Chapter 1 Flashcards
What are circumstances which may lead to a business to raise finance
Starting up, growing, problem with the cash flow problem, financing extra materials needed when a large order is received
Give me some examples of internal finance
Owners Capital, personal savings, retained profits, sale of assets 
Retained profit definition
Profit kept within the company for reinvestment
External sources of finance
Family and friends, banks, Peer-to-peer, business, angels, crowdfunding, other businesses
What is crowdfunding?
This is a method of raising capital through small contributions from a large number of individuals
What is peer-to-peer funding?
This funding involves individuals lending money directly to Others or businesses through online platforms
Methods of finance
Loans, share, capital, venture, capital, overdraft, leasing, trade credit, grants
What is venture capital
Start-up firms giving big percent of company for loans to people, so they don’t need to go to the bank and pay a high interest rate on the loan
What is overdrafts?
The ability to be able to spend more even when your account is in negative
What is unlimited liability?
Sole trader, partnership
What is limited liability?
Private limited company, public limited company
How old is soul traders/partnership business is likely to use the sources for finance
Owner, capital, bank, finance, leasing, trade credits 
What always private and public limited companies used to source the finance
Share, capital, bank, finance, angel, or venture, capital, investments, peer-to-peer, funding, or crowdfunding, leasing, trade credit
What is a business plan?
A business plan is a document, setting out a business idea, and how it will be finance, marketed and put into practice
What are the main sections to focus on one making a business plan?
Exclutive summary, The product or service, the market, marketing, planning, operational plan, financial plan, conclusion
What does the cash inflows show
All cash inflows shows the places and timing from which cash flows into the business
What does cash outflow show?
Shows how much cash leaves the business each month
Monthly balance
This is also called net cash flow. This shows the net affect for the month on cash flow.
Opening Balance
Shows how much the business had at the beginning of the month
Closing balance
Shows how much the business has had at the end of the month
What are the main things to look out/consider when receiving a cash flow forecast?
Your closing balance and monthly balance
Uses of cash flow
This is the spot cash problems advance, so that action can be taken in time to prevent a major crisis
Limitations of cash flow forecast
The smaller amount of quantitive data used in the forecast, less it can predict, Boris could sway the forecast, forecast are just guesses 
Factors affecting sales forecast
Consumer trends, economic variables, actions of competitors
Deficiencies of sales forecasting
Sales forecasting doesn’t adapt to trends
What are fixed costs?
Six calls do not change in proportion to output. Examples include heating, lighting, interest rates.
What are variable cost
Variable costs, are costs that change in direct proportion to the level of output. Examples of variable costs include raw, materials, packaging.
What are total cost?
Total cost is adding variable and fixed costs together
What does the break even calculate?
The breakeven calculates, how much must be sold before the business can start making a profit
What is the formula for breakeven?
Break even equals fixed cost divided by selling price minus variable cost per unit
What is income budget?
Set a target for the value of sales to be achieved
What is expenditure budget?
Department  cost must stay under X amount
What is historical budget?
Using last year’s budget as a guide and making some obvious change
What is the zero-based budget?
They get their employees to set their own realistic budget
What is profit?
Profit is the difference between the revenue of the business and the cost generated by the business during a period of time
What is gross profit and how do you calculate it?
Gross profit equals total revenue minus cost of sales.
Gross profit, which deduct the cost of sales from total revenue 
What is operating profit and how do you calculate it?
Fixed overheads are deducted from gross profit to calculating operating profit, fixed overheads of things which need to be paid like salaries, rent
Operating profit equals gross profit minus fix overheads 
What is profit for the year/net profit and how do you calculate it?
This is all your revenue minus loans not paid
Profit for the year equals operating profit minus net financing, costs and corporation tax
Ways to improve profit
Increase revenue, reduce costs, do a combination of the two
What is the statement of comprehensive income?
This is a document produced by the public limited companies that shows revenue, a breakdown of different types of costs and different types of profit for a year
 How do you calculate the current ratio?
Current ratio equals current assets divided by current liabilities
What is the ideal ratio for current ratio?
1:5:1
Formula for the acid test ratio
Acid test ratio equals total current assets minus stock divided by current liabilities
What is the ideal ratio for the acid test ratio?
1:1
How to improve liquidity
Selling underused assets, Raising more share capital, Increase in long-term boring through loans, Postponing the planned investment 
Why do some businesses fail?
Not really understanding consumers, failure to differentiate from rivals, Failing to communicate, what is special about the product or service to consumers , Poor leadership, not being able to find enough ways to generate revenue 
Internal causes of business failure
Marketing failure, Financial failure, system or operation failure
External causes of business failure
Changes in tech, new competition, economic, change, behavioural of banks
Methods of production, What is job production? 
Involves medicine one-off items to suit each customer individual requirements
Methods of production, What is batch production? 
Makes a group of products, the one specific at a time, allowing some variation in products yet some Specialisation 
Methods of production, what is Flow production?
This allows huge volumes of output to be produced extremely quickly and cost effectively, It is likely to rely heavily on automation
Methods of production, What is cell production?
This involves organising workers into small groups or cells that can produce a range of different products more quickly than job production allows
What is productivity and what is its formula?
Productivity is a measure of efficiency
Productivity equals total output divided by numbers of workers
Factors influencing productivity
Quality and age of machinery, skills, and experience of workers, level of employee motivation
What does labour intensive production mean?
This means that a production process relies heavily on human input with a little use of automation
What is capital intensive production?
This means it uses a high level of automation reducing the role of humans as much as possible, replacing them with machines
Capital intensive production issues
Initial cost will be high, Running costs will be relatively low, it may offer little flexibility in terms of production variations
Labour intensive production issues
Labour costs will form a higher proportion of total costs, to say the product is made handmade means that you can modify it more, and sell it for more
Formula for capacity utilisation
Capacity utilisation equals current account divided by maximum possible output x100
Ways to improve capacity utilisation
Increased current output, reduce maximum capacity
Reasons for keeping both of stocks of raw materials
If deliveries are delayed, buffer stock allows production to continue
Problems associated with too much stock
Opportunity cost, cash, flow problems, increase storage, cost, increased financing costs, wastage,
Problems associated with too Little stock
Lost customer, delays in production,
What is just in time stock management?
Is a Japanese approach to stock management that aims to eliminate both of stock completely
Key issues of just in time stock management include
Suppliers must be willing to deliver a lot, and they must be reliable, suppliers may need to relocate close to the company using just in time stock. Frequent deliveries will increase the rate of pollution
What is lean production?
Lean production is a collective term for a range of Japanese techniques designed to eliminate waste from business process
How can lean production also improve how business runs
More input from staff. Focus on quality. Fewer wasted resources. Competitive advantage through reducing waste of time
Quality management definition
How to ensure everything you produce meets appropriate standard
Quality control definition
Involves Check in output to find any faults in a production system 
Quality assurance
Involves focusing on producing methods of preventing quality problems arising
What is total quality management?
Less of a system and more of a way of encouraging all staff to get everything right the first time
What is quality circles?
Quality cycle is a group of staff who meet regularly to find quality improvements
What are reasons to improve your workforce?
Cell production. Small but frequent changes.
Quality and productivity improvements. Quality cycles. Regular suggests
How can a competitive advantage occur from quality management?
It allows a premium price to be charged. It helps to gain distribution with retailers, confident they will not need to deal with product, returns and refunds. It creates brand, loyalty and repeat purchases 
Key economic variables that influence businesses performance
Inflation. Interest rates. Exchange rates.
Taxation and government spending. The business cycle.
What is inflation?
Inflation is the percentage rate at which average prices rise during a year with the whole UK economy
What is exchange rates?
Exchange rates is the value of one currency expressed in terms of another(When our currency appreciates we can buy more of another currency vice versa, when our currency depreciates 
What does spiced stand for?
Strong Pound imports, cheaper, exports, dearer
How can an increase in the base interest rate affect businesses?
Consumers are likely to have less money to spend. The amount paid an interest or any borrowing by the business will rise. Consumers are less likely to borrow to buy.
Businesses are less likely to invest as the opportunity cost of investment, compared to keeping the money in the bank to an interest with no risk will be greater 
What is the business cycle?
The pattern of economic growth in the UK tends to follow a pattern where strong boom is followed by periods of recession. Where the economy contracts
What is the main goal of consumer protectionism legislation?
It is to ensure that the business Delivers on what they promised, the consumer 
The two major acts of Parliament covering consumer protection are
The sale of goods act and the trade description act
What does the employee protection do?
This aims to uphold the minimum standards of treatment that employees can expect from their employer, including sick, leave fair pay. 
The CMA should ensure that
Companies have to set Competitive prices. Companies do not conclude with each other . Mergers and takeovers that will create overly powerful firms will not be allowed . 
What is monopoly?
Single business that dominate supply in a given market
What is oligopoly?
When a few farms Own the majority /Dominate the market
Why is a market dominated by single business bad for consumers?
Because consumers will have a little choice, prices will tend to be high and there is little incentive for the dominant firm to innovate or provide great customer service
Give me some examples of firms trying to make barriers to entry To sustain their market share
Patents and technological Breakthroughs. Incredibly strong brand and high advertising budgets. Heavily spending on infrastructure such as mobile phone networks
Farms in an oligopoly market won’t compete in price wars because it will lower their profit margins, but what will they compete in?
Non-price competitions. Branding. Product features. Product design. Advertising. Tech innovations.
What is collusion?
Collusion occurs when two or more rival businesses agree to fix supply or price with in the market. This is illegal
