Topic 1.3

Question 1

Business Aims:

Answer 1

a general statement of where you’re heading

Question 2

Objectives:

Answer 2

a clear, measurable goal, so success or failure is clear to see. Financial - Profit, sales, market share, financial security | Non - financial - challenge, personal satisfaction , independence.

Question 3

Market share:

Answer 3

the percentage of a market held by one company or brand

Question 4

Fixed costs:

Answer 4

costs that don’t vary just because output varies, for example rent/ mortgage and manager’s salaries.

Question 5

Variable costs:

Answer 5

costs that vary as output varies, such as raw materials, wages

Question 6

Profit:

Answer 6

the difference between revenue and total costs; if the figure is negative the business is making a loss.

Question 7

Revenue:

Answer 7

the total value of the sales made within a set period of time, such as a month.

Question 8

Interest:

Answer 8

Interest: the charges made by banks for the cash they have lent to a business, for example six per cent per year.

Question 9

Total costs:

Answer 9

all the costs for a set period of time, such as a month.

Question 10

Break-even:

Answer 10

the level of sales at which total costs are equal to total revenue. At this point the business is making neither a profit nor a
loss.

Question 11

Break-even chart:

Answer 11

a graph showing a company’s revenue and total costs at all possible levels of output.

Question 12

Margin of safety:

Answer 12

the amount by which demand can fall before the business starts making losses.

Question 13

Cash:

Answer 13

the money the firm holds in notes and coins, and in its bank accounts.

Question 14

Cash flow:

Answer 14

the movement of money into and out of the firm’s bank account.

Question 15

Insolvency:

Answer 15

when a business lacks the cash to pay its debts.

Question 16

Bankrupt:

Answer 16

when an individual lacks the cash to pay its debts.

Question 17

Overdraft:

Answer 17

the amount of the agreed overdraft facility that the business uses.

Question 18

Overdraft facility:

Answer 18

an agreed maximum level of overdraft.

Question 19

Cash flow forecast:

Answer 19

estimating the likely flows of cash over the coming months and, therefore, the overall state of one’s bank balance.

Question 20

Closing balance:

Answer 20

the amount of cash left in the bank at the end of the month.

Question 21

Opening balance:

Answer 21

the amount of cash in the bank at the start of the month.

Question 22

Net cash flow:

Answer 22

cash in minus cash out over the course of a month.

Question 23

Negative cash flow:

Answer 23

when cash outflows are greater than cash inflows.

Question 24

Crowdfunding:

Answer 24

raising capital online from many small investors (but not through the stock market).

Question 25

Dividends:

Answer 25

payments made to shareholders from the company’s yearly profits. The directors of the company decide how large a dividend payment to make; in a bad year they can decide on zero.

Question 26

Retained profit:

Answer 26

profit kept within the business (not paid out in dividends); this is the best source of finance for expansion.

Question 27

Share capital:

Answer 27

raising finance by selling part-ownership in the business. Shareholders have the right to question the directors and to
receive part of the yearly profits.

Question 28

Trade credit:

Answer 28

when a supplier provides goods but is willing to wait to be paid – for
perhaps up to three months. This helps with cash flow.

Question 29

Venture capital:

Answer 29

a combination of share capital and loan capital, provided by an investor willing to take a chance on the success of a small to
medium-sized business.