1.3 Putting a business idea into practice

  • Created by: anlanh
  • Created on: 12-01-20 10:34
What is an aim?
a purpose or intention; a desired outcome
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What is an objective?
a clear, measurable goal, so that success or failure is clear to see
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What is market share?
the percentage of a market held by one company or brand
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What are the three main objectives that people have when starting up a business?
a financial objective, business objective or a social objective
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Name some financial objectives.
profit, sales, market share and financial security
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Name some non-financial objectives
personal satisfaction, challenge, independence and control
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What are fixed costs?
costs that don't vary just because output varies, for example rent
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What are variable costs?
costs that vary as output varies, for example raw materials
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What are total costs?
all the costs for a set period of time, such as a month
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How do you calculate total costs?
total costs = variable costs + fixed costs
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What is interest?
the charges made by banks for the cash they have lent to a business
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What is profit?
the difference between revenue and total costs
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How do you calculate profit?
profit = total revenue - total costs
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What is revenue?
the total value of the sales made within a set period of time, such as a month
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How do you calculate revenue?
sales revenue = price * quantity sold
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What is break-even?
the level of sales at which total costs are equal to total revenue - the business is making neither a profit or a loss
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What is a break-even chart?
a graph showing a company's revenue and total costs at all possible levels of output
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What is the margin of safety?
the amount by which demand can fall before the business starts making losses
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How do you calculate break-even output?
fixed costs / (price - variable costs per unit)
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How do you calculate margin of safety?
sales - break-even output
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What do you need to know in order to draw a break-even chart?
variable costs, fixed costs, revenue of the business and maximum output of the business
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When can business cash flow problems be especially difficult?
at start up or at a time of rapid growth
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Who do companies pay day-to-day cash payments to?
suppliers, employees and overheads (salaries, rent etc.)
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What should businesses do to manage their cash?
negotiate a generous overdraft facility, keep costs under control and keep the cash coming in
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What is cash?
the money the firm holds in notes and coins and in its bank accounts
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What is cash flow?
the movement of money into and out of the firm's bank account
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What is insolvency?
when a business lack the cash to pay its debts
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What is overdraft?
the amount is agreed overdraft facility that the business uses
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overdraft facility
an agreed maximum level of overdraft
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What is a cash flow forecast?
estimating the likely flows of cash over the coming months and therefore the overall state of one's bank balance
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What is a closing balance?
the amount of cash left in the bank at the end of the month
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What is negative cash flow?
when cash outflows are greater that cash inflows
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What is net cash flow?
cash in minus cash out over the course of a month
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What is an opening balance?
the amount of cash in the bank at the start of the month
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What can long-term finance be used for?
provide start up capital, finance the purchase of assets and provide capital for expansion
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What can short-term finance be used for?
get through period when cash flow is poor, bridge gaps when large customers delay payment and provide extra cash when a rush order requires a large sum to buy raw materials and pay overtime wages
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What are the two key benefits of share capital?
they have the capital permanently and in a bad year no dividends need to be paid
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What are the drawbacks of share capital?
if lots of shares are issued, ownership is spread thinly and reduces the power of the founders and the business can become vulnerable to takeover bids
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What are some advantages to crowdfunding?
mixture of financing and market research and provides an opportunity for talented people to achieve their dream start-up
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What are some drawbacks to crowdfunding?
doesn't work well is the business is less interesting and it doesn't have a very high success rate
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What are the key features of bank overdraft?
variable interest rate, flexibility and the bank can demand a full repayment within 24 hours
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What is crowdfunding?
raising capital online from many small investors (but not from the stock market)
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What are divendends?
payments made to shareholders from the company's yearly profits
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What is retained profit?
profit kept within the business; this is the best source of finance for expansion
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What is share capital?
raising finance by selling part-ownership in the business
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What is trade credit?
when a supplier provides goods but is willing to wait to be paid
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What is venture capital?
a combination of share capital and loan capital, provided by an investor willing to take a chance on the success of a small to medium-sized business
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Card 2


What is an objective?


a clear, measurable goal, so that success or failure is clear to see

Card 3


What is market share?


Preview of the front of card 3

Card 4


What are the three main objectives that people have when starting up a business?


Preview of the front of card 4

Card 5


Name some financial objectives.


Preview of the front of card 5
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