1.3 Putting a business idea into practise

Question 1

What are the 4 financial aims?

Answer 1

Financial aims:

• Survival (enough money to stay open)
• Profit (more money going in than coming out)
• Maximise sales
• Financial security ( own revenue for funding)

Question 2

What are 3 non financial aims?

Answer 2

Non financial aims:

• Personal challenge
• Satisfaction
• Independence (own boss)

Question 3

What 3 factors affect business aims?

Answer 3

Factors affecting business aims:

• Size/age of business (new business focus on survival)
• Owner
• Competition (low competition = focus on survival)

Question 4

What is revenue?

Answer 4

Revenue:

• Income earned by a business

Question 5

What is the equation for calculating revenue?

Answer 5

Calculating revenue:

• Revenue = quantity sold x price

Question 6

What is fixed cost?

Answer 6

Fixed cost:

• Does not change with amount business produces

Question 7

What are examples of fixed costs?

Answer 7

Fixed costs:

• Rent
• Insurance
• Advertising
• Salaries

Question 8

What are variable costs?

Answer 8

Variable costs:

• Costs that can increase or decrease

Question 9

What are examples of variable costs?

Answer 9

Variable costs:

• Raw materials
• Running machinery

Question 10

What is the equation for calculating total variable cost?

Answer 10

Total variable cost:

• Total variable cost = quantity sold x variable cost per unit

Question 11

What is interest?

Answer 11

Interest:

• Charge for borrowing money

Question 12

How do you calculate interest?

Answer 12

Interest:

Interest = total payment - borrowed amount
––––––––––––––––––––––––––––––––– x 100
Borrowed amount

Question 13

How do you calculate profit?

Answer 13

Profit:

• Profit = revenue - costs

Question 14

What is break-even?

Answer 14

Break-even:

• Amount of sales needed to cover the costs

Question 15

How do you calculate break-even in units?

Answer 15

Break-even in units:

           Fixed cost ––––––––––––––––––––––––– Sales price - variable cost per unit

Question 16

How do you calculate break-even point for revenue?

Answer 16

Break-even point for revenue:

• Break-even point for revenue = break-even point in units x sales price

Question 17

What does a low break-even out put mean?

Answer 17

Low break-even output:

• Business sells less to make a profit

Question 18

What is margin of safety?

Answer 18

Margin of safety:

• Gap between current output and break even output

Question 19

How do you calculate margin of safety?

Answer 19

Margin of safety:

• Margin of safety = actual/budgeted sales - break-even sales

Question 20

What is cash

Answer 20

Cash:

• Spent immediately
• Spent on employers, suppliers and overheads

Question 21

What is profit?

Answer 21

Profit:

• Calculated after reducing costs

Question 22

What is cash flow?

Answer 22

Cash flow:

• Flow of money coming in and going out of a business

Question 23

How do you calculate net cash flow?

Answer 23

Net cash flow:

Net cash flow = cash inflows - cash outflow

Question 24

What is a cash forecast

Answer 24

Cash forecast:

• All inflows and outflows of cash

Question 25

How do you write negative numbers in cash flow?

Answer 25

Negative numbers: - Brackets

Question 26

What is trade credit?

Answer 26

Trade credit: - Later payments over months - Fee increases if payed later

Question 27

What is an overdraft?

Answer 27

Overdraft: - Lets firms take more money - Higher interest rate - No payment = assets taken from bank

Question 28

What are long term sources of finance?

Answer 28

Long term sources of finance: - Loans (interest) - Savings Share capital (individuals buy business) - Venture capital ( large businesses leading money to smaller businesses (higher risk)) - Retained profit (putting profit back into business - Retained profit