Putting a business idea into practice Flashcards
What is the definition of a financial objective
Targets expressed in money terms such as making a profit, earning income or building wealth.
What does SMART stand for?
Specific Measurable Achievable Realistic Timed
What is the formula for total revenue?
TR = P x Q
Total Revenue = Price x Quantity
What is the formula for total cost?
TC = FC + VC
Total Costs = Fixed Costs + Variable Costs
What is the difference between variable and fixed cost?
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.
How do you work out the total cost?
All the costs of a business; it is equal to fixed costs plus variable costs.
What is the definition of Profit?
Occurs when the revenues of a business are greater than its costs over a period of time.
TR - TC = P
What is the difference between Inflow and Outflow?
Inflow-Its Receipt
Outflow-Its payments
What is cash flow in a business?
The flow of cash into and out of a business
What is the Formula for net cash flow?
The receipts of a business minus its payments
Inflows – Outflows = Net Cash Flow
What is Insolvency?
When a business can no longer pay its debts
The number of items or products or services sold by a business over a period of time.
Sales Volume
What is the difference between an open balance and a closing balance?
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
Trade Credit
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
Stocks
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.
Sources of money for businesses that are borrowed or invested typically for more than a year e.g Mortgage, Venture Capitalist
Long Term Finance
Sources of money for businesses that may have to be repaid with immediately or fairly quickly, such as an overdraft, usually within a year.
Short Term Finance
Personal Savings
Money that has been set aside and not spent by individuals and households.
Share Capital
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
Shareholders
The owners of a company
Venture Capitalist
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.
Loan
Borrowing a sum of money which has to be repaid with interest over a period of time, such as 1-5 years.
Security
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.
A loan where property is used as security.
Mortgage
What is retained profit?
Profit which is kept back in the business and used to pay for investment in the business.
Renting equipment or premises.
Leasing
Overdraft facility
Borrowing money from a bank by drawing more money than is actually in a current account. Interest is charged on the amount overdrawn.
Factoring
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.
