topic 1.3 putting a business idea into practice Flashcards
what are financial objectives
-survival
-profut
-wealth
-income
-financial security
what are non financial objectives
-personal satisfaction
-challenge
-independence
-control
-helping others
profit formula
sales revenue-total cost
sales revenue formula
selling price x sales volume
total costs formula
fixed cost + variable cost
variable cost formula
cost per unit x sales volume
interest formula
total repayment- borrowed amount divided by borrowed amount x 100
break even point
level of output where total revenues are equal to total costs, niether a profit or loss is made
break even point formula
fixed costs / sales price - variable cost per unit
margin of safety
how much sales can fall before business break even point is reached again
what happens to the break even pint if:
a) costs go up
B) sale price goes up
a) it becomes larger (further along the chart)
b) it becomes smaller (closer on the chart)
what is cash flow
movement of money into and out of the business, cash is used to pay the day-to-day expenses of a business
why is cash flow important to a business
-to pay its expenses (suppliers, overheads, employees ect.)
-to prevent business failure (insolvency)
how is net cash flow calculated
total cash flow in-total cash flow out
differences between long term and short term sources of finance
LT: sources of money for business that are borrowed or invested typically for more thna a year
ST:sources of money for a buisness that may have to be repaid less than a year, e.g. overdraft
what is trade credit
a credit arrangment that is offeed to businesses by suppliers
overdraft
a facility offered by a bank that allows ab account holder to borrow money at short notice
long term sources of finance
-personal savings
-venture capital
-share capital
-loans
-retained profit
-crowd funding
what is venture capital
money lent by a large business or a successful entrepenuer to a small start up business
what is share capital
amount of money invested in a business by shareholders
crowdfunding
business obtains funding from a large number of people who each pay a small amount of money
retained profit
money that a business keeps, rather than paying out to shareholders
difference between cash and profit
not all cash paid into the business is profit, a portion of cash will need to be paid out to cover business expenses. once all costs have been paid the amount left is profit
