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Business > Theme 2 > Flashcards

Theme 2 Flashcards

1
Q

Definition of a good:

A

a products- anything which is capable of satisfying customer needs - tangible items eg. a car

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2
Q

Defintion of a service

A

A service is an act that a business person carries out for you in exchange for money - intangible - eg. hair dresser

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3
Q

Whats the equation for profit:

A

Revenue (sales) - costs

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4
Q

Defintion of owners capital:

A

This is money invested by the owner in the business, this may have come from their own personal savings

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5
Q

Defintion of rerained profit:

A

retained=to keep

This is profit from a previous year that is saved and could be used to reinvest into the business

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6
Q

Defintion of an asset:

A

This is an item that the business owns that could be sold to raise cash eg. a van/machine

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7
Q

notes on owners capital:

A
  • the owner may have savings or a redundancy payout to start up a business
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8
Q

Explain retained profit and give an A+DA

A
  • After a year or more businesses are able to re-invest into the business
  • advantage = no interest to pay
  • disadvantage = once its gone its gone
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9
Q

Name 6 sources of finance:

A
  • family and friends
  • banks
  • peer to peer funding
  • business angels
  • crowd funding
  • other businesses
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10
Q

Name 7 methods of finance

A
  • loans
  • share capital
  • venture capital
  • overdrafts
  • leasing
  • trade credits
  • grants
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11
Q

Look at sheet for explanations of methods and sources of finance

A
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12
Q

Name 2 internal sources of finance

A
  • retained profit
  • sales of assets
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13
Q

Name 3 external sources of finance

A
  • bank loan
  • overdraft
  • share capital
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14
Q

what are the consequences of being bankrupt:

A
  • no credit
    -cannot pay debts
  • no mobile phone contract
  • cannot buy house
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15
Q

What 3 things do business angels give you

A
  • advice
  • money
  • contacts
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16
Q

What does crowd funding do:

A
  • donate - don’t get money back
  • lend - get money back with interest
    -invest - in business and exchange for shares
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17
Q

Give a example of debt factoring:

A

Emma lends Haaris £5,000 but he refuses to pay it back. Emma fails to take him to court and Haaris runs away. Emma pays £4,000 debt to debt factoring company who are professionals and find Haaris. He is forced to give debt factoring company at least £5,000. He makes a profit of £1,000.

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18
Q

Definition of unlimited liability:

A

if the business has debts the owners are liable for the full amount and may need to sell their own assets to cover payments. They are unprotected.

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19
Q

Definition of limited liability:

A

if the business has debts the owners are only liable for the amount of their original investment. They are protected.

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20
Q

What does LTD stand for

A

Private limited company (smaller businesses)

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21
Q

What does PLC stand for

A

public limited company (larger businesses)

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22
Q

Whats a description and example of a sole trader:

A
  • a person who is the exclusive owner of a business, entitled to keep all profits after tax has been paid but liable for all losses.
  • eg. a window cleaner
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23
Q

What are the benefits and problems of a sole trader:

A

benefits:
- benefit from success financially
- full control
- easy to set up

problems:
- face burden of failure
- assets may be sold - unprotected
- unlimited liability

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24
Q

Whats a description and example of a partnership:

A
  • a legal agreement between two or more entities that determines shared ownership and operation of a business.

-eg. Dentist/vets

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25
Q

Whats the benefits and problems of a partnership?

A

benefits
- shared responsibilities
- support when needed
- additional skills
- more capital inject more finance - more people

problems
- sharing profit
- different goals and priorities
- loss of control
- unlimited liability

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26
Q

Whats a description and example of private limited companies:

A
  • a company that is a legal entity in its own right, separate from the identity of its owners and has special status in law.
  • eg. suttles/high street businesses
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27
Q

What are the benefits and problems of private limited companies:

A

benefits:
- access to capital - money
- protected
- banks more willing to lend
- limited liability

problems:
- time consuming to set up
- public disclosure

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28
Q

Whats the definition and examples for public limited companies:

A
  • a type of public company that is allowed to offer its shares to the public and is listed on a stock exchange

-eg. coca-cola/ kellogs

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29
Q

What are the benefits and problems of public limited companies:

A

benefits:
- raising capital
- economies of scale
- growth opportunities
- limited liability

problems:
- possibility of take-over - hostile take over
- company value falls if share prices fall

30
Q

Where do you go to become limited

A

companies house

31
Q

What can you do if you are public limited company?

A

sell shares

32
Q

Definition of a business plan:

A

a document that describes a businesses aims and objectives and how they can be achieved.

33
Q

Why is a business plan needed?

A
  • any provider of finance (bank, business angel) will expect to see a carefully prepared, logical plan.
  • attract external finance to help business grow
  • helps ensure entrepreneur has carefully considered potential problems
  • has quantitative aims targets to aim for
34
Q

What are the 7 main sections a business plan should include:

A
  1. Executive summary
  2. The product/service
  3. The market
  4. Marketing plan
  5. Operational plan
  6. Financial plan
  7. Conclusion
35
Q

What is a dividend

A

a share of profit

36
Q

Give an example of a leasing company:

A

A construction company leasing a crane

37
Q

what does b2c stand for?

A

business 2 consumer
eg. sainsburys to you

38
Q

What does b2b stand for?

A

business 2 business
eg. fanta to tesco

39
Q

What is the definition for cash flow forecast?

A

to show the expected income and expenditure of a business over the coming year

40
Q

Whats the calculation for sales revenue?

A

price (each item) x quantity

41
Q

definition of opening balance

A

cash available at start of each period

42
Q

definition of closing balance

A

cash available at end of each period that can be carried over next period

43
Q

What is the equation for:
- net cash flow =
- closing balance =
- opening balance =

A
  • inflow-outflow
  • opening balance + net cash flow
  • closing balance of previous period
44
Q

What are the uses of cash flow forecasts?

A
  • control and monitor cash in and out of business
  • show business owner where likely cash surplus and shortages are so they can arrange suitable finance
  • make comparisons between the predicted inflows and outflows and what actually happened
45
Q

What are the limitations of cash flow forecasts?

A
  • over inflate the inflows to make business look better on paper to attract finance/impress a supplier
  • predictions cannot take into account weather problems, a supplier closing, any other event that cannot be foreseen
  • mistakes - may be inaccurate
46
Q

Definition of economy

A

a state of a country or region in terms of the production and consumption of goods and services and the supply of money.

47
Q

What are variable costs?

A

Costs that change all the time.

48
Q

What are fixed costs?

A

These are costs that do NOT vary with the level of output or sales. eg. shop rental

49
Q

What is an example of varaible costs for pizza express?

A
  • ingredients:
    -pizza dough
  • pineapple
    -olives
    -tomato
    -mozzarella
    -packaging
    -wage (per hour)
50
Q

What is an example of fixed costs for pizza express?

A
  • utility bills
  • water
    -light
    -insurance
    -heating
    -salary
    -gas
    -rent
    -advertising (expensive so you budget it)
51
Q

What is the formula for profit?

A

profit = sales revenue-total costs
sales revenue = price x quantity
total costs = TVC+TFC
TVC = VCPU x Q

52
Q

Are the profit and cash flow the same?

A

NO

53
Q

Look at 3/12/24 for example of how profit and cash flow are not the same

A
54
Q

Defintion of breakeven

A

balance between sale revenue and cost

55
Q

What is the margin of safety?

A

maximum output - break even output

56
Q

What happens when a business runs out of cash

A

insolvent (business runs out of cash) - administration (finance company takes control) - liquidation (selling all assets)

57
Q

Look at breakeven charts (6/10/24)

A
58
Q

Look at break-even diagram with margin of safety (10/12/24)

A
59
Q

How do you improve breakeven?

A

increase sales and decrease costs

60
Q

What is price skimming?

A

setting a high price- usually on luxuary items eg. technology

61
Q

What are 2 advantages to a break even graph?

A
  • see where to lower costs
  • see where to increase sales
62
Q

what are 3 disadvantages to a break even chart?

A

-need one for each product
- its an estimation
- doesn’tD bring into account external factors

63
Q

Definition of a budget:

A

the purpose of a budget is as a forecasting, planning and motivational tool, they can be income or expenditure.

64
Q

What is the purposes of a budget?

A
  • budgets are based on the objective of business and organisation
  • means managers must think ahead and not just spend unlimited money
65
Q

What are the reasons why a business would set a budget?

A
  • planning; to anticipate problems
  • motivation ; for managers to be in control
  • control ; budgets are set against objectives
66
Q

What are the 2 types of budgets?

A
  • Historical figures - budget is based on previous performance of sales and costs
  • Zero based - budgets is based on a prediction of performance usually for a start up.
67
Q

What are 3 benefits of setting a budget?

A
  • improves financial control
  • Delegates spending power
  • Sets targets and goals
68
Q

What are 3 drawbacks of using a budget?

A
  • potential for conflict
  • may be restrictive
  • time consuming to set and monitor
69
Q

What is variance analysis?

A

variance is the difference between budgeted and actual figures.

70
Q

What 2 things can variance be ?

A
  • adverse
    -favourable
71
Q

What does adverse mean?

A
  • bad for the business
    -expenditure = higher then budget
  • income lower than budget
  • profit lower than budget
72
Q

What does favourable mean?

A
  • good for business
  • expenditure= lower then budget
  • income higher than budget
  • profit higher then budget

Business (4 decks)

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