business planning Flashcards
what are start-up costs
The costs to a business that must be paid prior to starting to trade. This includes market research and opening stock.
What are running costs
The ongoing costs of operating a business on a day to day basis.
E.g marketing and wages
what is a financial objective
the monetary targets a business will set out to achieve in a given period of time or the owners
financial objective- making a return for owners of the enterprise
The owners would have invested capital into the business and will want to be rewarded for this. if a business makes a profit they will be rewarded with a share of the profits.
what is start-up capital
the money invested into a business by the owners to allow it
what is return on investment
How much profit is generated from the investment expressed as a percentage of the original investment.
Financial planning - setting profit targets
A target will be set for a minimum amount of profit to be achieved in a given period of time.
what is profit important for
- to reward owners and managers
- reinvent to grow the business once it has become established
- reward external investors
- attract external investors in the future
financial objective- ensuring sufficient cash reserves
without sufficient cash to meet day to day expenses the business will not survive.
what are cash reserves
cash available to a business to meet day to day expenses
what are cash reserves used for
- A start-up will need cash to buy stock, it is very unlikely to be able to buy on credit from suppliers
- an established business may be able to buy credit so it will need to ensure it can pay of its expenses
what are budgets
a target amount of money set by a business to be achieved or adhered to in a specific period of time
what are the three type of budgeting
- income budget
- expenditure budget
- profit budget
what is an income budget
an income budget is a target set for the amount of revenue to be achieved in a given period of time
what is an expenditure budget
an expenditure budget is a limit placed on the amount to be spent in a given period of time
what is an profit budget
an profit budget is a target set for the surplus between income and expenditure in a given period of time
what are the benefits of using budgets
- improves financial control
- delegates spending power
- sets target and goals
what are the drawbacks of using budgets
- potential for conflict
- may be restrictive
- time consuming to set and monitor
what is variance analysis
the process of calculating and interpreting any differences between budgeted figures and actual figures. these could be either adverse or favourable
what is favourable variance
the variance has a positive impact on profits and is therefore seen as good for the business. this may be the result of spending less money than what was budgeted or receiving more then what was budgeted.
what is adverse variance
the variance has a negative impact on profits and is therefore seen as bad for the business. may be a result of overspending or receiving less then expected.
what is a stakeholder
anyone with an interest in the actions of a business
what are 3 types of stakeholders
- owners
- potential funders
- suppliers
what is a sole trader
an individual who owns and runs their own business. this means that they have unlimited liability
what is unlimited liability
they are personally responsible to pay for all of the debts ran up by the business by using there own personal belongings. E.G. their house or car
what are the advantages of being a sole trader
- cheap and easy to set up
- all profits go to the sole trader
- autonomy in decision making
- financial records remain private
- motivation is high as the individual and business re one
what are the disadvantages of being a sole trader
- unlimited liability
- limited capital for investment
- little specialist skills as the owner
- difficult to find cover if ill
what is a partnership
a business structure when two or more people join together to set up a business. the partners share the costs, risks and responsibilities of being in business together. can have either a limited or unlimited liability partnership.
what are the benefits of a partnership
- risks, costs and responsibilities are shared
- more specialist skills
- simple and flexible
- financial records remain private
- more capital can be raised then as a sole trader
what are the disadvantages of a partnership
- unlimited liability unless a LLP
- arguments can occur when decision making
- if partner dies or resigns then the partnership is dissolved
what are limited companies
the owners and the company are separate legal entities. therefore, the company’s finances are separate from the owners personal finances
what are private limited companies (PLC)
an incorporated business that is owned by shareholders who tend to be family and friends of the entrepreneur. they have limited liability.
advantages of PLC
- limited liability
- potential to raise more funds through sale of shares
- separate legal entity
- continuity of business existence even if shareholders change
disadvantages of PLC
