Business Topic 1.3

Question 1

Aims

Answer 1

a general statement of where you’re heading, for example ‘to get to university’.

Question 2

Market share

Answer 2

he percentage of a market held by one company or brand.

Question 3

Objectives

Answer 3

a clear, measurable goal, so success or failure is clear to see.

Question 4

SMART objectives

Answer 4

targets that are specific,
measurable, achievable, realistic and time-bound.

Question 5

Survival

Answer 5

keeping the business going, which ultimately depends on determination and cash.

Question 6

Fixed costs

Answer 6

costs that don’t vary just because output varies, for example rent.

Question 7

Interest

Answer 7

the charges made by banks for the cash they have lent to a business, for example six per cent per year.

Question 8

Profit

Answer 8

the difference between revenue and total costs; if the figure is negative the business is making a loss.

Question 9

Revenue

Answer 9

the total value of the sales made within a set period of time, such as a month.

Question 10

Total costs

Answer 10

all the costs for a set period of time, such as a month.

Question 11

Variable costs

Answer 11

costs that vary as output varies, such as raw materials.

Question 12

Sales revenue formula

Answer 12

price × quantity sold

Question 13

Total costs formula

Answer 13

variable costs + fixed costs

Question 14

Profit formula

Answer 14

total revenue – total costs

Question 15

Break-even

Answer 15

the level of sales at which total costs are equal to total revenue. At this point the business is making neither a profit nor a loss.

Question 16

Break-even chart

Answer 16

a graph showing a company’s revenue and total costs at all possible levels of output.

Question 17

Margin of safety

Answer 17

the amount by which demand can fall before the business starts making losses.

Question 18

Break-even output formula

Answer 18

fixed costs/(price – variable costs)

Question 19

Margin of safety

Answer 19

sales – break-even output

Question 20

Cash

Answer 20

the money the firm holds in notes and coins, and in its bank accounts.

Question 21

Cash flow

Answer 21

the movement of money into and out of the firm’s bank account.

Question 22

Insolvency

Answer 22

when a business lacks the cash to pay its debts.

Question 23

Overdraft

Answer 23

the amount of the agreed overdraft facility that the business uses.

Question 24

Overdraft facility

Answer 24

an agreed maximum level of
overdraft

Question 25

Cash flow forecast

Answer 25

estimating the likely flows of cash over the coming months and, therefore, the overall state of one’s bank balance.

Question 26

Closing balance

Answer 26

the amount of cash left in the
bank at the end of the month.

Question 27

Negative cash flow

Answer 27

when cash outflows are
greater than cash inflows.

Question 28

Net cash flow

Answer 28

cash in minus cash out over the
course of a month.

Question 29

Opening balance

Answer 29

the amount of cash in the bank at the start of the month.

Question 30

Crowdfunding

Answer 30

raising capital online from
many small investors (but not through the stock
market).

Question 31

Dividens

Answer 31

payments made to shareholders
from the company’s yearly profi ts. The
directors of the company decide how large a
dividend payment to make; in a bad year they
can decide on zero.

Question 32

Retained profit

Answer 32

profit kept within the business
(not paid out in dividends); this is the best
source of finance for expansion.

Question 33

Share capital

Answer 33

raising finance by selling part-ownership in the business. Shareholders
have the right to question the directors and to
receive part of the yearly profi ts.

Question 34

Trade credit

Answer 34

when a supplier provides
goods but is willing to wait to be paid – for
perhaps up to three months. This helps with
cash fl ow.

Question 35

Venture capital

Answer 35

a combination of share capital
and loan capital, provided by an investor willing
to take a chance on the success of a small to
medium-sized business.