Unit 1.3 Putting a business idea into practice

Question 1

Financial objectives

Answer 1

Targets expressed in money terms such as making a profit, earning income or building wealth.

Question 2

What does SMART stand for?

Answer 2

Specific, measurable, achievable, realistic and timed

Question 3

The amount of income received from selling goods or services over a period of time

Answer 3

Revenues
Sales Revenue
Turnover
Sales Turnover

Question 4

What is the formula for total revenue?

Answer 4

TR = P x Q

Total Revenue = Price x Quantity

Question 5

Sales volume

Answer 5

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

Question 6

All the costs of a business; it is equal to fixed costs plus variable costs.

Answer 6

Total costs

Question 7

What is the formula for total costs

Answer 7

TC = FC + VC

Total Costs = Fixed Costs + Variable Costs

Question 8

what is the difference between fixed costs and variable costs?

Answer 8

Fixed cost’s don’t change no matter how much of the item you use e.g. tax, bills and salaries

Variable costs change depending on how often you use them e.g. petrol in a van

Question 9

Occurs when the revenues of a business are greater than its costs over a period of time.
TR - TC = P

Answer 9

Profit

Question 10

Cash flow

Answer 10

The flow of cash into and out of a business

Question 11

How do inflow and outflow differ?

Answer 11

inflow is the cash flowing INTO a business

outflow is the cash flowing OUT of a business

Question 12

Net Cash Flow

Answer 12

The receipts of a business minus its payments

Inflows – Outflows = Net Cash Flow

Question 13

What does insolvency mean?

Answer 13

When a business can no longer pay its debts

Question 14

Cash Flow Forecast

Answer 14

A prediction of how cash will flow through a business in a period of time in future

Question 15

Opening balance or closing balance

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

Answer 15

Opening Balance

the closing balance is The amount of money in a business at the end of the month

Question 16

What is 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

Question 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.

Answer 17

Stocks

Question 18

Long term or short term

Sources of money for businesses that may have to be repaid with immediately or fairly quickly, such as an overdraft, usually within a year.

Answer 18

Short term finance

Long term finance is the Sources of money for businesses that are borrowed or invested typically for more than a year e.g Mortgage, Venture Capitalist

Question 19

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

Answer 19

Personal Savings

Question 20

The monetary 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

Answer 20

Share Capital

Question 21

The owners of a company

Answer 21

Shareholders

Question 22

Venture Capitalist

Answer 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.

Question 23

Loan

Answer 23

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

Question 24

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.

Answer 24

Security (or collateral)

Question 25

Mortgage

Answer 25

A loan where property is used as security.

Question 26

Dividend

Answer 26

A share of the profits of a company received by shareholders who own shares.

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

Renting equipment or premises.

Answer 28

Leasing

Question 29

Borrowing money from a bank by drawing more money than is actually in a current account. Interest is charged on the amount overdrawn.

Answer 29

Overdraft facility

Question 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 to be paid.

Answer 30

Factoring