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Business Paper 1 > 1.3 - Putting a business idea into practice > Flashcards

1.3 - Putting a business idea into practice Flashcards

1
Q

What are some financial aims?

A

Survival
Maximise profit
Increase market share
Maximise sales
Achieve financial security

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2
Q

What are some non-financial aims?

A

Personal challenge
Personal satisfaction
Gaining independence and control
Doing what’s right for society

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3
Q

What is a business aim?

A

Overall goals that a business wants to achieve.

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4
Q

What is a business objective?

A

Smaller goals to help them achieve their bigger aim.
They are usually measurable and clear targets.

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5
Q

What does a business need to consider when deciding what its aims and objectives will be?

A

The business’ size, age and owners, as well as the competition it faces within the market.

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6
Q

What is revenue?

A

The income earned by a business.

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7
Q

Equation for revenue?

A

Revenue = quantity sold x price

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8
Q

What are costs?

A

The expenses paid out to run the business.

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9
Q

What are fixed costs?

A

The costs that don’t vary with the output. They have to be paid even if the firm produces nothing.

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10
Q

What are variable costs?

A

Costs that will increase as the firm expands output.

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11
Q

Equation for variable cost?

A

Variable cost = quantity sold x variable cost per unit

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12
Q

Equation for total cost?

A

Total cost = total variable costs + total fixed costs

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13
Q

What is interest?

A

The charge for borrowing money or the reward for saving money.

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14
Q

Equation for interest?

A

Interest (on loans) = (total repayment - borrowed amount) / borrowed amount x 100

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15
Q

How does a business break even?

A

If they make enough to cover costs.

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16
Q

What is profit (or loss)?

A

The difference between revenue and costs over a period of time.

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17
Q

What is profit?

A

The amount of money a company earns after costs have been taken into account.

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18
Q

Equation for profit?

A

Profit = revenue - costs

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19
Q

What does break-even level of output or break-even point mean?

A

It is the level of sales (or output) a firm needs in order to just cover its costs.

20
Q

Equation for break-even point in units?

A

break-even point in units = fixed cost / (sales price - variable cost per unit)

21
Q

Equation for break-even point for revenue (or cost)?

A

Break-even point for revenue (or cost) = break-even point in units x sales price

22
Q

How does a business find the break-even level of output?

A

Completing a break-even analysis.

23
Q

In a break-even diagram which two lines start at 0?

A

Total revenue and variable cost.

24
Q

Which two lines show the break-even level of output on a break-even diagram?

A

Were the total cost and total revenue cross.

25
Q

What is the margin of safety?

A

The gap between the current level of output and the break-even output.

26
Q

Equation for margin of safety?

A

Margin of safety = actual sales (or budgeted sales) - break-even sales

27
Q

What is the budgeted sales?

A

The sales that the firm is expected to makes.

28
Q

What does cash mean?

A

The money that a business has available to spend immediately.

29
Q

What does a business need cash for?

A
  • employees
  • suppliers
  • overheads
30
Q

What is cash flow?

A

The flow of all money into and out of the business.

31
Q

Equation for net cash flow?

A

Net cash flow = cash inflows - cash outflows for a given period of time

32
Q

What is a cash flow forcast?

A

It lists all the inflows and outflows of cash that appear in the budget.

33
Q

How does a cash flow forecast help a business?

A

It helps firms to anticipate problems. And when it will need a short term source of finance to cover its costs.

34
Q

What do credit terms tell you?

A

How long after agreeing to buy a product the customer has to pay.

35
Q

What are the five reasons that firms need finance?

A
  1. Start-up capital.
  2. Cash to help new firms with initial cash flow and covering their costs.
  3. To cover if customers delay payments.
  4. If a business is struggling with day-to-day running costs.
  5. Expanding.
36
Q

What are the short-term sources of finance?

A
  • trade credit
  • overdrafts
37
Q

What does short-term sources of finance mean?

A

Lend money for a limited period of time.

38
Q

What are long-term sources of finance?

A

Can either be paid back over a longer period of time or don’t need to be paid back at all.

39
Q

What are the six examples of long-term sources of finance?

A
  • loans
  • personal savings
  • share capital
  • venture capital
  • retained profit
  • crowd funding
40
Q

What is a loan?

A

When a business borrows money from a bank and has to pay it back with added interest in monthly installments.

41
Q

What are the advantages of a loan?

A

They are quick and easy to take out.

42
Q

What is personal savings?

A

A business owner may put some of their own money into the business.

43
Q

What is the disadvantage of personal savings?

A

It is risky because the owner could end up losing their money if the business fails.

44
Q

What is share capital?

A

When the business gains money from selling shares of their business. This means that they sell part ownership of the business.

45
Q

What is venture capital?

A

Money raised through selling shares to individuals or businesses who specialise in giving finance to new or expanding small firms.

46
Q

What is retained profit?

A

Profits that the owners have decided to plough back into the business after they’ve paid themselves a dividend.

47
Q

What is crowd funding?

A

When a larger number of people contribute money towards starting up a business or funding a business idea.

Business Paper 1 (6 decks)

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