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Business > Topic 1.3 Putting a Business Idea Into Practice > Flashcards

Topic 1.3 Putting a Business Idea Into Practice Flashcards

1
Q

What does SMART stand for?

A

Specific
Measurable
Achievable
Realistic
Time-bound

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2
Q

What are the financial objectives?

A
  • Survival
  • Profit
  • Sales
  • Market share
  • Financial security
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3
Q

What are the non-financial objectives?

A
  • Social objectives
  • Personal satisfaction
  • Challenge
  • Independence
  • Control
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4
Q

What are aims?

A

Aims are the broad targets that an entrepreneur has or just a general statement of where you are heading. These are mostly long-term goals.

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5
Q

What is market share?

A

The percentage of a market held by one company or brand

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6
Q

What are social objectives?

A

The possible goals of a business based on its contribution to society

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7
Q

What are objectives?

A

Objectives are a clear measurable goal which is usually short-term. Through multiple objectives you reach your aim

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8
Q

What is the formula for revenue?

A

Revenue = quantity x price

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9
Q

What is the formula for profit?

A

Profit = Revenue - Total costs

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10
Q

What is interest?

A

The cost of borrowing, the charges made by banks when lending money to a business or person

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11
Q

What is fixed costs?

A

Costs that don’t vary with the quantity sold (e.g. rent)

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12
Q

What is variable costs?

A

Costs that vary with the quantity sold (e.g. raw materials)

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13
Q

What is total costs?

A

All the costs for a set period of time

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14
Q

What is the formula for interest?

A

(Total payment - borrowed amount) / borrowed amount x 100

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15
Q

What is the breakeven formula?

A

Fixed costs / (selling price per unit - variable costs per unit) (Always round up)

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16
Q

What is the formula for margin of safety?

A

Margin of safety = sales - break even output

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17
Q

What is the break-even?

A

The level of sales at which total costs are equal to total revenue (no profit or loss)

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18
Q

What is the margin of safety?

A

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

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19
Q

When are the times when a business cash flow problems are especially difficult?

A
  • at the start-up of a business
  • at a time of rapid growth
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20
Q

What does the business need to pay day-to-day

A
  • Suppliers
  • Employees
  • Paying the overheads (rent, utilities)
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21
Q

How should cash be managed?

A
  • Foreshadow the flows of cash
  • Negotiate a generous overdraft facility at the bank
  • Keep costs under control
  • Keep the cash coming in
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22
Q

What is the difference between cash and profit?

A

Cashflow shows the immediate impacts of a transaction on a business’ bank account, whereas profit is more long-term.

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23
Q

What is cash?

A

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

24
Q

What is cashflow?

A

The movement of money into and out of the firms bank account

25
What is insolvency?
When a business lacks the cash to pay its debts
26
What is an overdraft?
The amount of the agreed overdraft facility that the business uses
27
What is overdraft facility?
An agreed maximum level of overdraft
28
What does a successful cash flow forecast require?
- accurate prediction of monthly sales revenue - accurate prediction of when customers will pay for the goods they have bought - careful allowance for operating costs and the timing of payment - careful allowance for other flows of cash (e.g. additional capital, buying land)
29
For which three types of businesses is forecasting cash in and outflows?
- New firms - Fast-growing firms - Firms with erratic sales
30
What are the short-term sources of finance?
Overdraft and trade credit
31
What are the long-term sources of finance?
- Personal savings - Share capital - Bank loan - Venture capital - Retained profit - Crowdfunding
32
What is an overdraft?
An agreement with the bank where businesses can make payments from their bank account exceeding the available cash balance
33
What are the advantages of getting an overdraft?
- Relatively easy to arrange - Flexible - Interest is only paid on the amount borrowed and calculated daily - Not secured on assists of business
34
What are the disadvantages of overdraft?
- Variable interest rate is charged - Higher interest rate than a bank loan - Banks can demand repayment within a very short period (often causes business failure)
35
What is trade credit?
When a supplier provides goods but is willing to wait to be paid - the credit period can be between 30 days to 3 months
36
What are the advantages of trade credit?
- Access to supplies without immediate payment - No interest
37
What are the disadvantages of trade credit?
- Hard for new businesses to get - as they don’t have an established track record - Usually only available for smaller amounts
38
What are personal savings?
Money invested in the business by an owner, it’s the most common form of finance for a new business. It’s important because as shareholders and venture capital providers will only invest if the owner is willing to put their own money at risk (similar with bank loans)
39
What are the advantages to personal savings?
- Doesn’t have to be repaid - Interest does not have to be paid
40
What is the disadvantage to personal savings?
Amount limited to how much the owner is able and willing to invest
41
What is share capital?
Selling part-ownership (shares) in the business. Shareholders have the right to question the directors and receive part of the yearly profit (dividends)
42
What are the advances to share capital?
- Permanent source of finance which does not have to be paid back (share holders can only get their money back if the find someone else to buy off the shares) - Dividends do not have to be paid if the business has had a poor financial year
43
What are the disadvantages to share capital?
- Dilutes control of the business - It’s only available to limited companies (Ltd & Plc)
44
What is bank loan?
An amount of money that is borrowed for a fixed period at an agreed rate of interest and can be paid monthly
45
What are the advantage of a bank loan?
- Regular repayments help with budgeting - Large purchases can be made even if a firm doesn’t have the cash
46
What are the disadvantages of a bank loan?
- Interest (which is high) must be paid - Some lenders may ask for security against non-payment
47
What is venture capital?
A combination of share capital and loan capital, provided by an investor willing to take a chance on the success on the success of a small to medium-sized business
48
What are the advantages of venture capital?
Venture capitalist may also provide business expertise and business contacts
49
What are the disadvantages of venture capital?
- Increased risk usually means cost of finance is high - Risk that control of the business could be lost
50
What is retained profit?
Profit kept within the business (not paid out as dividends). This is the best source of finance for expansion
51
What are the advantages of retained profit?
- It doesn’t have to be repaid - No interest has to be paid on the sum used
52
What are the disadvantages of retained profit?
- A new business won’t have any retained profit - The amount is limited to how much previous profit the business has retained - If large amount of retained profit is used, there is less available for emergencies
53
What is crowdfunding?
A relatively new way of raising finance, it involves obtaining small amounts of money from a large number of people. Usually administered via the internet, it often involves the promise of cheap or free products in return.
54
What are the advantages of crowdfunding?
- Providing access to large amounts quickly - Raising awareness of a new business or product
55
What are the disadvantages of crowdfunding?
- Business needs to be interesting to attract funds - Can be difficult to reach the funding target - Cost associated with any incentives that might be offered

Business (12 decks)

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