Putting A Business Idea Into Practice Flashcards
Business aim
What a business wants to achieve
Business objective
How the business will achieve its aim or aims
Financial aims
Survival
Profit
Sales
Market share
Financial security
Market share
The proportion of sales in a market that are taken by one business
Non-financial aims
Social concerns
Personal satisfaction
Challenge
Independence
Control
Profit
The amount of revenue left over once costs have been deducted
Social objective
Likely to be non-financial, such as to reduce the carbon emissions of a business or improve the quality of life for a local community
Why business have different aims and objectives
The entrepreneur needs to consider the industry in which their business operates, as it will have an influence on its aims and objectives
Revenue formula
Revenue = price x quantity
Income stream
The source of regular income that a business receives. This could be through the money it receives from customers, or other areas such as investment income
Costs
What a business has to pay in order to continue operating
Viable
Capable of working or succeeding
Fixed costs
Do not change, no matter ho many products or services a business sells
Examples of fixed costs
Insurance
Rent
Tax
Salaries
Variable costs
Change depending on how many products or services a business sells
Examples of variable costs
Electricity bills
Raw materias
Total costs formula
Total cost = total fixed costs + total variable costs
Income statement
A financial statement showing the amount of money earned and spent in a particular period and the resulting profit and loss
Stakeholder
Anyone who has an interest in the activities of a business, such as its workers, its suppliers, the local community and the government
Gross profit
The amount of profit that a business makes on a product or service before the costs of producing and selling that product or service are deducted
Gross profit formula
Gross profit = sales revenue - costs of sales
Net profit
The amount of profit that a business makes on a products or service after the costs of producing and selling that product or service are deducted
Net profit formula
Net profit = gross profit - other operating expenses and interest
Interest
A percentage if the amount of money borrowed that must be repaid in addition to te original amount borrowed
Interest on loans formula
Interest in % = total repayment - borrowed amount / borrowed amount x 100
Break-even point
The point where revenue received meets all of the costs of a business
Break-even point in units
Tells the business how many units it needs to sell in order to meet the break-eve point
Break-eve point in units formula
Break-even point in units = fixed costs/ (sales price - variable )
Break-even point in currency
Tells the business how much money needs to be taken to meet the break-even point
Break-even point in currency formula
Break-even point in currency = break-even point in units x sales price
Margin of safety
How much sales can fall before the business’s break-even point is reached again
Margin of safety formula
Margin of safety = actual or budgeted sales - break-even sales
Impact of revenue increasing
Positive impact as long as the costs remain the same
If costs rise at the same time, could reduce profit made from increased revenues
Impact of revenue decreasing
Negative impact unless costs also decrease at the same time
They could investigate ways if making savings on costs that are within its control
Impact of costs increasing
Profits will be affected negatively unless revenue can be increased
Business can pass the cost onto its customers by increasing the price of its goods
Impact of costs decreasing
Immediate benefit to the business as it means that it will make more money per unit sold
If customers are aware that costs have decreased, they may expect the business to reduce the price of its goods or services
Cash
Amount of money that a business has in its bank account
Cash flow
The way in which money comes into the business from customers and goes out of the business to pay suppliers
Credit
The amount of money that a financial institution or supplier will allow a business to use, which it must pay back in the future at an agreed time
Overheads
Fixed costs that come from running an office, shop or factory, which are not affected by the number of specific products or services that are sold
Examples of overheads
Rent
Maintenance of company vehicles
Bills such as electricity and telephone
Insolvent
A business that is unable to pay its debts and/or owes more money than it is owed
Preventative measures to take in which a business can avoid becoming insolvent
Arranging sensible credit arrangements with suppliers and customers
Limiting the number of customers to which it gives credit
Cash flow forecast
An estimate of how much cash will come into the business and how much cash will leave the business over the purse of a year
Cash inflows
All the money that comes into the business
Consumables
Items that get ‘used up’, such as pens, paper, staples ad other items that a business has to replace regularly
Cash outflows
All the money that will leave the business in order to pay its fixed ad variable costs
Net cash flow
The difference between the cash inflows and the cash outflows
Net cash flow formula
Net cash flow = cash inflows - cash outflows in a given period
Opening balance
The amount of money in the business’s bank account at the start of any period
Opening balance formula
Opening balance = closing balance of the previous period
Closing balance
Amount of money in the bank at the end of each month
Closing balance formula
Closing balance = opening balance + net cash flow
Trade credit
A credit arrangement that is offered only to businesses by suppliers
Overdraft
A facility offered by a bank that allows an account holder to borrow money at short notice
Reasons why a business might to take out a short-term loan
To help maintain a positive cash flow
Equipment and stock need to be purchased and bills need to paid on time
Credit limit
The maximum amount of credit that a business has with a financial institution or supplier
Credit period
Maximum amount of time that a business can take to pay what is owed for a specific month
Frequency of payment
The frequency with which a business will pay a supplier
Method of payment
The way in which the business sends the money owed to the supplier
Cheque
A written order to a bank to pay a amount of money from an account holder’s account to a specified person
Retrospective discount
A discount applied when the business has purchased a certain number of goods or spent a certain amount of money with a supplier
Long-term source of finance
One that is designed to be paid back over a much longer period of time than a short-term source of finance
Long-term sources of finance
Personal savings
Venture capital
Share capital
Loans
Retained profit
Crowdfunding
Personal savings
Refers to any money that the entrepreneur has saved up, either before starting the business or while they are running the business
Venture capital
Money to invest in a business is sourced from individuals, or groups of people, who wish to invest their own money into new businesses
Return on investment
The amount of money that a investor gets back in return for investing in business
Shareholders
Investors who are part-winners of a company
Share capital
Money to invest in a business is raised by the business issuing shares that it then sells to those who wish to invest in the company
Loan
An amount of money lent to an individual or a business that will be paid off with interest over an agreed period of time
Credit check
A check on the financial status of a business or individual to ensure that the business or the individual has a reliable credit history and does not have any existing outstanding debts
Security
When the lender asks the borrower to put up an asset, ugh as a house, or valuable item owned by the business
Asset
Any item of value that a business owns, such as its machinery or premises
Guarantor
A named person who guarantees to pay the repayments on a loan should the loaner not be able to make the payments
Crowdfunding
Means that a business obtains funding from a large number of people who each pay a small amount of money to the business
Retained profit
Money that a business keeps, rather than paying out to its shareholders
Reason why a business may set up a credit arrangement with a supplier
Allows a business to obtain raw materials and stock but pay for them at a later date
