Putting a business idea into practise Flashcards
What is an aim?
general goals that a business sets
What is an objective?
More specific than aims but they contribute to achieving the aims
What are some financial objectives
- survival
- sales and revenue
- profit
- market share
Non-financial objectives
- personal satisfaction
- independence and control
- customer satisfaction
- challenge
Equation for revenue
revenue = price x quantity
Equation for variable costs
variable costs = cost of 1 unit x quantity
Equation for total costs
total costs = total fixed costs + total variable costs
Equation for profit
Profit = sales revenue - cost of sales
What are interest rates?
- the reward for saving
- the cost of borrowing
Equation for interest %
interest % = total repayment- borrowed amount/ borrowed amount x 100
Equation for breakeven point in units
fixed costs/(sales price-variable cost)
equation for break-even point in revenue/costs
breakeven point in units x sales price
equation for margin of safety
actual sales - break-even sales
What is trade-credit?
When firms pay suppliers at a later date
what is an overdraft?
When bank lets a business spend more money than amount in their account
Short-term methods of finance
- trade-credit
- overdraft
Long-term methods of finance
- share-capital
- crowd-funding
- retained profit
- bank loans
- personal savings
- venture capital
what is share capital?
when a firm can sell shares to other people
What is crowd-funding?
When investors are encouraged to put in a small amount of money into specific business
what is retained profit?
profit that’s been saved
what is a bank loan?
business borrow money from bank then pay interest on money borrowed
What are personal savings?
Personal money invested by owner of company
What is venture capital?
Experienced business people with lots of money to invest in return for % of business
equation for net cash flow
cash inflow - cash outflow
What are benefits of a cash-flow forecast?
- estimate all possible sources of finance
- forecast cash inflows and outflows using past data and market research
what are liquidity problems within a business?
When a business runs out of cash in short-term
How do we solve liquidity problems?
- reduce cash outflows
- increase cash inflows
consequences of cash flow problems
- cant repay loans to creditors and might not be able to get loans in future.
- Cant pay suppliers and cause a halt in production and damage relationship
- Unable to pay employees and have bad effect on staff motivation and employees may leave firm
Solutions to prevent cash flow problems
- overdraft
- new sources of finance
- reschedule cash payments
- reducing cash outflow
