Definitions 2.1

Question 1

Fixed costs

Answer 1

those that do not change as the number of sales change - for example, rent or salaries

Question 2

Variable costs

Answer 2

those that change in line with the amount of business - for example, the cost of buying raw materials

Question 3

Working capital

Answer 3

the finance available for the day-to-day running of the business

Question 4

Angel investors

Answer 4

investors who back a business before it has opened its doors, taking a full equity risk i.e. if it fails then the angel investor will lose everything invested

Question 5

Collateral

Answer 5

an asset used as security for a loan. It can be sold by a lender if the borrower fails to pay back a loan

Question 6

Crowdfunding

Answer 6

obtaining external finance from many individuals, small investments, usually through web based appeal

Question 7

Public limited company

Answer 7

a company with limited liability and shares, which are available to the public. It shares can be quoted on the stock market

Question 8

Seed corn capital

Answer 8

the early stage finance that might come form an angel investor

Question 9

Share capital

Answer 9

business finance that has no guarantee of repayment or of annual income, but gains a share of the control of the business and its potential profits

Question 10

Stock market

Answer 10

Stock market

Question 11

Venture capital

Answer 11

high-risk capital invested in a combination of loans and shares, usually in a small, dynamic business

Question 12

Bankrupt

Answer 12

when an individual is unable to meet personal liabilities, some or all of which can be as a consequence of business activities

Question 13

Creditors

Answer 13

those owed money by a business - for example, suppliers and bankers

Question 14

Best case

Answer 14

an optimistic estimate of the best possible outcome - for example, if sales prove much higher then expected

Question 15

Business plan

Answer 15

Business plan

Question 16

Cash flow forecast

Answer 16

estimating future monthly case inflows and outflows, to find out the net cash flow

Question 17

Just-in-time

Answer 17

ordering stock so that it arrives just before it is needed, just in time, i.e. having no stockpiles to cover for late delivery

Question 18

Overdraft

Answer 18

short term borrowing from a bank. The business only borrows as much as it needs to cover its daily cash shortfall

Question 19

Worst case

Answer 19

a pessimistic estimate assuming the worst possible outcome - for example, sales are very disappointing

Question 20

Contingency plans

Answer 20

plans held in reserve in case things go wrong - for example, a cash flow forecast based on sales being 10% lower then expected

Question 21

Real incomes

Answer 21

changes in household incomes after allowing for changes in prices i.e. percentage change in household income - inflation = real income

Question 22

Sales forecast

Answer 22

a method of predicting future sales using statistical methods

Question 23

Trend

Answer 23

the general path that a series of values (e.g. sales) follows over time, disregarding variations or random fluctuations

Question 24

Fixed costs

Answer 24

those that do no change as the number of sales change

Question 25

Piece-rate labour

Answer 25

paying workers per item they make, that is, without regular pay

Question 26

Sales revenue

Answer 26

the number of units sold in a time period multiplies by the average selling price of those units

Question 27

Total costs

Answer 27

all the costs of producing a specific level output level , i.e. fixed costs plus total variable costs

Question 28

Total variable costs

Answer 28

all the variable costs of producing a specific output level - that is, variable costs per unit multiplied by the number of units sold

Question 29

Variable cots

Answer 29

those that change in line with the amount of business - for example, the cost of buying raw materials

Question 30

Break even chart

Answer 30

a line graph showing total revenues and total costs at all possible levels of output or demand from zero to maximum capacity