1.3- Putting an idea into practice

Question 1

Aim

Answer 1

Overall goal that a business wants to achieve

Question 2

Objectives

Answer 2

Steps a business must take to reach their aims

Question 3

5 Financial aims

Answer 3

Survival, profit, sales, financial security, market share

Question 4

5 Non-financial aims

Answer 4

Personal satisfaction, independence, control, challenge, social objective

Question 5

Aims may differ between businesses because of..

Answer 5

Size of the business
Level of competition
Type of business

Question 6

Revenue

Answer 6

Total income or receipts into a business

Question 7

SMART acroynym

Answer 7

Specific, measurable, agreed, realistic, time-bound

Question 8

Fixed costs

Answer 8

Costs that don’t vary with the level of output

Question 9

Variable costs

Answer 9

Costs that vary with the level of output

Question 10

Profit/loss

Answer 10

The difference between revenue and costs

Question 11

Interest

Answer 11

The reward for saving or the cost of borrowing money

Question 12

Break even

Answer 12

The point at which the revenue covers the costs

Question 13

Break even chart
Ads and Dis

Answer 13

Ad-predict an outcome if variables change, provide a target
Dis- based on predicted numbers, doesn’t help to achieve the target

Question 14

Receipts

Answer 14

Money coming into the business

Question 15

Payments

Answer 15

Money coming out of the business

Question 16

Cash flow

Answer 16

Movement of cash in and out of a business over a period of time

Question 17

Cash is important so a business can:

Answer 17

Pay suppliers
Pay employees
Pay overheads
Prevent business failure

Question 18

Cash and profit differences

Answer 18

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

Question 19

Net cash flow

Answer 19

The difference between the total cash in and the total cash out

Question 20

Short term sources of finance

Answer 20

Overdrafts, trade credit

Question 21

Long term sources of finance

Answer 21

Personal savings, venture capital, share capital, retained profit, loans, crowdfunding

Question 22

Personal savings
Def, ad, dis

Answer 22

Using money saved by the entrepreneur
Ad- cheap, keeps full control of business
Dis- restricted amount, can affect personal life

Question 23

Venture capital
Def, ad, dis

Answer 23

Investment into a growing business with a share of the profits
Ad- opportunity for expansion, trustworthy
Dis- input into business, rapid growth expected

Question 24

Share capital
Def, ad, dis

Answer 24

Investment from shareholders into a business
Ad- doesn’t have to be repaid, can raise large amounts
Dis- Dilutes control, vulnerable to takeover

Question 25

Bank loan Def, ad, dis

Answer 25

Fixed amount of money from a bank with interest Ad- fixed interest rates, can take large sum of money Dis- harder to arrange, could be expensive

Question 26

Retained profit Def, ad, dis

Answer 26

Portion of the profit reinvested back into the business Ad- no interest charges, no dividends to pay Dis- danger of hoarding cash, limited amount

Question 27

Crowdfunding Def, ad, dis

Answer 27

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

Question 28

Overdraft Def, ad, dis

Answer 28

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

Question 29

Trade credit Def, ad, dis

Answer 29

Agreement to pay for goods from a supplier at a later date Ad- helps cash flow, low interest Dis- short term, must be repaid quickly, hard to get for startups

Question 30

Cash flow forecasting

Answer 30

Predicting future cash inflows and outflows

Question 31

3 ways to get out of negative cash flow

Answer 31

-Arrange an overdraft -Increase receipts -Decrease payments

Question 32

What does cash flow forecasting allow the business to do?

Answer 32

-Set targets -Make important decisions e.g opening branches, employing more staff

Question 33

Opening balance

Answer 33

Money available at the start of a month

Question 34

Closing balance

Answer 34

Money available at the end of the month

Question 35

Examples of cash inflows and outflows

Answer 35

Inflow- Sales, loans, capital Outflow- Supplier and employee costs, rent