded, judged, or counted
Attainable
Be possible and realistic
Relevant
Be useful and connected with the business aims
Time Bound
Be have a set time or deadline
Total Costs
Total costs = variable costs + fixed costs
Average Unit Costs
Average unit cost = total cost ➗ output
Profit
Profit = revenue - costs
Market Share
Sales value or volume of your business x100 ➗ Sales value or volume of the whole market
Market Growth
Change in sales value or volume x100 ➗ Original sales value or volume
Average Rate of Return
ARR (%) = Average Annual Profit x100 ➗ Initial Investment
Break-Even Output
Total Costs = Total Revenue
Net Cash Flow
Total cash inflows - total cash outflows
Closing Balance Cash flow
Opening Balance + net cash flow
Opening Balance Cash flow
Closing balance of the previous month
Gross Profit
Revenue - Costs of Sales
Operating Profit
Gross Profit - Overheads or expenses
Net Profit
Operating Profit - tax - finance costs
Gross Profit Margin
Gross profit x100 ➗ Sales revenue
Net Profit Margin
Net profit x100 ➗ Sales revenue
Net Current Assets
Current assets - current liabilities
Net Assets
Non-current assets + net current assets - non-current liabilities
Total Equity
Share capital + Retained Profits
Cash flow
A measurement of all the money flowing into and out of a business at a particular time
Cash flow problems
Not enough money to pay day-to-day expenses, i.e. suppliers, wages and rent
Cash flow forecast
A document that looks ahead to the levels of money in and out of a business over a particular period
Overheads
Regular bills such as utilities, rent, etc.
Negative cash flow
When more money is being paid out than is coming in as revenue
Positive cash flow
When more revenue is coming in than money being paid out
Insolvency
When a business can’t pay its debts, or when there is more money owed than the assets it has
Profits
Money left from revenue after all costs have been deducted
Reporting period
The set time which financial statements cover, usually a month, quarter (3 months) or year
Cash inflows
All revenues that a business receives
Cash outflows
All payments that a business makes
Net cash flow
The difference between all money paid out and all revenue over a particular period of time
Solvent
Having enough money to pay all debts that are due at a particular time
Opening balance
Money that a business has at the start of a reporting period
Closing balance
Money that a business has at the end of a reporting period
Capital
Money that can be used by a business to set up, grow or expand
Sources of finance
Ways a business can get money or capital to invest in the business
Short term finance
Money that can be accessed for immediate needs or unforeseen events
Overdraft
A negative balance on a bank account, on which interest is usually charged
Trade credit
When a supplier gives you an extended time to pay, usually 20, 60 or 90 days, and often interest is charged
Credit limit
The maximum borrowing limit on an overdraft or credit card
Credit period
The time given to repay the amount borrowed
Interest rate
The percentage charged on the amount borrowed, applied over time, which must be repaid to the lender
Long term finance
Money that is planned to be spent by a business to enable it to achieve it’s objectives
Venture capital
Money invested by people or organizations who take a risk so they can receive a return
Share capital
Money invested in exchange for a number of shares in the business, investment cannot be repaid, only sold but shareholders may receive dividends
Bank loan
Money lent to a business by a bank which charges an agreed interest rate
Retained profit
Surplus money left over at the end of the financial year that is reinvested in the business
Crowdfunding
An online way of many small investors providing money to start up or expand a business
Dividend
A payment to all shareholders for every share they hold, usually every year
Return on an investment
Making profit on the money that you put into a business
