Putting A Business Idea Into Practice

Question 1

What are is the difference between aims and objectives?

Answer 1

Aims are general goals that a business sets. An aim can be the purpose for a business’s existence.
Objectives are more specific than aims, but they contribute to a business achieving its aims. Objectives can either be financial or non-financial

Question 2

What are some typical financial objectives for a start-up?

Answer 2

Survival 
Sales and sales revenue 
Profit 
Market share 
Financial security

Question 3

What are some non-financial objectives for a start-up?

Answer 3

Personal satisfaction 
Independence and control 
Challenge 
Social benefits or goals 
Customer satisfaction 
Business awards and recognition

Question 4

What is a public limited company?

Answer 4

An incorporated business that can sell shares to the public

Question 5

What is revenue, sales revenue and turnover

Answer 5

Is the amount of income received from selling goods or services over a period of time.

Question 6

What are fixed costs?

Answer 6

Do not vary with the output produced by a business, e.g. business rates

Question 7

What are variable costs?

Answer 7

Change directly with the number of products made, e.g. raw materials

Question 8

What are total costs?

Answer 8

All the costs of a business

Question 9

Why do many businesses have profit as their objective?

Answer 9

Because it allows a business to: 
Survive 
Reinvest profits for expansion 
Provide security and savings 
Reward employees 
Generate wealth for the owner 
Profit can also act as an incentive to start the business

Question 10

What is interest?

Answer 10

The cost of borrowing, or a percentage of the amount of money 💰 borrowed that must be repaid in addition to the original amount borrowed.

Question 11

What is break-even?

Answer 11

Break-even is the level of output at which a business’s revenue covers its total costs. At this point the business is making neither a loss nor a profit. Break-even is an important financial concept as it allows a business to make important decisions about prices, sales volumes and costs

Question 12

At which point on a break-even chart is the break-even point?

Answer 12

The point on the graph where total costs and revenue meet. Above this point a business is making a profit and below this point, a business is making a loss

Question 13

What is the margin of safety?

Answer 13

The amount of output between the actual level of output where profit is being made and the break-even level of output. This is how much production could fall before the business starts to make a loss.

Question 14

Why is break-even analysis a useful tool?

Answer 14

It helps a business to make decisions, set targets and plan for the future. It can identify strategies for lowering the break-even point and increasing profit.

Question 15

What is the problem with the concept of break-even

Answer 15

The concept of break-even assumes that a business will sell all the products it makes. In reality, if a business increases price it will lower the break-even point, but might deter customers from buying it.

Question 16

What is cash flow?

Answer 16

The money flowing into and out of a business on a day-to-day basis.

Question 17

What does a cash flow forecast do?

Answer 17

Predicts how cash will flow through a business over time. A business can use it to identify where it could have a cash flow problem.

Question 18

What is the importance of cash?

Answer 18

Without sufficient cash within the business, a business would become insolvent. This means that it would be unable to:
Pay its supplier and other debts 
Repay back loans 
Pay wages to employees 
Buy raw materials and products to sell 
Promote the business

Question 19

What is the difference between cash and profit?

Answer 19

Cash is the given amount of money that is available for a business to use to pay its debts. Profit is an absolute calculation involving total revenue and total costs over a period of time.

Question 20

What impacts on cash flow?

Answer 20

Change in sales revenue/ change in demand
Change in costs (e.g. commodity prices)
Seasonality in sales (e.g. sun cream)
Business expansion or contraction
Change in stock levels
Credit terms can change (e.g. period of time or amount needed to pay a bill or invoice)

Question 21

What are the reasons for why a business might need a new source of finance?

Answer 21

Paying for expenses (e.g. wages) 
Expanding the business 
Investing in new products and services 
Starting a new business 
Paying for any unforeseen costs

Question 22

What are short-term sources of finance?

Answer 22

Are repaid immediately or quite quickly (usually within a year) and are used for costs such as buying stock or paying a utility bill.

Question 23

What are long-term sources of finance?

Answer 23

Are usually repaid over a longer time period (even up to 25 years). Long-term sources would be used to finance a new business or to expand a business.

Question 24

What are suitable short-term sources of finance to help solve cash-flow problems?

Answer 24

Trade credit and overdraft

Question 25

What is bank overdraft?

Answer 25

A facility offered by a bank that allows an account holder to borrow money at short notice.

Question 26

What is trade credit?

Answer 26

A credit arrangement that is offered only to businesses by suppliers

Question 27

What are examples of long-term sources of finance?

Answer 27

Personal savings 
Venture capital 
Share capital 
Loan 
Retained profit 
Crowd funding

Question 28

What is a bank overdraft good for?

Answer 28

Covering short-term expenses that can be repaid quickly

Question 29

What is trade credit good for?

Answer 29

Paying for stock or goods later (e.g. after 30 or 60 days), when the goods have already been sold.

Question 30

What are personal savings good for?

Answer 30

Covering short-term expenses that can be repaid quickly

Question 31

What is venture capital good for?

Answer 31

Raising capital form investors to fund a new business idea

Question 32

What is share capital good for?

Answer 32

Raising large amounts of money by selling equity in a limited company.

Question 33

What is a loan good for?

Answer 33

Covering large expenses associated with starting or expanding a business, which will be repaid over a number of years.

Question 34

What is retained profit good for?

Answer 34

Reinvesting in a successful business to ensure that it keeps growing

Question 35

What is crowd funding good for?

Answer 35

Raising money from a large number of people in return for some sort of reward (e.g. products, involvement or ownership).

Question 36

What is venture capital?

Answer 36

Money that a business sources from individuals, or groups of people, who wish to invest their own money into new businesses

Question 37

What is share capital?

Answer 37

Money that is raised by a business issuing shares that it then sells to those who wish to invest in the company.

Question 38

What is retained profit?

Answer 38

Money that a business keeps, rather than paying out to its shareholders

Question 39

What is crowdfunding?

Answer 39

The process of raising small amounts of money from a large number of customers for a new project, product or start-up.

Question 40

Why do companies sell shares?

Answer 40

A share is a part ownership in a business. A limited company can sell shares to potential investors to raise capital. These investors are then shareholders in the business and are entitled to a share of any profits generated.