Unit 1.3 - Putting a business idea into practice

Question 1

What would you call “targets expressed in money terms such as making a profit, earning income or building wealth”

Answer 1

Financial objectives

Question 2

What does the acronym SMART stand for?

Answer 2

Specific 
Measurable
Achievable 
Realistic 
Timed

Question 3

What does turnover mean and what else could you call it?

Answer 3

The amount of income received from selling goods or services over a period of time. Revenue, Sales Revenue, Sales Turnover

Question 4

Formula for Total Revenue?

Answer 4

TR = P x Q

Price x Quantity

Question 5

What is sales volume?

Answer 5

The number of items or products or services sold by a business over a period of time.

Question 6

What are total costs and how do you calculate it?

Answer 6

All the costs a business has to pay.

TC= FC +VC

Question 7

What do FC and VC stand for? What do they mean

Answer 7

Fixed costs - Costs that don’t change a business has to pay every E.G month (rent, eg)
Variable costs - Costs that depend on how often you use it E.G phone bill.

Question 8

Occurs when the revenues of a business are greater than its costs.
TR - TC

Answer 8

Profit

Question 9

The money going into and out of a business, can be positive or negative

Answer 9

Cash flow

Question 10

What is the difference between inflow and outflow?

Answer 10

Inflow is the cash coming into a business E.G Loan

Outflow is the cash going out of the business E.G Rent

Question 11

The receipts of a business minus its payments

Inflows – Outflows = …

Answer 11

Net cash flow

Question 12

When does insolvency occur and what does unlimited/ limited liability have to do with it?

Answer 12

When a business can no longer pay off its debts. The owner(s) may have to sell their house if necessary (unlimited liability)
When shareholders of a company are not personally liable for the debts of the company; the most they can lose is the value of their investment in the shares of the company. (limited liability)

Question 13

What would you call predicting cash flow?

Answer 13

Cash flow forecast

Question 14

Opening Balance

Answer 14

The amount of money in a business at the start of the month

Question 15

Closing balance

Answer 15

The amount of money in a business at the end of the month

Question 16

Why might a business go on trade credit?

Answer 16

Where a supplier gives a customer a period of time to pay a bill (or invoice) for goods or services once they have been delivered - when a business is low on money they may need this

Question 17

Stocks

Answer 17

Materials that a business holds. Some could be materials waiting to be used in the production process and some could be finished stock waiting to be delivered to customers.

Question 18

What is the difference between Long term and Short term finance?

Answer 18

Sources of money for businesses that are borrowed or invested typically for more than a year e.g Mortgage, Venture Capitalist
Sources of money for businesses that may have to be repaid with immediately or fairly quickly, usually within a year E.G Overdraft

Question 19

Money that has been set aside and not spent by individuals and households.

Answer 19

Personal savings

Question 20

Share Capital

Answer 20

The monetary (money - tary) value of a company which belongs to its shareholders, for example, if five people each invest £10,000 into a business, the share capital will be £50,000

Question 21

What are shareholders and what type of business can have these?

Answer 21

PLC (Public Limited Company), when a business sells parts of their ownership to the public

Question 22

An individual or company which buys shares in what they hope will be a fast growing company with a long term view of selling the shares at a profit.

Answer 22

Venture capitalist

Question 23

Borrowing a sum of money which has to be repaid with interest over a period of time, such as 1-5 years. Often from a bank

Answer 23

Loan

Question 24

What is a loan where property is used as security?

Answer 24

Mortgage

Question 25

Security (or collateral)

Answer 25

Assets owned by a business which are used to guarantee repayments of a loan; if the business fails to pay off the loan, the lender can sell what has been offered as security.

Question 26

Dividend

Answer 26

A share of the profits of a company received by shareholders.

Question 27

Profit which is kept back in the business and used to pay for investment in the business.

Answer 27

Retained profit.

Question 28

What might a business do instead of purchasing E.G a van?

Answer 28

Leasing (like rent)

Question 29

What is overdraft facility and what type of finance is it?

Answer 29

Short term finance. Borrowing money from a bank by drawing more money than is actually in a current account to an agreed limit. Interest is charged on the amount overdrawn.

Question 30

Factoring

Answer 30

A source of finance where a business is able to receive cash immediately for the invoices it has issued from a factor, such as a bank, instead of waiting the typical 30 days/ a month to be paid.