putting a business idea into practice Flashcards
.1 why set an objective
setting an objective gives you a focus on what you are doing and allows you to look back and see if you have achieved what you wanted to.
.1 objectives help with…
> decision making and establishing priorities.e.g. sell locally, or grow business overseas???
helps investors to understand the direction in which the business is heading
provides targets-compare actual with planned
motivate everyone- connecting with other businesses to measure their success
.1 financial objectives include
> SURVIVAL >PROFIT >MARKET SHARE >FINANCIAL SECURITY >SALES
.1 non-financial objectives include
> SOCIAL OBJECTIVES e.g. paying staff decent wages, treating customers with respect.
PERSONAL SATISFACTION >CHALLENGE >INDEPENDENCE >CONTROL
.1 effective objectives should state…
> WHAT the target is e.g. making £20,000 profit
WHEN it should be achieved e.g. next 2 years
WHO is to achieve it e.g. who is in charge
.1 non-profit making organisations
e.g. hospitals, schools, police»_space; all aim to provide a public service without making any profits
.1 you can use objectives to measure performance
you know if you have been successful if you know what you wanted to achieve e.g. if you make £20,000 profit and your aim was £15,000 then your target was a success, however if your target was £40,000 then you did not accomplish your target
.1 why objectives differ between businesses
> different owners e.g. different reasons for setting up a business
different stages e.g. first year, survival is the main objective
different industry e.g. clothing shops or schools
.2 business revenue, costs and profits
> running costs >start-up costs >fixed cost >variable cost >indirect costs >direct costs >revenue >costs >profit
Running costs
paid either daily, weekly, monthly. you pay them on an ongoing basis (e.g. wages, rent, materials)
start-up costs
have to be paid before you start running the business. (e.g. chairs, tables, computers)
fixed costs
do NOT change with every item made or sold, they might be changed but it would not be as a result of making or selling more products. (e.g. rent, wages, advertising)
variable cost
they vary with every item made or sold (e.g. raw materials, packaging)
indirect costs
basically same as fixed costs, costs not directly contributing to the actual making of the item
direct costs
basically the same as variable costs includes anything that goes directly into the making of the item (e.g. materials)
revenue
money from sales: selling price x amount sold
total costs =
fixed costs + variable cost
profit =
total revenue - total costs
interest
what you pay on money you have borrowed e.g. if you borrow £10,000 at an interest of 5% per year then the total interest per year is 10000 x 0.05 = £500 so total payment = £10500 per year
to work out the total percentage of interest in a loan…
(total repayment - borrowed amount) / borrowed amount x 100 = interest in %
break-even level of output
point where total revenue exactly equals total costs. it is the number of units a business needs to sell to cover its costs. fixed costs / (selling price - variable cost)
margin of safety
total number of sales - break-even number
if revenue increases…
then so long as costs do not rise by the same amount,their will be an increase in profits.
if revenue falls…
profits may also fall
it cost increases…
profits can be reduced
if cost increases…
increase in profits usually
