1.3- Putting an idea into practice Flashcards
Aim
Overall goal that a business wants to achieve
Objectives
Steps a business must take to reach their aims
5 Financial aims
Survival, profit, sales, financial security, market share
5 Non-financial aims
Personal satisfaction, independence, control, challenge, social objective
Aims may differ between businesses because of..
Size of the business
Level of competition
Type of business
Revenue
Total income or receipts into a business
SMART acroynym
Specific, measurable, agreed, realistic, time-bound
Fixed costs
Costs that don’t vary with the level of output
Variable costs
Costs that vary with the level of output
Profit/loss
The difference between revenue and costs
Interest
The reward for saving or the cost of borrowing money
Break even
The point at which the revenue covers the costs
Break even chart
Ads and Dis
Ad-predict an outcome if variables change, provide a target
Dis- based on predicted numbers, doesn’t help to achieve the target
Receipts
Money coming into the business
Payments
Money coming out of the business
Cash flow
Movement of cash in and out of a business over a period of time
Cash is important so a business can:
Pay suppliers
Pay employees
Pay overheads
Prevent business failure
Cash and profit differences
Cash is the money available at one time
Profit is the money made over a period of time once costs have been subtracted from revenue
Net cash flow
The difference between the total cash in and the total cash out
Short term sources of finance
Overdrafts, trade credit
Long term sources of finance
Personal savings, venture capital, share capital, retained profit, loans, crowdfunding
Personal savings
Def, ad, dis
Using money saved by the entrepreneur
Ad- cheap, keeps full control of business
Dis- restricted amount, can affect personal life
Venture capital
Def, ad, dis
Investment into a growing business with a share of the profits
Ad- opportunity for expansion, trustworthy
Dis- input into business, rapid growth expected
Share capital
Def, ad, dis
Investment from shareholders into a business
Ad- no refunds on shares, only pay dividends if sufficient money
Dis- Dilutes control, vulnerable to takeover
Bank loan
Def, ad, dis
Fixed amount of money from a bank with interest
Ad- fixed interest rates, greater certainty
Dis- harder to arrange, could be expensive
Retained profit
Def, ad, dis
Portion of the profit reinvested back into the business
Ad- no interest charges, no dividends to pay
Dis- danger of hoarding cash, limited amount
Crowdfunding
Def, ad, dis
Small amounts of money from a large number of individuals
Ad- acts as market research, provides opportunities
Dis- must be interesting idea, difficult to reach targets
Overdraft
Def, ad, dis
Extension of credit from a bank when an account reaches zero
Ad- quick to arrange, flexible
Dis- bank can demand full payment, can be expensive
Trade credit
Def, ad, dis
Agreement to pay for goods from a supplier at a later date
Ad- can make products first, low interest
Dis- must be agreed, hard to get for startups
Cash flow forecasting
Predicting future cash inflows and outflows
3 ways to get out of negative cash flow
-Arrange an overdraft
-Increase receipts
-Decrease payments
What does cash flow forecasting allow the business to do?
-Set targets
-Make important decisions e.g opening branches, employing more staff
Opening balance
Money available at the start of a month
Closing balance
Money available at the end of the month
Examples of cash inflows and outflows
Inflow- Sales, loans, capital
Outflow- Supplier and employee costs, rent
