Business revision exam 1.3 Flashcards
1
Q
What is revenue?
A
The amount of income received from selling goods or services over a period of time.
2
Q
What is revenue sometimes called?
A
Sales revenue, total revenue, turnover, or sales turnover.
3
Q
What is the formula for revenue?
A
Total revenue = quantity sold x price per unit.
4
Q
How do we increase revenue?
A
- Sell more
- Increase the number of products it sells
- Advertise more
- Create USP
- Increase the price per product
- Reduce the price per product.
5
Q
What are costs?
A
The amount of cash the business has to spend in order to function on a day to day basis.
6
Q
What are fixed costs?
A
- Do not change according to the level of output.
- Will still exist even if nothing is sold.
- Not directly involved in producing or selling a product
7
Q
What are variable costs?
A
- Costs that will change or vary depending on output.
- Change directly with the level of output.
- Directly involved in producing or selling a product.
8
Q
What is the formula for total variable costs?
A
Cost per unit x units produced.
9
Q
What is the formula for total costs?
A
Total costs = total fixed costs + total variable costs.
10
Q
What is total costs?
A
The total amount the business spends on the day to day and the long term running of a business.
11
Q
What is profit?
A
A financial gain when revenue earned is greater than costs spent.
12
Q
What is the formula for profit?
A
Profit = total revenue - total costs.
13
Q
What is the relationship between revenue costs, profit, and loss.
A
- Revenue > cost = profit
- Revenue < costs = loss
14
Q
Why is profit important?
A
- It is vital to the business.
- Ensures all bills are paid.
- Sign of success
- Cheap and easy form of investment.
15
Q
How can profit be improved?
A
Make revenue bigger or total costs smaller.
16
Q
What is interest?
A
The cost of borrowing money.
17
Q
What are examples of intrest?
A
Overdraft, loan and mortgage.
18
Q
What is the reward of interest?
A
- Receive money when saving inside of the bank.
- Form of cash inflow but not revenue.
19
Q
What is the formula for interest rate?
A
(Total repayment - amount borrowed) divided by amount borrowed x 100
20
Q
What is break even?
A
When the business has made enough revenue to cover its total costs but no more.
21
Q
What is the formula for break even?
A
Revenue - total cost.
22
Q
What is the other formula for break even?
A
Fixed cost divide by (price per unit - variable costs)
23
Q
What is the margin of safety?
A
When the business can sell less but can still cover it’s costs.
24
Q
What is the formula for the margin of safety?
A
Usual output - break even.
25
What is the difference between profit and cash?
Profit is immediate.
Profit is hypothetical
Cash is real and recorded when it enters or leaves the business
Cash can be delayed.
26
Why is cash important?
1. Without cash the business cannot afford to buy essential everyday thing.
2. Suppliers = Raw materials
3. Staff = raw materials
4. Overheads = electricity, water, rent and advertising.
27
What is another reason cash is important?
To avoid business failure.
1. Without cash, business owners cannot pay it's bills it becomes solvent.
2. Business cannot pay the people it owes
3. It will fail and close if it becomes solvent.
28
What is cash flow?
The movement of cash into and out of the business.
Cash can be inflow or outflow.
29
What are examples of cash inflow?
1. Revenue from sales
2. Bank loan
3. Invested share capital
4. Sale of assets.
30
What are examples of cash outflow?
1. Payment to suppliers
2. Payment for overhead expenses
3. Wages and salaries.
31
What is Net Cash Flow?
Cash the business has left over after all the outflows are taken away from the inflows.
32
What is the formula to calculate Net cash flow?
Net cash flow = Inflow - Outflow
33
What are the non financial objectives?
1. Personal satisfaction: running your own business is rewarding and gives a huge sense of pride and achievement.
2. Independence and control: small business owners want to be their own boss. The will be 100% in control of the business.
3. Challenge: creating a successful business is hard work and requires sacrifices. Not everyone has the skills and characteristics to be an entreprenuer.
4. Social objectives: some business owners start their own business to help the community. Social goals give the business owner a sense of 'giving back' to the community
34
What are the financial objectives in business?
1. Survival: survival is vital for the business. Survival is when a business makes enough revenue to cover it's costs. Survival means building a loyal customer base.
2. Financial security: The business owner has given up a job with regular income. The objective is to provide the business owner with enough income to meet their financial obligations at home.
3. Profit: is where revenue exceeds total costs. A financial gain. The business owner can choose what to do with the profit - retain it to reinvest in growth or keep it as their reward.
4. Sales: could either be volume or value. Value = revenue. volume = the number of units sold.
5. Market share: the amount of customers the business has a percentage of the overall market share
35
Why does the business use cash flow forecasting?
1. A vital planning tool.
2. Used as an advanced warning tool.
3. Payment terms can be set.
4. If revenue is low adjustments can be made.
5. Used by potential investors.
6. Suppliers like to know if they'll be paid.
36
How do we improve cash flow?
1. Delay payments to suppliers.
2. Demand to be paid quicker by customers.
3. Lease instead of buying.
4. Reduce amount of stock bought.
5. Increase inflow.
6. Source more cash funding.
37
What is a source of finance?
A method a business uses to obtain money for a specific need.
38
What is short term source of finance?
Finance that is usually repaid quickly. Helps to maintain a positive cash flow.
39
What is long term source of finance?
Takes much longer to pay. Or don't repay at all. Used to afford start up cost or expansion.
40
What is overdraft? (short term)
1. A facility offered by the bank that allows the account holder to borrow amounts of cash at short notice.
2. An overdraft is a way of paying the businesses suppliers.
3. Interest will be paid on the amount overdrawn.
41
What are the advantages and disadvantages of overdraft?
Advantages
1. Can spend more money than you have in the bank.
2. Eases cash flow to pay bills.
Disadvantages
1. Interest is usually high.
42
What is trade credit? (short term)
1. A business can negotiate trade credit from suppliers.
2. Occurs when the business has already taken delivery but their suppliers has not demanded payment right away.
3. Paid over a certain period of time.
43
What are the advantages of trade credit?
Advantages
1. Eases cash flow
2. Stock is often sold before the bill is due.
Disadvantages
1. Still has to be repaid
2. Might be more expensive
44
What is retained profit? (long term)
1. Profit can be reinvested.
2. Does not give ownership away and does not need to be repaid.
45
What are the advantages of retained profit?
Advantages
1. Don't have to be repaid.
Disadvantages
1. Might not be enough
2. Once gone, it's useless.
46
What is personal savings? (long term)
1. Any cash that the business owner can invest in the business themselves.
2. Is limited to the owner and limits quantity available.
3. Does not need to be repaid.
47
What is the advantages of using personal savings?
Advantages
1. Don't have to be repaid.
2. Quick and easy to access.
Disadvantages
1. Finite and may not be enough
2. Once gone useless.
48
What is share capital? (long term)
Advantages
1. Amount of cash invested by the shareholders.
2. Shareholders become part owners. It is not repaid.
3. Share holders have a decision making rights but not involved in the day to day running of the business.
4. Shareholders get a share of the profit.
49
What is venture capital? (long term)
1. Usually a large sum of cash invested in the business by previously successful entrapenuers.
2. Usually the investor has some involvement in the running of the business.
3. Investor will take a large percentage of control.
4. Investment does not have to be repaid.
50
What are the disadvantages and advantages of Venture capital?
Advantages
1. Befit from experience and knowledge and skills of a successful entrepenuer.
2. Likely to befit contacts from the industry.
Disadvantages
1. Gives away a large percentage of the business.
2. Disagreements due to shared decision making.
51
What are bank loans?
1. Loaned from the bank
2. Usually a set up fee followed by regular payments.
3. Interest is also added.
4. Collateral as a safety net incase the business can't pay.
52
What are the disadvantages and advantages of bank loans?
Advantages
1. Easy not to get a hold of
2. Do not lose control of the business.
Disadvantages
1. Regular repayment.
2. Interest is added.
3. Have to offer collateral.
53
What is crowd funding? ( long term)
1. Happens over the Internet
2. Obtains cash by lots of the general public investing smaller amounts.
3. In return they age a priority on products/ services or special offers.
54
What are the disadvantages and advantages of crowd funding?
Advantages
1. Don't give away control
2. Sales encouraged
Disadvantages
1. Might not get enough investors.
2. If not enough investors the business must refund the money.
