1.3 Putting a Business Idea into Practice

Question 1

Aims

Answer 1

A general statement of where you’re heading, for example ‘to get to university’.

Question 2

Market Share

Answer 2

The percentage of a market held by one company or brand.

Question 3

Objectives

Answer 3

A clear, measurable goal, so success or failure is clear to see.

Question 4

SMART Objectives

Answer 4

Targets that are specific, measurable, achievable, realistic and time bound.

Question 5

Survival

Answer 5

Keeping the business going, which ultimately depends on determination and cash.

Question 6

Fixed Costs

Answer 6

Costs that don’t vary just because output varies, for example rent.

Question 7

Interest

Answer 7

The charges made by banks for the cash they have lent to a business, for example six per cent per year.

Question 8

Profit

Answer 8

The difference between revenue and total costs; if the figure is negative the business is making a loss.

Question 9

Revenue

Answer 9

The total value of the sales made within a set period of time, such as a month.

Question 10

Total Costs

Answer 10

All the costs for a set period of time, such as a month.

Question 11

Variable Costs

Answer 11

Costs that vary as output varies, such as raw materials.

Question 12

Break-Even

Answer 12

The level of sales at which total costs are equal to total revenue. At this point the business is making neither a profit nor a loss.

Question 13

Break-Even Chart

Answer 13

A graph showing a company’s revenue and total costs at all possible levels of output.

Question 14

Margin of Safety

Answer 14

The amount by which demand can fall before the business starts making losses.

Question 15

Cash

Answer 15

The money the firm holds in notes and coins, and in its bank accounts.

Question 16

Cash Flow

Answer 16

The movement of money into and out of the firm’s bank account.

Question 17

Insolvency

Answer 17

When a business lacks the cash to pay its debts.

Question 18

Overdraft

Answer 18

The amount of the agreed overdraft facility that the business uses.

Question 19

Overdraft Facility

Answer 19

An agreed maximum level of overdraft.

Question 20

Cash Flow Forecast

Answer 20

Estimating the likely flows of cash over the coming months and, therefore, the overall state of one’s bank balance.

Question 21

Closing Balance

Answer 21

The amount of cash left in the bank at the end of the month.

Question 22

Negative Cash Flow

Answer 22

When cash outflows are greater than cash inflows.

Question 23

Net Cash Flow

Answer 23

Cash in minus cash out over the course of a month.

Question 24

Opening Balance

Answer 24

The amount of cash in the bank at the start of the month.

Question 25

Crowdfunding

Answer 25

Raising capital online from many small investors (but not through the stock market).

Question 26

Dividends

Answer 26

Payments made to shareholders from the company’s yearly profits. The directors of the company decide how large a dividend payment to make; in a bad year they can decide on zero.

Question 27

Retained Profit

Answer 27

Profit kept within the business (not paid out in dividends); this is the best source of finance for expansion.

Question 28

Share Capital

Answer 28

Raising finance by selling part- ownership in the business. Shareholders have the right to question the directors and to receive part of the yearly profits.

Question 29

Trade Credit

Answer 29

When a supplier provides goods but is willing to wait to be paid – for perhaps up to three months. This helps with cash flow.

Question 30

Venture Capital

Answer 30

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.