putting a business idea into practice Flashcards
what is the business aim
the overall target or goal of the business
what is the business objective
the clear, measurable steps a business needs to take to meet its overall aims
what is the SMART acronym
S – Specific
M – Measurable
A – Agreed
R - Realistic
T – Time-bound
what do financial aims and objectives cover
business survival, profit, sales, market share, financial security
what do non-financial aims and objectives cover
social objectives, personal satisfaction, challenge, control, independence
why do aims and objectives differ between businesses
different sectors and business size and scale,
what does break even point mean (BEP)
the point at which revenue and total costs are the same, meaning the business is making neither a profit nor a loss
how is break even calculated
Break-even = fixed costs ÷ (selling price − variable costs)
what is the margin of safety
the amount sales can fall before the break-even point (BEP) is reached and the business makes no profit.
how is margin of safety calculated
Margin of safety = actual sales − break-even sales
what are the main cash payments a business completes
payments to suppliers, payments to employeer overheads, such as rent, electricity and telephone bills
what are examples of short term finance
overdraft, trade credits,
what is an overdraft
An agreement with the bank to overspend on an account.
what is trade credit
The agreement to buy raw materials now and pay for it at a later date usually 30-90 days
what are conditions of a credit agreement
credit limit - the maximum amount of credit available to the business
credit period - the length of time the business has to pay what is owed, usually 30, 60 or 90 days
frequency of payment - how often payment is required, usually monthly
method of payment - the way in which the business makes payment (eg bank transfer, cheque or card payment)
retrospective discount - a discount given when the business has purchased a certain amount of stock or raw material
what are examples of long term finance
retained profit, venture capital, share capital, bank loan, personal savings, crowdfunding
what is retained profit
profit kept within the business that is not paid out in dividends to shareholders
what is venture capital
industry experts who invest in a small business in return for a stake in the company
what is share capital
money raised by shareholders through the sale of ordinary shares
what is a bank loan
money lent to an individual or business that is paid off with interest over an agreed period of time
what is crowdfunding
a large number of people investing small amounts of money in a business, usually online.
