Putting a business idea into practise

Question 1

What is an aim?

Answer 1

general goals that a business sets

Question 2

What is an objective?

Answer 2

More specific than aims but they contribute to achieving the aims

Question 3

What are some financial objectives

Answer 3

• survival
• sales and revenue
• profit
• market share

Question 4

Non-financial objectives

Answer 4

• personal satisfaction
• independence and control
• customer satisfaction
• challenge

Question 5

Equation for revenue

Answer 5

revenue = price x quantity

Question 6

Equation for variable costs

Answer 6

variable costs = cost of 1 unit x quantity

Question 7

Equation for total costs

Answer 7

total costs = total fixed costs + total variable costs

Question 8

Equation for profit

Answer 8

Profit = sales revenue - cost of sales

Question 9

What are interest rates?

Answer 9

• the reward for saving

- the cost of borrowing

Question 10

Equation for interest %

Answer 10

interest % = total repayment- borrowed amount/ borrowed amount x 100

Question 11

Equation for breakeven point in units

Answer 11

fixed costs/(sales price-variable cost)

Question 12

equation for break-even point in revenue/costs

Answer 12

breakeven point in units x sales price

Question 13

equation for margin of safety

Answer 13

actual sales - break-even sales

Question 14

What is trade-credit?

Answer 14

When firms pay suppliers at a later date

Question 15

what is an overdraft?

Answer 15

When bank lets a business spend more money than amount in their account

Question 16

Short-term methods of finance

Answer 16

• trade-credit

- overdraft

Question 17

Long-term methods of finance

Answer 17

• share-capital
• crowd-funding
• retained profit
• bank loans
• personal savings
• venture capital

Question 18

what is share capital?

Answer 18

when a firm can sell shares to other people

Question 19

What is crowd-funding?

Answer 19

When investors are encouraged to put in a small amount of money into specific business

Question 20

what is retained profit?

Answer 20

profit that’s been saved

Question 21

what is a bank loan?

Answer 21

business borrow money from bank then pay interest on money borrowed

Question 22

What are personal savings?

Answer 22

Personal money invested by owner of company

Question 23

What is venture capital?

Answer 23

Experienced business people with lots of money to invest in return for % of business

Question 24

equation for net cash flow

Answer 24

cash inflow - cash outflow

Question 25

What are benefits of a cash-flow forecast?

Answer 25

• estimate all possible sources of finance

- forecast cash inflows and outflows using past data and market research

Question 26

what are liquidity problems within a business?

Answer 26

When a business runs out of cash in short-term

Question 27

How do we solve liquidity problems?

Answer 27

• reduce cash outflows

- increase cash inflows

Question 28

consequences of cash flow problems

Answer 28

• 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

Question 29

Solutions to prevent cash flow problems

Answer 29

• overdraft
• new sources of finance
• reschedule cash payments
• reducing cash outflow