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GCSE Edexcel Business > 1.3 Putting a Business Idea into practice > Flashcards

1.3 Putting a Business Idea into practice Flashcards

1
Q

Define business aims

A

The long term aspirations of an organisation: over all target or goal of a business

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2
Q

Define business objective

A

stated, measurable targets of how to achieve business aims

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3
Q

What are SMART targets?

A

Specific
Measurable
Attainable
Relevant
Time

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4
Q

Name some examples of financial objectives

A
  • business survival
  • sales
  • profit
  • market share
  • financial security
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5
Q

Name some examples of non-financial aims

A
  • social objectives
  • personal satisfaction
  • challenge
  • independence
  • control
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6
Q

Why do aims and objectives differ between businesses?

A

It depends on these factors:
- industry
- size
- culture
- geographic location
- ownership structure

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7
Q

Why do business aims and objectives change over time?

A
  • over time, a business may grow or shrink
  • a business may get new owners
  • the market that a business operates in may change
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8
Q

Why does a business set aims and objectives?

A
  • gives specific targets by which business’s performance an be measured against
  • can be used to motivate workers
  • clarifies business directions and aids decision making
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9
Q

What is sales revenue?

A

The value of units sold by the business

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10
Q

What is the formula to calculate sales revenue?

A

selling price x units sold

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11
Q

What are the different types of costs that a business has to account for?

A
  • fixed costs
  • variable costs
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12
Q

What are fixed costs?

A

Costs that do not change as the level of output changes, such as rent and insurance

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13
Q

What are variable costs?

A

Costs that change directly with the output, such as raw materials

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14
Q

What is the formula to calculate total costs?

A

fixed costs + variable costs

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15
Q

How do we calculate total variable cost?

A

variable cost x quantity

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16
Q

How can a business reduce its fixed costs?

A
  • relocating to a cheaper premises
  • reducing worker salaries
  • spending less on promotional activities
  • seeking lower price utilities providers
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17
Q

How can a business reduce its variable costs?

A
  • sourcing cheaper materials
  • buying raw materials in bulk to make use of economies of scale
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18
Q

Define profit

A

The money left over after all costs have been accounted for

19
Q

What is gross profit?

A

The difference between sales revenue and the costs directly related to production

20
Q

How do we calculate gross profit?

A

revenue - cost of sale

21
Q

What is net profit?

A

The difference between the gross profit and any other operating expenses + any interest

22
Q

How do we calculate net profit?

A

gross profit - (operating expenses + interest)

23
Q

When do we know that a firm is making a loss?

A

If the costs are greater than the sales revenue, then the firm is making a loss

24
Q

What is a profit margin?

A

The amount by which the sales revenue exceeds the costs

25
Q

When does a firm break even?

A

The level of output where the total revenue is equal to the total costs. No profit or loss is made at this point

26
Q

What is the break even formula?

A

fixed costs/ contribution per unit

27
Q

What is contribution per unit?

A

selling price - variable costs

28
Q

What is the margin of safety?

A

The amount of sales a company could lose before they start making a loss

29
Q

How is the margin of safety calculated?

A

actual sales - break even sales

30
Q

Why do businesses calculate their break even point?

A
  • shows the effect of changing price on profit
  • shows the effect of changing costs on profit
  • shows profit at different levels of sales
  • business knows how many units to sell in order to cover costs and make a profit
  • shows the margin of safety so you can assess risk
  • help decide whether or not to launch new products
  • use it to persuade the bank to loan money
31
Q

What are the problems with calculating break even?

A
  • only an estimate/ forecast so it is not always accurate
  • assumes businesses will sell everything they produce
  • doesn’t take external factors into consideration, eg: actions of competitors, market changes, changes in economy
  • assumes variable costs will remain constant per unit, disregards economies of sale
  • assues prices will stay the same regardless of the number of products produced
  • assumes that a business only sells one product
32
Q

Why is cash important to businesses?

A
  • to pay suppliers
  • to pay overheads
  • to pay employees
  • to prevent business failure
33
Q

What is cash?

A

Money available in the business to pay the bills, or what is left once the bills are paid

34
Q

What is cash flow?

A

The flow of money in and out of the business over a period of time

35
Q

What is a cash flow forecast?

A

A prediction of the cas inflows and outflows, typically for a 3,6, or 9 month period

36
Q

How do we calculate net cash flow?

A

total inflows - total outflows

37
Q

What is the opening balance on a cash flow forecast?

A

The previous month’s closing balance carried forward

38
Q

What is the closing balance on a cash flow forecast?

A

The amount of money the business has at the end of the reporting period: typically a month

39
Q

How do we calculate the closing balance?

A

net cash flow + opening balance

40
Q

What is the difference between profit and cash?

A

The cash is the amount of money that a business has. Profit is the amount of money that a business after costs have been deducted

41
Q

What are the causes of cash flow problems?

A
  • debtors slow in paying money owed to the business
  • competitors may be taking sales
  • price of raw materials increasing
  • interest rates or other overheads increas
  • holding too much stock
  • seasonal demand
42
Q

What are the benefits of cash flow forecasting?

A
  • cash flow forecast influences a business’s decision about the future
  • cash flow forecasts alert the banks to potential problems in the future
  • they help businesses plan ahead
43
Q

What are the drawbacks of cash flow forecasting?

A
  • forecast figures need to be accurate
  • lots of research required
  • only a prediction

GCSE Edexcel Business (12 decks)

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