1.3

Question 1

Question:
What are business aims, and how do they differ from business objectives?

Answer 1

Answer:
Business aims are the long-term aspirations of an organization, providing a visionary direction. Business objectives, on the other hand, are specific, measurable, achievable, relevant, and time-bound targets (SMART targets) designed to achieve those aspirations.

Question 2

Question:
Why are business aims and objectives considered critical for effective business functioning and long-term success?

Answer:

Answer 2

Aims and objectives align employees toward common goals, ensuring everyone works towards the same vision. They provide a roadmap for effective business operations and are crucial for achieving long-term success

Question 3

Question:
What are examples of both financial and non-financial objectives that entrepreneurs may have when starting a business?

Answer 3

Answer:
Financial objectives include survival, sales, profit, market share, and financial security. Non-financial objectives encompass social entrepreneurship, personal satisfaction, challenge, independence and control.

Question 4

Question:
What factors can influence the variation in business aims and objectives among different businesses?

Answer 4

Answer:
Business objectives vary due to factors such as industry type, business size, organizational culture, ownership structure, and geographic location.

Question 5

reasons for different business objective

Answer 5

culture
industry
size
geographic location
ownership structure

Question 6

Question:
What is Sales Revenue, and why is it a crucial business performance measure?

Answer 6

Answer:
Sales Revenue is the value of units sold by a business, such as the revenue from Apple Music’s music downloads. It is a vital performance measure, calculated using the formula: Selling price x Number of units sold, providing insights into profit.

Question 7

Question:
How is Sales Revenue calculated, and what formula is used?

Answer 7

Answer:
Sales Revenue is calculated using the formula: Selling price x Number of units sold. This formula applies when selling one product, but computer systems aid in tracking sales revenue for multiple products.

Question 8

Question:
What are Fixed Costs (FC) in business, and can you provide an example?

Answer 8

Answer:
Fixed Costs (FC) are costs that remain constant, irrespective of changes in output. Examples include building rent, management salaries, insurance, and bank loan repayments.

Question 9

Question:
Define Variable Costs (VC) and give an example.

Answer 9

Answer:
Variable Costs (VC) fluctuate with the level of output. Examples are raw material costs and wages for workers directly involved in production.

Question 10

Question:
What is Total Cost (TC) in business, and how is it calculated?

Answer:
Total Cost is the sum of Fixed Costs (TFC) and Variable Costs (TVC). The formula is: TC = TFC + TVC.

Answer 10

Question:
What is Total Cost (TC) in business, and how is it calculated?

Answer:
Total Cost is the sum of Fixed Costs (TFC) and Variable Costs (TVC). The formula is: TC = TFC + TVC.

Question 11

Question:
How do you calculate Total Costs (TC) and Total Variable Costs (TVC)?

Answer 11

Answer:
Total Costs (TC) = Total Fixed Costs (TFC) + Total Variable Costs (TVC). Total Variable Costs (TVC) = Variable Costs (VC) × Quantity (Q).

Question 12

Question:
How can businesses reduce fixed costs, and what are some examples?

Answer 12

Answer:
Fixed costs can be reduced by relocating to cheaper premises, cutting worker salaries, spending less on promotions, or finding lower-priced utility providers.

Question 13

Question:
What strategies can businesses employ to reduce variable costs, and provide an example?

Answer 13

Answer:
Variable costs can be reduced by sourcing cheaper materials, buying in bulk, or outsourcing distribution. For instance, businesses may use platforms like Amazon for packaging and shipping, often at a lower cost.

Question 14

Question:
What should businesses carefully consider when reducing costs, and can you provide an example?

Answer 14

Answer:
Businesses must weigh the impacts on customer service, quality, and delivery speed. For instance, lowering staff salaries may impact customer service skills and experience.

Question 15

Question:
What is gross profit, and how is it calculated?

Answer 15

Answer:
Gross profit is the difference between sales revenue and production-related costs. It is calculated as Gross Profit = Revenue - Cost of Sales.

Question 16

Question:
What is net profit, and how is it calculated?

Answer 16

Answer:
Net profit is the difference between gross profit and operating expenses, including interest. The formula is Net Profit = Gross Profit - (Operating Expenses + Interest).

Question 17

Question:
What is a profit margin, and why is it important for businesses?

Answer 17

Answer:
A profit margin is the amount by which sales revenue exceeds costs. It is crucial for businesses as it indicates how efficiently revenue is converted to profit. Higher and increasing profit margins are preferable.

Question 18

Question:
How is the gross profit margin calculated, and what does it signify?

Answer 18

Answer:
The gross profit margin is calculated as (Gross Profit / Sales Revenue) * 100. It signifies the proportion of revenue converted to gross profit, expressed as a percentage.

Question 19

Question:
What does the net profit margin represent, and how is it calculated?

Answer 19

Answer:
The net profit margin represents the proportion of sales revenue converted into net profit, expressed as a percentage. It is calculated as (Net Profit / Sales Revenue) * 100.

Question 20

Question:
What is the breakeven point, and how can it be calculated using the formula?

Answer 20

Answer:
The breakeven point is the number of units a business needs to sell for total costs to equal sales revenue. It can be calculated using the formula: Breakeven Point (in units) = Fixed Costs / (Selling Price - Variable Costs) or Breakeven Point (in dollars) = Fixed Costs / Contribution Margin.

Question 21

What is the difference between profit and cash in a business

Answer 21

Profit: Represents the gap between sales revenue and costs.
Cash: Encompasses all monetary movements in and out of a business.

Question 22

why is cash important?

Answer 22

Importance of Cash:

New businesses may initially pay cash for supplies.

Cash inflow occurs with product sales, but supplier payment may be deferred.

Cash is crucial; profitable businesses can fail without enough cash (insolvency risk).

Cash flow forecast predicts inflows and outflows, vital for managing liquidity.

Question 23

Question:
What is a cash flow forecast

Answer 23

: A projection of expected cash inflows and outflows over a specific period (e.g., 3, 6, or 12 months).

Question 24

what are cash flow forecasts key elements?

Answer 24

Key Elements:

Outflows: Payments for raw materials, staff wages, bills, etc.

Inflows: Sales receipts, bank loans, asset sale proceeds.

Net Cash Flow: Calculated by subtracting total outflows from total inflows.

Opening Balance: Previous month’s closing balance carried forward.

Closing Balance: Determined by adding net cash flow to the opening balance.

Question 25

Overdrafts:

Answer 25

Explanation: Agreement with the bank for spending beyond the account balance.

Pros: Flexibility and aids cash flow.

Cons: Higher interest, potential overdraft recall.

Question 26

Trade Credit:

Answer 26

Explanation: Agreement with suppliers to pay for goods at a later date.

Pros: Interest-free, supports positive cash flow.

Cons: Supplier payment management required

Question 27

Share Capital:

Answer 27

Explanation: Finance from selling shares in a limited company.
Pros: Quick funds, expertise from shareholders.
Cons: Shareholders’ entitlement to profit, voting rights.

Question 28

Bank Loans:

Answer 28

Explanation: Borrowed sum repaid with interest over a specific period.

Pros: Fixed interest rates, unsecured loans.

Cons: Risk to assets, interest payments.

Question 29

Crowdfunding:

Answer 29

Explanation: Finance from a large number of small online investors.

Pros: Access to diverse investors, incentives attract backers.

Cons: Competition for funding, need a persuasive business plan

Question 30

Retained Profit:

Answer 30

Explanation: Reinvestment of previously generated profit.

Pros: Cost-effective, no borrowing.

Cons: Shareholders miss extra profit.

Question 31

Venture Capital:

Answer 31

Explanation: Investment from venture capital firms or entrepreneurs.

Pros: Access to large finance, business advice.

Cons: Loss of business stake, influence from investors.

Question 32

Considerations for Borrowing:

Answer 32

Interest Payments: Full cost includes interest on loans
.
Repayment Planning: Fixed installment planning for loans.

Asset Risk: Business assets at risk if repayments falter.

Question 33

short-term sources of finance

Answer 33

overdrafts
trade credit

Question 34

long-term sources of finance

Answer 34

share capital
bank loans
retained profit
crowd funding