Putting A Business Idea Into Practice Flashcards
What are is the difference between aims and objectives?
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
What are some typical financial objectives for a start-up?
Survival Sales and sales revenue Profit Market share Financial security
What are some non-financial objectives for a start-up?
Personal satisfaction Independence and control Challenge Social benefits or goals Customer satisfaction Business awards and recognition
What is a public limited company?
An incorporated business that can sell shares to the public
What is revenue, sales revenue and turnover
Is the amount of income received from selling goods or services over a period of time.
What are fixed costs?
Do not vary with the output produced by a business, e.g. business rates
What are variable costs?
Change directly with the number of products made, e.g. raw materials
What are total costs?
All the costs of a business
Why do many businesses have profit as their objective?
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
What is interest?
The cost of borrowing, or a percentage of the amount of money 💰 borrowed that must be repaid in addition to the original amount borrowed.
What is break-even?
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
At which point on a break-even chart is the break-even point?
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
What is the margin of safety?
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.
Why is break-even analysis a useful tool?
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.
What is the problem with the concept of break-even
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.
What is cash flow?
The money flowing into and out of a business on a day-to-day basis.
What does a cash flow forecast do?
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.
What is the importance of cash?
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
What is the difference between cash and profit?
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.
What impacts on cash flow?
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)
What are the reasons for why a business might need a new source of finance?
Paying for expenses (e.g. wages) Expanding the business Investing in new products and services Starting a new business Paying for any unforeseen costs
What are short-term sources of finance?
Are repaid immediately or quite quickly (usually within a year) and are used for costs such as buying stock or paying a utility bill.
What are long-term sources of finance?
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.
What are suitable short-term sources of finance to help solve cash-flow problems?
Trade credit and overdraft
What is bank overdraft?
A facility offered by a bank that allows an account holder to borrow money at short notice.
What is trade credit?
A credit arrangement that is offered only to businesses by suppliers
What are examples of long-term sources of finance?
Personal savings Venture capital Share capital Loan Retained profit Crowd funding
What is a bank overdraft good for?
Covering short-term expenses that can be repaid quickly
What is trade credit good for?
Paying for stock or goods later (e.g. after 30 or 60 days), when the goods have already been sold.
What are personal savings good for?
Covering short-term expenses that can be repaid quickly
What is venture capital good for?
Raising capital form investors to fund a new business idea
What is share capital good for?
Raising large amounts of money by selling equity in a limited company.
What is a loan good for?
Covering large expenses associated with starting or expanding a business, which will be repaid over a number of years.
What is retained profit good for?
Reinvesting in a successful business to ensure that it keeps growing
What is crowd funding good for?
Raising money from a large number of people in return for some sort of reward (e.g. products, involvement or ownership).
What is venture capital?
Money that a business sources from individuals, or groups of people, who wish to invest their own money into new businesses
What is share capital?
Money that is raised by a business issuing shares that it then sells to those who wish to invest in the company.
What is retained profit?
Money that a business keeps, rather than paying out to its shareholders
What is crowdfunding?
The process of raising small amounts of money from a large number of customers for a new project, product or start-up.
Why do companies sell shares?
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.
