1.3 - Putting business ideas into practice

Question 1

What are some financial aims?

Answer 1

• Survival
• Maximise profit
• Increase market share
• Maximise sales
• Achieve financial security

Question 2

What are some non-financial aims?

Answer 2

• Accomplishing a personal challenge
• Achieve personal satisfaction
• Gaining independence and control
• Doing whats right for society

Question 3

What is an aim?

Answer 3

Aims are overall goals that a business is trying to achieve.

Question 4

What is an objective?

Answer 4

A measurable step that a business will set in order to work towards an aim

Question 5

What is revenue?

Answer 5

Revenue is the income earned by a business

Question 6

What is the equation for revenue?

Answer 6

Revenue = quantity sold x price

Question 7

What are costs?

Answer 7

Cost are the expenses paid out to run a business

Question 8

What are fixed and variable costs?

Answer 8

Fixed costs are costs that do not vary with output. They have to be paid out even if the firm produces nothing.

Variable costs are costs that will increase as the firm expand output.

Question 9

What is the equation for interest percentage?

Answer 9

((total repayment - borrowed amount) / borrowed amount) x 100

Question 10

What is profit?

Answer 10

Profit is the difference between revenue and cost over a period of time

Question 11

What is the equation for profit?

Answer 11

Profit = revenue - costs

Question 12

What does break even mean?

Answer 12

Break even is the point where you cover your costs

Question 13

What is the equation for the break even point?

Answer 13

fixed cost / (sales price - variable cost)

Question 14

What is cash?

Answer 14

Cash is the money a company can spend immediately.

Cash is not the same thing as profit

Question 15

What is the equation for net cash flow?

Answer 15

Net cash flow = cash inflows - cash outflows

Question 16

What is a cash flow forecast?

Answer 16

A forecast of all the inflows and outflows of a business

Question 17

How can cash flow forecast help a business?

Answer 17

Cash flow forecasts help firms to anticipate problems

Question 18

What are the short term sources of finance?

Answer 18

• Trade credit

- Overdrafts

Question 19

What are the long term sources of finance?

Answer 19

• Loans
• Personal savings
• Share capital
• Venture capital
• Retained profit
• Crowd funding

Question 20

What is trade credit?

Answer 20

A business may give firms one or two months to pay for certain purchases. This is useful for a small firm as they have time to earn the money needed to pay the debt.
However, if the firm makes the payment too late, they could end up with a larger fee.

Question 21

What are overdrafts?

Answer 21

These let the firm take more money out of the bank account than it has paid into it. Overdrafts can allow businesses to make payments in time even if they dont have enough cash. However they usually have a higher interest rate than other loans and the bank can cancel it at any time. If it isnt paid off, then the bank can take some of the businesses assets.

Question 22

What are loans

Answer 22

Bank loans are quick and easy to take out. Like overdrafts they are repaid with interest and if they aren’t repaid, the bank can repossess the firms assets. However, the interest rate for loans is usually lower than for overdrafts. The business may need to pay the loan back in monthly installations, which will increase their fixed costs. Before taking out the loan, the business should check that they can still break even with this increase in cost.

Question 23

What are personal savings?

Answer 23

A business owner may put some of their own money into the business to get it started or if it is having cash problems. However, this is risky as the owner could end up losing their money if the business fails.

Question 24

What is share capital?

Answer 24

Individuals can buy shares in the business. This means they will have part ownership in the business and the business can use the money gained through issuing shares.

Question 25

What is venture capital?

Answer 25

This is money raised through selling shares to individuals or businesses who specialise in giving finance to new or expanding firms. Venture capitalists will usually buy shares in businesses that are risky but have the potential to grow quickly. They will take a stake in the business, and may expect returns quicker than other shareholders would.

Question 26

What are retained profits?

Answer 26

These are profits that the owners have decided to plough back into the business.

Question 27

What is crowd funding

Answer 27

This is when large numbers of people contribute money to starting up a business or funding a business idea. Its often used for creative or innovative businesses and usually takes place online. Normally each person only contributes a small amount of money. Sometimes the people who contribute the money may get a reward in return.