Putting a business idea into practice

Question 1

What is the definition of a financial objective

Answer 1

Targets expressed in money terms such as making a profit, earning income or building wealth.

Question 2

What does SMART stand for?

Answer 2

Specific
Measurable
Achievable
Realistic
Timed

Question 3

What is the formula for total revenue?

Answer 3

TR = P x Q

Total Revenue = Price x Quantity

Question 4

What is the formula for total cost?

Answer 4

TC = FC + VC

Total Costs = Fixed Costs + Variable Costs

Question 5

What is the difference between variable and fixed cost?

Answer 5

Variable Cost-Costs which change directly with the number of products made by a business such as the cost of buying raw materials.
Fixed Cost-Costs which do not vary with the output produced such as rent, business rates, advertising costs, administration costs and salaries.

Question 6

How do you work out the total cost?

Answer 6

All the costs of a business; it is equal to fixed costs plus variable costs.

Question 7

What is the definition of Profit?

Answer 7

Occurs when the revenues of a business are greater than its costs over a period of time.
TR - TC = P

Question 8

What is the difference between Inflow and Outflow?

Answer 8

Inflow-Its Receipt

Outflow-Its payments

Question 9

What is cash flow in a business?

Answer 9

The flow of cash into and out of a business

Question 10

What is the Formula for net cash flow?

Answer 10

The receipts of a business minus its payments

Inflows – Outflows = Net Cash Flow

Question 11

What is Insolvency?

Answer 11

When a business can no longer pay its debts

Question 12

The number of items or products or services sold by a business over a period of time.

Answer 12

Sales Volume

Question 13

What is the difference between an open balance and a closing balance?

Answer 13

Open-The amount of money in a business at the start of the month
Closing-The amount of money in a business at the end of the month

Question 14

Trade Credit

Answer 14

Where a supplier gives a customer a period of time to pay a bill (or invoice) for goods or services once they have been delivered

Question 15

Stocks

Answer 15

Materials that a business holds. Some could be materials waiting to be used in the production process and some could be finished stock waiting to be delivered to customers.

Question 16

Sources of money for businesses that are borrowed or invested typically for more than a year e.g Mortgage, Venture Capitalist

Answer 16

Long Term Finance

Question 17

Sources of money for businesses that may have to be repaid with immediately or fairly quickly, such as an overdraft, usually within a year.

Answer 17

Short Term Finance

Question 18

Personal Savings

Answer 18

Money that has been set aside and not spent by individuals and households.

Question 19

Share Capital

Answer 19

The monetary value of a company which belongs to its shareholders, for example, if five people each invest £10,000 into a business, the share capital will be £50,000

Question 20

Shareholders

Answer 20

The owners of a company

Question 21

Venture Capitalist

Answer 21

An individual or company which buys shares in what they hope will be a fast growing company with a long term view of selling the shares at a profit.

Question 22

Loan

Answer 22

Borrowing a sum of money which has to be repaid with interest over a period of time, such as 1-5 years.

Question 23

Security

Answer 23

Assets owned by a business which are used to guarantee repayments of a loan; if the business fails to pay off the loan, the lender can sell what has been offered as security.

Question 24

A loan where property is used as security.

Answer 24

Mortgage

Question 25

What is retained profit?

Answer 25

Profit which is kept back in the business and used to pay for investment in the business.

Question 26

Renting equipment or premises.

Answer 26

Leasing

Question 27

Overdraft facility

Answer 27

Borrowing money from a bank by drawing more money than is actually in a current account. Interest is charged on the amount overdrawn.

Question 28

Factoring

Answer 28

A source of finance where a business is able to receive cash immediately for the invoices it has issued from a factor, such as a bank, instead of waiting the typical 30 days to be paid.