business planning

Question 1

what are start-up costs

Answer 1

The costs to a business that must be paid prior to starting to trade. This includes market research and opening stock.

Question 2

What are running costs

Answer 2

The ongoing costs of operating a business on a day to day basis.
E.g marketing and wages

Question 3

what is a financial objective

Answer 3

the monetary targets a business will set out to achieve in a given period of time or the owners

Question 4

financial objective- making a return for owners of the enterprise

Answer 4

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.

Question 5

what is start-up capital

Answer 5

the money invested into a business by the owners to allow it

Question 6

what is return on investment

Answer 6

How much profit is generated from the investment expressed as a percentage of the original investment.

Question 7

Financial planning - setting profit targets

Answer 7

A target will be set for a minimum amount of profit to be achieved in a given period of time.

Question 8

what is profit important for

Answer 8

• to reward owners and managers
• reinvent to grow the business once it has become established
• reward external investors
• attract external investors in the future

Question 9

financial objective- ensuring sufficient cash reserves

Answer 9

without sufficient cash to meet day to day expenses the business will not survive.

Question 10

what are cash reserves

Answer 10

cash available to a business to meet day to day expenses

Question 11

what are cash reserves used for

Answer 11

• 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

Question 12

what are budgets

Answer 12

a target amount of money set by a business to be achieved or adhered to in a specific period of time

Question 13

what are the three type of budgeting

Answer 13

• income budget
• expenditure budget
• profit budget

Question 14

what is an income budget

Answer 14

an income budget is a target set for the amount of revenue to be achieved in a given period of time

Question 15

what is an expenditure budget

Answer 15

an expenditure budget is a limit placed on the amount to be spent in a given period of time

Question 16

what is an profit budget

Answer 16

an profit budget is a target set for the surplus between income and expenditure in a given period of time

Question 17

what are the benefits of using budgets

Answer 17

• improves financial control
• delegates spending power
• sets target and goals

Question 18

what are the drawbacks of using budgets

Answer 18

• potential for conflict
• may be restrictive
• time consuming to set and monitor

Question 19

what is variance analysis

Answer 19

the process of calculating and interpreting any differences between budgeted figures and actual figures. these could be either adverse or favourable

Question 20

what is favourable variance

Answer 20

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.

Question 21

what is adverse variance

Answer 21

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.

Question 22

what is a stakeholder

Answer 22

anyone with an interest in the actions of a business

Question 23

what are 3 types of stakeholders

Answer 23

• owners
• potential funders
• suppliers

Question 24

what is a sole trader

Answer 24

an individual who owns and runs their own business. this means that they have unlimited liability

Question 25

what is unlimited liability

Answer 25

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

Question 26

what are the advantages of being a sole trader

Answer 26

- 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

Question 27

what are the disadvantages of being a sole trader

Answer 27

- unlimited liability - limited capital for investment - little specialist skills as the owner - difficult to find cover if ill

Question 28

what is a partnership

Answer 28

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.

Question 29

what are the benefits of a partnership

Answer 29

- 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

Question 30

what are the disadvantages of a partnership

Answer 30

- unlimited liability unless a LLP - arguments can occur when decision making - if partner dies or resigns then the partnership is dissolved

Question 31

what are limited companies

Answer 31

the owners and the company are separate legal entities. therefore, the company's finances are separate from the owners personal finances

Question 32

what are private limited companies (PLC)

Answer 32

an incorporated business that is owned by shareholders who tend to be family and friends of the entrepreneur. they have limited liability.

Question 33

advantages of PLC

Answer 33

- limited liability - potential to raise more funds through sale of shares - separate legal entity - continuity of business existence even if shareholders change

Question 34

disadvantages of PLC