Putting a business idea into practice

Question 1

What is the difference between a business aim and a business objective?

Answer 1

A business aim is the overall target, while objectives are the specific steps to reach that aim.

Question 2

What is an example of a business aim?

Answer 2

To make £120,000 profit.

Question 3

What is an example of a business objective?

Answer 3

To make £10,000 profit each month for the next year.

Question 4

Business objectives are often created using the SMART acronym: What does SMART stand for?

Answer 4

Specific, Measurable, Agreed, Realistic, Time-bound.

Question 5

Why are business aims and objectives important?

Answer 5

They provide direction and a purpose, helping businesses stay focused and on track.

Question 6

What are financial aims and objectives?

Answer 6

They are goals related to money, ensuring the business survives and makes a profit.

Question 7

What is an example of a financial aim?

Answer 7

To make a profit within the first two years.

Question 8

What does business survival mean as a financial objective

Answer 8

It means keeping the business running, especially in its first year.

Question 9

Why is profit an important financial objective?

Answer 9

It is the money left after costs, helping the business to grow and reinvest.

Question 10

What is market share?

Answer 10

It is the percentage of the market that a business occupies within its industry.

Question 11

What is financial security for a business?

Answer 11

It means being able to cover costs and have enough income to continue operations.

Question 12

What are non-financial aims and objectives?

Answer 12

They are goals unrelated to making money, often linked to personal reasons for starting a business.

Question 13

What is a social objective in business?

Answer 13

A goal related to ethical practices, sustainability, or addressing social needs.

Question 14

How does personal satisfaction play into non-financial aims?

Answer 14

Entrepreneurs may feel fulfilled by creating a successful business, especially if it aligns with their personal interests.

Question 15

What does the aim of ‘challenge’ involve for an entrepreneur?

Answer 15

Setting up a business to push personal limits and step out of their comfort zone.

Question 16

What does ‘control’ mean as a non-financial aim?

Answer 16

The entrepreneur wants to make all key business decisions and run the business according to their own vision.

Question 17

Why is independence an important non-financial aim?

Answer 17

It involves working for oneself and making all key decisions independently.

Question 18

Why do aims and objectives differ between businesses?

Answer 18

They differ because businesses operate in different sectors and have varying sizes and scales.

Question 19

How does a business sector impact its aims and objectives?

Answer 19

Different sectors require different goals. For example, a restaurant may aim to offer a variety of pizzas, while a florist would have different goals.

Question 20

How does the size of a business influence its aims and objectives

Answer 20

A new business might focus on survival, while an established business may aim for profit. Smaller businesses may focus on expanding their operations.

Question 21

What is the break-even point (BEP)?

Answer 21

It’s when a business’s revenue equals its total costs, meaning no profit or loss.

Question 22

How is the break-even point calculated?

Answer 22

Break-even = Fixed costs ÷ (Selling price − Variable costs)

Question 23

What happens when a business experiences an increase in revenue?

Answer 23

the business is likely to see increased profits, surpass the break-even point, and have a higher margin of safety, as long as costs remain the same or decrease.

Question 24

What happens if a business experiences a decrease in revenue?

Answer 24

The business risks not breaking even and may face lower profits. If costs are also decreasing, the impact might be neutral.

Question 25

How do increasing costs affect a business?

Answer 25

Increasing costs can raise the break-even point and reduce profits. The business must either absorb the costs or raise prices to pass the cost on to customers, which could risk a loss.

Question 26

What impact do decreasing costs have on a business?

Answer 26

Decreasing costs are positive for the business, as they lower the break-even point and can increase profits. If the business passes the savings to customers, they may expect lower prices.

Question 27

What can cause cash flow problems?

Answer 27

Problems can arise when large customers fail to pay on time or when the business experiences high start-up costs or rapid growth.

Question 28

Why is cash flow important for a business?

Answer 28

Cash flow is important because it ensures the business can pay its bills, suppliers, and employees, and avoid financial difficulties.

Question 29

What is negative cash flow?

Answer 29

Negative cash flow occurs when more money is going out of the business than coming in, which can lead to insolvency.

Question 30

How can a business improve its cash flow?

Answer 30

A business can improve cash flow by negotiating an overdraft facility, keeping costs under control, and managing credit arrangements with suppliers and customers.

Question 31

what is cash flow?

Answer 31

The movement of cash in and out of the business.

Question 32

what is Cash Flow Forecast

Answer 32

A prediction of future cash inflows and outflows.

Question 33

What is the difference between cash and profit?

Answer 33

Cash is the money coming into the business, while profit is the amount left after all costs have been deducted.

Question 34

Why is cash flow forecasting important for a business?

Answer 34

It helps businesses plan for the future, make decisions, and identify potential risks like negative cash flow.

Question 35

What challenges might a new business face when forecasting cash flow?

Answer 35

New businesses don’t have past data, so they have to make estimates and carefully monitor actual cash flow to adjust their forecasts.

Question 36

What do cash inflows and outflows include?

Answer 36

Inflows include sales revenue, loans, and rent received. Outflows include payments to suppliers, employees, and overhead costs.

Question 37

What is short-term finance used for?

Answer 37

It helps businesses maintain positive cash flow, especially during poor cash flow periods or when payments are delayed.

Question 38

What is an overdraft?

Answer 38

An overdraft is a loan from a bank that allows a business to withdraw more money than it has in its account, with interest charged on the borrowed amount.

Question 39

Why should businesses be careful with overdrafts?

Answer 39

Overdrafts can be expensive due to high-interest rates and banks can demand full repayment at short notice.

Question 40

What is trade credit?

Answer 40

Trade credit allows businesses to get raw materials or stock from suppliers and pay later, usually within 30, 60, or 90 days.

Question 41

What are the main terms of a trade credit agreement?

Answer 41

It includes credit limits, credit period, payment frequency, and payment methods.

Question 42

How does trade credit help with cash flow?

Answer 42

It allows businesses to sell products before having to pay for the materials, easing cash flow.

Question 43

What is a retrospective discount in trade credit?

Answer 43

A discount given to businesses for purchasing a certain amount of stock or raw materials.

Question 44

What is personal savings as a source of finance?

Answer 44

It is money saved by the entrepreneur and used to fund the business, with no interest charges involved.

Question 45

What is venture capital?

Answer 45

Venture capital is money invested by individuals or groups willing to take a risk in exchange for a share of the profits and some control over the business.

Question 46

What is share capital?

Answer 46

Share capital is money raised by selling shares to shareholders, giving them ownership and rights in the business.

Question 47

Advantages of share capital?

Answer 47

It provides permanent capital, and there are no dividend payments if the business has a poor year.

Question 48

Disadvantages of share capital?

Answer 48

It dilutes control for the founders and makes the business vulnerable to takeover if too many shares are sold

Question 49

What is a bank loan?

Answer 49

A bank loan is money lent to a business, paid back with interest over an agreed period. It often requires assets as security.

Question 50

What is retained profit?

Answer 50

Retained profit is the money a business reinvests from its own profits, without incurring interest or needing to pay dividends.

Question 51

What is crowdfunding?

Answer 51

Crowdfunding is when a large number of people invest small amounts of money online to fund a business.

Question 52

Advantages of crowdfunding?

Answer 52

It provides market research and offers opportunities for individuals to start businesses without other funding sources

Question 53

Disadvantages of crowdfunding?

Answer 53

The business idea must be appealing, and it can be difficult to reach the funding target.