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Business Unit 2 Giada > Business Exam > Flashcards

Business Exam Flashcards

1
Q

Business Plan

A

A document for the development of the business giving details such as the product, resources and costs

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2
Q

3 reasons why a business plan is important

A

1.To show potential lenders or financiers

2.A business plan reduces risk because it forces the entrepreneur to consider all factors that could cause the business idea to succeed/fail

3.to check that the aims are being met

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3
Q

Briefly list the 5 key elements of a business plan

A

1.Executive summary

2.The businesses and its objectives

3.Owner’s background

4.The market

5.Financial forecasts

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4
Q

Why a business plan may not be important…​
​

A
  1. The level of risk can be assessed using elements of the business plan e.g. cash flow forecast. Therefore a full business plan may not be necessary.
  2. Not all sources of finance require a business plan
  3. Business planning is subject to external constraints and influences which may make predictions invalid​

​

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5
Q

Internal finance ​

A

Money generated by the business or from its current owners. ​The raising of capital /cash from within the business.

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6
Q

What is ‘Owner’s Capital’ ?

A

Owner’s Capital refers to money invested by the owner of a business.This often comes from their personal savings.This source of finance does not cost the business, as there are no interest charges applied.

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7
Q

What are ‘Personal Savings’ ?

A

Money that has been saved up by an entrepreneur which she/he invests in the business

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8
Q

What are financial forecasts?

A

Financial forecast may be the important content because if the entrepreneur is needs to obtain a bank loan when setting up the bank would most likely have been more willing to loan the money having seen financial forecasts in the business plan

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9
Q

Sale of assets​

A

An asset sale is an internal finance that happens when you sell or transfer the assets of your company, rather than shares or stock. These assets can be tangible such as machinery and inventory or intangible (intellectual property). In an asset sale, you can typically choose what you want to sell.​

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10
Q

Retained Profit

A

The amount of a business net income thats kept within its account rather than paid out to the share holders​

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11
Q

External finance

A

External finance is capital / funding obtained from a source outside the business ​

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12
Q

Sources of finance

A
  1. family and friends ​
  2. banks ​
  3. peer-to-peer funding ​

4.business angels ​

5.crowd funding ​

6.other businesses ​

​

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13
Q

Methods of finance

A
  1. Loans (bank loan, mortgage, debenture) ​
  2. share capital ​
  3. venture capital ​
  4. overdrafts ​
  5. leasing ​
  6. trade credit ​
  7. grants​
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14
Q

What may the type of finance depend on?

A

Whether the financial need is long or short term​

The financial position of the business​

Cost

Type of expenditure for which the money is needed​

Legal status of the business​

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15
Q

Peer to peer lending (P2P lending)

A

lending money to individuals or businesses through online services that match lenders with borrowers.​

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16
Q

Crowd funding ​

A

Crowd funding is where large numbers of individuals can provide direct funding for a business or project which is administered by a website such as www.crowdfunder.co.uk​

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17
Q

Venture capital ​

A

Venture capital involves issuing shares to a small number of investor(s) in return for a capital injection into the company​

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18
Q

Sole Trader

A

The simplest form of business set up and owned by one person/with only one owner .​

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19
Q

Partnership

A

A type of business ownership owned by two or more people ​

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20
Q

Private limited company

A

A type of business ownership owned by shareholders where their liability for company debts is limited which means that shareholders can only lose the money they have invested ​

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21
Q

Franchising

A

Franchising is a method of business ownership that involves a business selling the rights to another business to operate under its name and use its products / a business model that allows an individual or business to acquire a licence to use another firm’s branding, product knowledge and systems for a prescribed period of time. ​

​

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22
Q

Social enterprise

A

A business with mainly welfare or environmental objectives rather than maximising profit

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23
Q

Lifestyle businesses

A

A business set up with the aim of making no more than a set level of income from which to enjoy a particular lifestyle

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24
Q

Public limited company (plc)​

A

Public limited company (plc) can offer shares on a stock market to the general public and shareholders are only limited to potentially lose the value of the amount paid for the shares. ​

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25
Q

Benefits of having a Plc

A

Huge amounts of money can be raised ​

Plc tend to grow and therefore benefit from economies of scale ​

Banks may be more willing to lend to plcs​

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26
Q

Drawbacks of having a plc

A

Setting up costs of a plc can be expensive ​

Anyone can buy shares – so risk of hostile takeover​

Members of the public can access and inspect financial records and accounts of the firm​

Due to growth in size they may experience diseconomies of scale​

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27
Q

Liability

A
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28
Q

Limited liability

A

the business has a separate legal identity from its owners. The most a shareholder/investor can lose of the original amount they invested in the business

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29
Q

Unlimited liability

A

these are businesses where there are no legal difference between the owners and the business. They are sometimes called unincorporated businesses.

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30
Q

Sales volume

A

the number of units sold by a business ​

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31
Q

Sales revenue

A

total income earned by a business from the sales of its products. It is the total value of sales income generated from sale of goods or services.​

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32
Q

g

A
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33
Q

Fixed costs

A

costs that do not vary with output. The costs that do not change when output/sales changes

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34
Q

Variable costs

A

costs to a business that change with output. The costs will change when output/sales changes

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35
Q

Total costs

A

the entire cost of producing a given level of output. Fixed costs + variable costs

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36
Q

Average costs

A

the cost of producing one unit, calculated by dividing the total costs by the output

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37
Q

Fixed ​(examples)

A

Rent​

Salaries​

Interest payments​

Insurance ​

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38
Q

Variable (examples)

A

Raw materials​

Packaging​

Piece rate wages​

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39
Q

Bank Loan

A

It is a fixed amount of money given to a business, “borrowed” by the bank and has to be repaid over time with interest

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40
Q

Sales forecasting

A

An estimate of the value or volume of future sales for a business/product/market for a period of time, based on market research/past data

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41
Q

consumer trends ​

A

Habits or behaviour (1) of those involved in the use of goods and services (1)​

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42
Q

costumer trends (ex)

A

Seasonal variations: easier to predict as some goods are seasonal such as Ski equipment or ice cream. Consumption of gas and electricity increases during winter months in some countries. ​

Fashion: may be more difficult to predict, markets such as clothing change constantly, with little notice. ​

Long-term trends: examples include consumers watching TV on demand using devices, this has led to a growth in firms such as Netflix and Amazon Prime and a fall in firms such as Blockbuster. ​

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43
Q

economic variables

A

Economic growth – this is measured using GDP, this shows the total output of the economy. In general during times of economic growth sales rise due to rising in consumer incomes, although this depends on the YED.​

Interest rates – if these are high then it is expensive to borrow and better to save, a result of this may be a fall in demand. ​

Inflation – this is a general increase in the price of goods, during times of high inflation consumers may slow down their spending and sales fall.​

Unemployment – during a recession this may be high, if people are out of work then spending will fall, therefore sales will be lower.​

Exchange rates – these reflect the value of one currency in terms of another. A stronger £ will mean imports coming into the UK are cheaper and exports will appear more expensive. Business may have to adjust their sales forecasts to compensate for this.​

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44
Q

Breakeven formula​

A

Fixed costs​=Contribution

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45
Q

Breakeven ​

A

When a business generates just enough revenue to cover its costs, it is the point at which the number of sales generate enough revenue to cover the costs. ​

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46
Q

Difficulties of sales forecasting ​

A

businesses operating in dynamic markets will find it significantly more difficult to forecast accurately beyond a very short period of time in the future ​

47
Q

Contribution

A

selling price − variable cost per unit​

48
Q

Cash flow ​

A

Cash flow is the money that is moving in and out of a business ​

​

49
Q

Cash flow forecasting

A

It is a prediction of the cash moving in and out of a business over a period of time

50
Q

Budgets ​

A

A financial plan (1) which includes an estimate of income and expenditure for a set period of time, prepared and agreed in advance (1)​

51
Q

Types of budgets/historical budgets

A

historical budgets are forecasts for revenue and costs that are based on previous figures/years​.

Quicker than zero-based as money is allocated to departments so there is no need for managers to seek approval​

Firm knows how much is going to be spent and once it’s gone it’s gone​

However, it is limiting as once it’s gone it’s gone! Some departments may require more budget​

​

52
Q

Types of budgets/zero based

A

A method of budgeting which does not use previous data. The budget will be set as zero at the start of the year and the budget holder will need to justify / ask for money​.

Help to reduce unnecessary spending as they will carefully consider why they need money​

But could prevent spending on certain items which could be beneficial for the business​

Employees may feel uncomfortable about being challenged on spending ​

​

53
Q

Purpose budget

A

plans, control and prevents the business
from overspending

54
Q

Variance analysis

A

Trying to find reasons for the differences between actual and expected figures ​

Variance = actual – budget​

55
Q

Difficulties of budgeting​

A

Figures are plans based on historical data, forecasts or human judgements ​

Setting budgets can cause conflict between departments

It takes time to set budgets, this creates an opportunity cost​

Budgets may be unrealistic and this can create demotivated managers / workers ​

56
Q

Leasing & Grant

A
57
Q

Profit

A

the surplus (extra) remaining after total costs (1) are deducted from revenue (1)

58
Q

Gross profit​

A

total revenue - the cost of sales(variable costs)

59
Q

Operating profit

A

Gross profit – operating costs (fixed costs)​

OR ​

Revenue – total costs (fixed + variable)​

60
Q

Profit for the year (net profit)

A

Operating profit – finance costs (interest)

61
Q

ways to increase profit, revenue​

A

charging higher prices which might help increase revenue​

Invest in advertising to create more awareness, attract more customer and increase sales volume​

Find new markets, could be an overseas market (Apple entering China)​

Diversify product range, Google offering Google drive​

Mergers and takeovers ​

​

62
Q

ways to increase profit, cutting down costs

A

cutting down on variable expenses by purchasing materials from a cheaper supplier (help gross profit and operating profit)​

Reducing fixed costs, cheaper rent (help operating profit)

63
Q

Statement of comprehensive income

A

A document to show income and expenditure of a business (1) over a financial year (1)​

64
Q

measuring profitability​

A

gross profit margin​

operating profit margin​

profit for the year (net profit) margin ​

65
Q

Statement of comprehensive income (profit and loss account)​

A

A document to show income and expenditure of a business (1) over a financial year (1)​

66
Q

Gross profit margin (GPM)​

A

The higher the better​

Shows how much gross profit is being made per £1 of sales ​

Increasing price can help increase GPM​

Cutting cost of sales (variable) can help increase GPM​

Good GPM % differs from industry to industry​

67
Q

Operating profit margin (OPM)​

A

The higher the better​

Shows how much operating profit is being made per £1 of sales ​

Cutting fixed costs can help increase OPM

68
Q

Profit for the year (net profit) margin ​

A

The higher the better​

Shows how much profit for the year (net profit) is being made per £1 of sales

69
Q

Distinction between profit and cash

A

unlikely for a business to have the value of profit they have made at the end of a trading year in the same value as cash in their account.​

70
Q

ways to improve profitability ​

A

Raising prices will allow more revenue for every unit sold, assuming costs remain the same, the profitability will increase​

Depend on PED​

Lowering costs and keep the price the same​

Cheaper materials will help reduce cost of sales, gross profit margin will increase ​

Finding ways to reduce fixed costs will help increase operating profit margin​

71
Q

Liquidity

A

It shows how quickly a business can access cash in order to meet its short term debts. ​

It shows how easily a business can turn their current assets into cash to cover their short term debts.​

72
Q

Working capital

A

The amount of money needed to pay for the day to day trading of a business, or, current assets – current liabilities. ​

73
Q

Internal causes of business failure ​

A

poor management of cash flow ​

overestimation of sales ​

overtrading ​

poor inventory control ​

poor marketing ​

poor quality ​

​

74
Q

External causes of business failure

A

market conditions ​

competition ​

economic ​

exchange rates ​

interest rates ​

government regulations ​

supplier problems ​

natural phenomena ​

75
Q

Methods of production​

A

Job : a method of manufacturing where the production of a single good/service is carried out one at a time that involves producing the good/service to the specific requirements of the customer​

Batch : a method of manufacturing where a quantity of one product is made, then a quantity of another item will be produced ​

Flow : a method of manufacturing where identical and standardised items are made on a continuously in mass ​

Cell : a method of manufacturing where employees are organised into multi-skilled teams with each team responsible for a particular product​

​

76
Q

CELL​

A

benefits

Teamwork may encourage motivation ​

More efficiency as workers specialise on a task​

Drawbacks

Slower than flow production​

As workers are multi skilled then wages may be higher compared to batch and flow procduction ​

​

77
Q

FLOW

A

benefits

Lower unit costs​

Quick method of production​

Consistent quality

drawbacks

78
Q

FLOW

A

benefits

Lower unit costs​

Quick method of production​

Consistent quality

drawbacks

Less flexible ​

Less chance to add value ​

Potential high start up costs due to use of machinery ​

79
Q

BATCH

A

Benefits

Lower unit costs compared to job​

Flexible compared to flow as different customer orders can be met ​

Drawbcaks

If batches are small unit costs will be more compared to flow​

Time taken to switch between batches creates downtime– slower compared to flow​

Workers may be less motivated compared to job as they are only involved in part of the production process ​

Risk of contamination / waste which may cause a damage to the reputation​

80
Q

Productivity

A

A measure of output of a person, machine or process (1) over a period of time (1)​

81
Q

Efficiency

A

Making the best possible use of all the business’s resources (1) by minimising average costs (1)​

82
Q

Capital intensive production

A

methods are those that require a relatively high level of capital investment/cost compared to labour ​

​

83
Q

Labour intensive production

A

would involve production to be carried out by more labour compared to capital / when production relies more on labour than capital​

​

84
Q

lead-in times

A

are the length of time between the first emergence of the product concept/design and its launch into the market.​

85
Q

Capacity utilisation ​

A

The amount of actual output expressed as a percentage of the maximum possible output​

​

86
Q

Inventory control

A

The optimum quantity of goods/components a business holds (1) for the purpose of resale/production (1)​

87
Q

Inventory control diagram.

A

Shows details of inventory movements (1) such as minimum and maximum inventory levels, re order levels and quantity lead times (1)​

88
Q

Buffer inventory​

A

An amount of stock held as a contingency in case of unexpected orders (1) so that such orders can be met (1)

89
Q

Waste minimisation.​
Competitive advantage from lean production​

A

Waste minimisation means producing goods and services at a given quality using as few resources as possible.​

Lean production is an approach to management that focuses on cutting out waste, whilst ensuring quality.​

​

90
Q

Quality management

A

The process of a business maintaining a desired level of excellence in a product/service (1) by paying attention to each stage of the process (1)

91
Q

Control

A

products are checked at the end of the production process to ensure that they are suitable for consumption. Faults are detected and corrected if possible. It is reactive

92
Q

Assurance

A

ommitment to quality by a business whereby it will aim to ensure problems are prevented at all stages of the production process. It focussed on preventing faults with products during production. It is proactive. ​

93
Q

Circles

A

small groups of workers will meet regularly to solve problems in the production process. ​

​

94
Q

Total Quality Management (TQM)

A

is a management philosophy that insists quality is the responsibility of everyone in the business ​

95
Q

Kaizen ​

A

A Japanese philosophy which places emphasis on making small improvements in all business processes as it tries to achieve a culture of continuous improvement, good processes bring good results. ​

96
Q

Economic influences ​

A

the rate of inflation ​

exchange rates (appreciation, depreciation) ​

interest rates ​

taxation & government spending ​

the business cycle ​

97
Q

Inflation

A

a general increase in the price level (1) over a period of time (1) ​

98
Q

Exchange rate

A

the price of one currency expressed in terms of another currency ​

99
Q

Interest rates

A

are the amount of interest due per period of time as a proportion of the amount saved, lent or borrowed. ​

100
Q

Taxation

A

how the government raises money (1) to finance its expenditure (1)​

101
Q

The business cycle

A

measures economic activity over time and shows stages such as boom, downturn (when there is rising unemployment), recession and recovery.

102
Q

government spending

A

Cuts on government spending could lead to falls in demand

103
Q

Boom

A

existing firms will expand and new firms will enter the market, demand will be rising, employment is high, jobs are created, wages are increasing, profits will be rising. ​

104
Q

Downturn

A

demand will flatten out or begin to fall, unemployment will start to rise, wage increases will slow down, firms may stop expanding, profits may fall, some firms may leave the market, prices will rise more slowly. ​

105
Q

Recession

A

demand will start to fall, unemployment rises sharply, business confidence is low, bankruptcies may occur.​

106
Q

Recovery

A

business and consumers regain confidence, demand starts to rise, unemployment begins to fall, prices start to rise again.​

107
Q

Legislation ​

A

legislation is the making of laws for people to follow

108
Q

The effects on businesses of

A

consumer protection ​

employee protection ​

environmental protection ​

competition policy ​

health and safety ​

intellectual property rights (copyright, patents and trademarks). ​

109
Q

Consumer protection

A

legislation put in place to ensure businesses produce goods and services which are fit for purpose and safe for consumers to use

110
Q

employee protection

A

laws and procedures that a business must follow (1) in the treatment of its workers

111
Q

environmental protection

A

is designed to reduce the impact of businesses and protect the environment

112
Q

competition policy

A

Prevent anti-competitive behaviour such as​

Preventing mergers​

Limit growth ​

113
Q

health and safety

A

Measure put in place by a business (1) to prevent accident or injury (1)​

114
Q

Intellectual property rights legislation​

A

Patent: is a legal document that guarantees the holder exclusive rights to use or licence inventions and/or innovations.​

Trademark: is a name, symbol or other device (logo. Strapline) used to identify and promote a product or service that is protected against use from others.​

Copyright: is a law that gives the owner of a creative work (for example, a book, movie, picture, song or website) the right to say how other people can use it. Lasts for a given period of time. ​

Business Unit 2 Giada (1 decks)

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