1.3 Putting a business idea into practise

Question 1

Business aims and objectives when starting up?

Answer 1

Financial aims and objectives: survival, profit, sales, market share, financial security
Non-financial aims and objectives: social objectives, personal satisfaction, challenge, independence and control

Question 2

What is revenue and the formula

Answer 2

The total amount of money a business makes selling its goods and services
Price x Quantity Sold = Revenue

Question 3

What are fixed and variable costs and their formulas?

Answer 3

Fixed costs are costs that do not change.
Variable costs are costs that change with output.
Variable Costs = Cost Per Unit x Total Number of Units
Fixed costs + Variable costs = Total costs

Question 4

What is profit and loss and the formula?

Answer 4

Profit is the amount gained after expenses.
Loss is the amount lost after expenses.
Profit = Total Revenue - Total Costs

Question 5

What is interest?

Answer 5

The interest rate represents the cost of borrowing money or the amount a saver receives in interest.

Question 6

What is break-even and the formula?

Answer 6

The point at which revenue and total costs are the same, meaning the business is making neither a profit nor a loss.

Break Even Point (Units) = Fixed costs / (Sales price per unit - Variable Costs Per Unit)

Question 7

What is the margin of safety and formula?

Answer 7

The amount sales can fall before the break even point is reached.

Margin of Safety = Actual Sales - Break Even Point

Question 8

What is the importance of cash to a business?

Answer 8

• To pay suppliers, overheads and employees
• To prevent business failure (insolvency)
• The difference between cash and profit

Question 9

What are sources of finance for a start-up or established small business?

Answer 9

Short-term sources: overdraft and trade credit

Long-term: Personal savings, venture capital, share capital, loans, retained profit and crowd funding