1.3 putting a business idea into practice Flashcards
(22 cards)
what is an aim?
the overall target or goal for the business
what is an objective?
steps a business needs to meet its overall aims
financial aims & objectives:
business survival, profit, sales, market share, financial security
non-financial aims & objectives:
social objectives, personal satisfaction, challenge, control, independence
differing aims and objectives between businesses.:
different sectors, business size and scale
break even calculation:
fixed costs / (selling price - variable costs)
margin of safety calculation:
actual sales - break even sales
increase in revenue:
increased profits, break even, increase margin of safety, if costs increase no impact
revenue decrease:
risk of not breaking even, low margin of safety, only ok if costs decrease, might reduce staff, buy cheap material
increasing costs:
increase BEP, reduce profit, sell more products, increase prices, more likely to make a loss
decreasing costs:
good if quality/ service remains same, lower BEP, more profits, keep savings / decrease prices, customers may expect low prices
main cash payments of a business:
payments to supplier, employees, rent /electricity/ telephone bill
two instances where business can suffer cash flow problems:
start up: large amounts of money need invested, equipment, stock, hiring, training, staff costs
rapid growth: if business needs to find larger premises, can’t keep up with outflows
ways to get out of negative cash flow:
negotiate overdraft, keep costs under control, arranging sensible credit with suppliers & customers
cash flow forecast can help with decisions like:
employing more staff, opening a new branch, investing in a new business, rewarding owners for success
overdrafts (short- term)
overspending in an account, cost of borrowing changes, flexible, bank can demand full repayments
trade credit (short term)
buy now pay later, credit limit, credit period (30,60,90 days), frequency of payment, method, retrospective discount
personal savings (long term)
money saved up by an entrepreneur, doesn’t cost business, no interest
venture capital (long term)
money invested by individual/ group exchanging for profits, will want return in investment
share capital (long term)
permanent capital, no dividend to be paid if business has poor year, dilutes founders control, takeover vulnerable
bank loan (long term)
lent to business over time, interest, credit checks, assets against loan
crowdfunding (long term)
large number investing small amounts, market research (if people don’t invest business isn’t good), provide opportunities, business must be interesting, can be difficult to reach fund target
