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[archive] business > Topic 1.3- Putting a Business Idea Into Practice > Flashcards

Topic 1.3- Putting a Business Idea Into Practice Flashcards

1
Q

what is the definition a business aim?

A

A general goal that a business sets out to achieve

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2
Q

what is the definition of a business objective

A

A specific step or action that can be taken to help reach an aim.

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3
Q

State 3 financial aims and briefly explain what they are

A
  • survival ( focusing on keeping the business operating and to survive their first year)
  • profit
  • sales ( increase their output)
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4
Q

State 3 non-financial aims and briefly explain what they are.

A
  • social objectives ( doing things in an ethical or friendly manner)
  • Independence ( making their own business decisions)
  • Challenge
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5
Q

Why do aims and objectives differ between businesses?

A 
Different sectors ( dependent on the goods or services being offered) 
- Business size and scale ( an established business may have different aims than a start up business)
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6
Q

Give the definition for revenue

A

The total income a firm receives

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7
Q

What is the formula for calculating revenue?

A

number of sales x price

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8
Q

what are fixed costs and give an example.

A

Costs that do not vary depending on the level of output .

example: rent, wages, tax

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9
Q

what are variable costs and give an example.

A

Costs that vary depending on the level of output

examples: utilities, raw materials

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10
Q

formula for total variable cost

A

Total variable cost = quantity sold x variable cost per unit

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11
Q

Give the formula for total costs

A

Total costs = fixed costs + variable cost

TC = FC + VC

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12
Q

what is profit?

A

When a business’ revenue is higher then its total costs.

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13
Q

what is loss?

A

When a business’ revenue is lower than its costs

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14
Q

Give the formula for calculating profit?

A

Revenue- Costs = Profit

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15
Q

what is interest?

A

Interest is the reward for saving money or the cost of borrowing money

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16
Q

Give the formula for percentage change

A

new-original /Original x 100

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17
Q

Give the formula for interest

A

total repayment - borrowed amount / borrowed amount x 100

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18
Q

What does it mean to ‘break-even’

A

Break-even is the point at which revenue and total costs are the same, meaning the business is making neither a profit nor a loss.

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19
Q

What does the break even level of output inform a business?

A

how many products it needs to sell to reach the break-even point (BEP).

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20
Q

Give the formula for break-even.

A

Break-even = fixed costs ÷ (selling price − variable costs)

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21
Q

Where is the break-even point on a break-even graph?

A

The break-even point is where the line for total costs and revenue meet.

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22
Q

How can you lower the break even point?

A
  • Increase selling price
  • Lower variable costs
  • Decrease fixed costs
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23
Q

What does ‘ margin of safety mean’

A

The difference between the actual level of output and the breakeven output.

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24
Q

Give the formula for margin of safety

A

Margin of safety = actual sales − break-even sales

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25
Q

Give the formula for Break Even Point in revenue

A

= break-even point in units x sales price

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26
Q

How is profit shown in a break even graph?

A

Profit is displayed as the shaded area between the revenue and total cost lines. ( anything above the BEP)

27
Q

How is loss shown in a break even graph?

A
  • as anything below the break-even point.

- Loss is displayed as the shaded area between the revenue and total cost lines, below the BEP.

28
Q

Give 3 reasons why cash is important to a business

A
  • to pay suppliers
  • to pay overheads and employees
  • to prevent insolvency
29
Q

what is positive cash flow?

A

When there is more money coming into the business then out

30
Q

what is negative cash flow?

A

when there is more business going out of the business then into it

31
Q

When can businesses experience cash flow problems and why ?

A
  • at start up - large amounts of money need to be invested to get the business started
  • During rapid growth-the business is not able to keep up with cash outflows
32
Q

Give 3 forms of cash inflow ( money coming in )

A
  • loans
  • grants
  • revenue
33
Q

Give 3 forms of cash outflow ( money going out)

A
  • wages
  • rent
  • raw materials
34
Q

What is a cash flow forecast?

A

The prediction of the future flow of cash in and out of a business’ bank accounts.

35
Q

Give the formula for net cash flow

A

net cash flow = cash inflows – cash outflows

36
Q

What is the definition of opening balance?

A

amount of money a business starts with at the beginning of the reporting period

37
Q

Give the formula for opening balance

A

opening balance = closing balance of the previous period

38
Q

What is closing balance?

A

The closing balance is the amount of money the business has at the end of the reporting period,

39
Q

Give the formula for closing balance

A

closing balance = net cash flow + opening balance

40
Q

Give two reasons why a business could benefit from a cash flow forecast

A
  • assists the business in making important decisions, such as:

employing more staff
opening a new branch

41
Q

Give 2 ways a business could improve cash flow?

A
  • increase revenue

- reduce costs

42
Q

Give 2 examples of a short-term source of finance.

A
  • Overdrafts

- Trade-credit

43
Q

Define the term ‘overdraft’

A

These let a firm take out more money out of its bank account than it has paid into it.

44
Q

Give two advantages of using an overdraft

A
  • allows a business to make payments on time

- interest is only paid on what you use

45
Q

Give two disadvantages of using an overdraft

A
  • higher interest rates( may need to pay back more later)

- the business can demand full payment at any time

46
Q

What is trade credit?

A

The arrangement of the delay or rescheduling of payments to a later date.

47
Q

Give two advantages of using trade credit.

A
  • gives a small business time to earn the money needed

- no interest charges if terms are met - costs are lower

48
Q

Give two disadvantages of using trade credit.

A
  • can accumulate interest charges if terms are not met

- can damage relationships with supplier if not paid back on time

49
Q

List the 6 long term sources of finance

A
  • loans
  • personal savings
  • retained profit
  • share capital
  • venture capital
  • crowd funding
50
Q

What is personal savings?

A

Personal savings is money that has been saved up by an entrepreneur.

51
Q

What is venture capital?

A

Money raised through investors willing to take a risk on small businesses

52
Q

What is share capital?

A

Share capital is money raised by shareholders through the sale of ordinary shares

53
Q

Name 2 advantages of share capital.

A
  • Share capital is a source of permanent capital (refunds are not allowed).
  • There are no dividends to be paid if the business has a poor year
54
Q

Name 2 disadvantages of share capital

A
  • the business’ founders will slowly lose control

- business is vulnerable to takeover

55
Q

What is a bank loan?

A

money lent to an individual or business that is paid off with interest over an agreed period of time.

56
Q

What is retained profit?

A

A portion of the companies’ profit that is kept in the business rather than being paid off to the shareholder

57
Q

What is crowd funding?

A

when a large number of people contribute to funding a business idea.

58
Q

Give 2 advantages to crowdfunding

A
  • It acts as a form of market research

- Provides opportunities for individuals to start a business

59
Q

Give 2 disadvantages of crowd funding

A
  • It is difficult to reach the funding target

- The business must interest people and make them want to invest.

60
Q

Give 2 pros and cons of venture capital

A

pros:
- gain money quickly and of large amounts
- they may offer advice and help
cons:
-dilutes ownership- loses independence
- they may have a different vision for the business than the owner does

61
Q

Give 2 pros and cons of retained profit

A
  • quick and convenient
  • does not incur interest charges
    cons:
  • once used, it is not available for any future unforeseen problems the business may face
62
Q

give 2 pros and 2 cons of personal savings

A
  • quick and convenient
  • no interest payments to make
    cons:
  • might not have enough savings to fund it all
  • may need the cash for personal use
63
Q

give the 2 cons and 2 pros for bank loan

A
  • easy and quick to access
  • can get a significant amount of money at one time
    cons:
  • have to pay high interest
  • difficult for a new business to access

[archive] business (13 decks)

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