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BS Flashcards

1
Q

What is interest?

A

Interest is the cost of borrowing and reward for saving

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2
Q

How do you calculate the interest on loans as a percentage?

A

(total repayment – borrowed amount
/borrowed amount)
x 100

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3
Q

What is revenue?

A

Revenue is the income
gained by a business from
selling goods and services.
It is a form of cash inflow.

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4
Q

How is revenue generated?

A

Both new and established businesses will
generate revenue from trading e.g. selling goods and services.

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5
Q

What is the formula for revenue?

A

Revenue =
price x quantity

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6
Q

What are costs?

A

The spending that
occurs to set up and run a business

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7
Q

What are the 2 types of costs?

A

Fixed and variable costs.

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8
Q

What are fixed costs?

A

Costs which do not
change in relation to output

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9
Q

What are variable costs?

A

Costs which change
as a result of
changes in output

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10
Q

What is profit?

A

The difference between
total revenue and total costs.It is the reward for risks
taken by entrepreneurs.

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11
Q

What is the formula for profit?

A

Profit = Total sales – Total costs

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12
Q

What is the Break even formula (units)?

A

Break-Even point (units) = Fixed Costs ÷ (Sales price per unit – Variable costs per unit)

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13
Q

What is the break in formula in monetary valuble?

A

Break even point in
costs/revenue = break even point in units x
sales price

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14
Q

what is the contribution per unit?

A

The Contribution margin per unit is the selling price of one unit of goods minus the variable costs of making that unit.

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15
Q

What is the contribution of per unit formula?

A

Contribution per unit =(Sales price per unit – variable cost per unit)

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16
Q

What is the margin of safety formula?

A

Margin of safety =
Actual/budgeted sales/output – break even sales/output

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17
Q

How do you reduce break even output?

A

-Maximise added value per unit sold: Aim to
maximise the selling price per unit

-Negotiate to reduce the cost of raw materials
and other inputs
(= lower variable costs)

-Keep overheads or fixed costs under control

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18
Q

What is the Break even point?

A

Break-even is the point at which revenue and total costs are the same, meaning the business is making neither a profit nor a loss.

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19
Q

What should a small startup aim for?

A

survival

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20
Q

What is the purpose of setting goals in a business?

A

They can give you a clear focus, motivate employees and set targets for your business to work towards.

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21
Q

What is market segmentation?

A

Market segmentation
involves dividing a
market into parts that
reflect different
customer needs and
wants.

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22
Q

What are the 3 types of market segmentation?

A

-Demographic
-Income
-Location/
Geographical

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23
Q

What is segmenting a business by demographics?

A

Dividing a market into segments based on
demographic variables such as age, gender,
family lifestyle, religion, nationality, ethnicity etc.

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24
Q

What is segmenting a business by income?

A

Dividing markets into different income segments,
often on the basis of socio-economic grouping

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25
Q

What is segmenting a business by location or geography?

A

Dividing a market into different geographical
units, such as nations, regions, cities,
neighbourhoods or other territories

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26
Q

What are some Benefits of effective market segmentation?

A

Better matching of product to specific
customer needs

Helps with new product development –
focused on needs of customers in the
segment

Allows a business to grow its share in a
market or to effectively target fast-growing
segments

Helps make the marketing mix more
effective e.g. better targeting of promotion

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27
Q

What are some Potential drawbacks of market segmentation?

A

Segmentation is an imprecise science –
data is not always available, up-to-date or
reliable

Just because a business can identify a
specific market segment, it does not mean
it can successfully reach the customers in
it!

Markets are increasingly dynamic and
fast-moving; so too are the segments found
within a market

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28
Q

What is market mapping?

A

A market map illustrates the
range of “positions” that a
product can take in a market
based on two dimensions that
are important to customers.

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29
Q

What are some advantages of market mapping?

A

Helps spot gaps in the market

Useful for analysing competitors

Encourages use of market research

30
Q

What are some disadvantages of market mapping?

A

Just because there is a “gap” doesn’t mean
there is demand

Not a guarantee of success

How reliable is the market research?

31
Q

Why should a business try and understand customer needs?

A

A business needs to have an
effective understanding of
the needs and wants of
customers in its target
market segment.

32
Q

What are some examples of customer needs?

A

Right
product/service

Offers the quality
expected

Convenience

Provides choice

Right price

33
Q

What are some risks of a business not understanding customer needs?

A

A lack of understanding increases the risk
that the business will fail

Understanding the market will help the
business to generate sales and to survive

However, a new business is rarely able to
afford substantial market research

The challenge is to focus on the information
that the business planning process requires

34
Q

What is some information that is useful for a business to know?

A

How big is the market? (measured by sales, volume
etc)

How fast is the market growing and what is the market
growth potential?

Who are the existing competitors and what market
shares do they have?

How is the market segmented? (“segments” are the
different parts of a larger market – e.g. low price or
high quality)

35
Q

What is quantitative data?

A

Quantitative data are data represented numerically, including anything that can be counted, measured, or given a numerical value.

36
Q

What is qualitative data?

A

Qualitative data is non-numeric information, such as in-depth interview transcripts, diaries, anthropological field notes, answers to open-ended survey questions, audio-visual recordings and images.

37
Q

What is risk?

A

The possibility that
something may go
wrong!

38
Q

what is the main risk of business activity for an
entrepreneur?

A

The main risk is that the business will fail and
that the entrepreneur will lose his/her
investment.

39
Q

What is a business and its purpose?

A

An organisation that exists
to produce goods or
supply services to
customers.

40
Q

What are goods and services?

A

A good is a tangible or physical product that someone will buy, tangible meaning something you can touch, and a service is when you pay for a skill.

41
Q

What are the two meanings of enterprise?

A

An enterprise is simply another name for a
business

OR

perhaps more importantly, enterprise
describes the actions of someone who takes
a risk by setting up, investing in and running
a business

42
Q

What is an entrepreneur?

A

“someone who takes a
calculated risk through
starting a business.”

43
Q

What is meant by “Adding Value”?

A

Adding value = the difference
between the price of the
finished product/service and
the cost of the inputs
involved in making it.

44
Q

What are some ways to add value to a product?

A

Build a strong brand

Offer a unique selling point

Deliver excellent customer service

Add product features and benefits that
customers want e.g. convenience

Provide a high-quality product

Produce a well designed product

45
Q

Why does a business need finance?

A

A start-up or existing small
business will need finance to fund
start-up costs, running costs
and expansion.

There are short-term and
long-term sources of finance
available.

46
Q

What is a bank overdraft

A

A short-term source of finance that is available to help fund the
day-to-day payments required by a business. It allows the business to
withdraw funds from its account that are not there, up to an agreed
maximum limit, and is only used when the business requires additional,
temporary amounts of money.

47
Q

Benefits of using overdraft?

A

Offers flexibility

Important source of finance for a
business if it has a short-term
shortage of cash or unexpected
cost to pay

Interest is only paid on the amount
used

48
Q

What are some drawbacks of using overdraft?

A

Repayable to the bank at any time

A bank may lower or even
withdraw the overdraft facility at
any time

Usually has high levels of interest;
using overdrafts is therefore an
expensive form of finance

49
Q

What is trade credit?

A

Trade credit is provided by a firm’s suppliers,
allowing the business to have the goods now and
pay for them at a later date.

50
Q

What are benefits of trade credit?

A

This can allow the business to use
the goods in the manufacturing
process and/or sell the goods before
it pays the suppliers, which will
improve its cash-flow position

51
Q

What are some drawbacks of using trade credit?

A

Danger of bad reputation and losing
future credit arrangements with the
supplier, if bills are not paid on time

Difficult for new start-up businesses
to negotiate trade credit with
suppliers, as there is a risk that the
business will fail and suppliers may
end up not getting paid

52
Q

What are some benefits of using personal savings?

A

Provides a strong signal to other
potential investors and the bank of
the entrepreneur’s commitment to
the business

It is interest free

Readily available and maximises the
control the entrepreneur keeps over
the business

53
Q

What are some drawbacks of using personal savings?

A

The amount that is available may
be limited, resulting in the
entrepreneur having to use other
sources of finance to fund the
business

54
Q

What are some benefits of using loans from family and friends to fund a business?

A

This can be quick and cheap to
arrange (certainly compared with
a bank loan)

The interest and repayment terms
may be more flexible than a bank
loan

55
Q

What are some drawbacks of using loans from family and friends to fund a business?

A

Increased stress for the entrepreneur,
particularly if the business gets into
difficulties, as it can cause
family/friend disagreements

The amount available may be limited,
resulting in this source of finance
having to be combined with other
sources of finance

56
Q

What is a loan from a bank?

A

A bank loan is an amount of money borrowed for a set
period with an agreed repayment schedule. The repayment
amount will depend on the size and duration of the loan, as
well as the rate of interest.

57
Q

What are some benefits of using bank loans?

A

Guaranteed the money for a certain period -
generally three to ten years

No need to provide the bank with a share in
the business, so no control is lost

Interest rates may be fixed for the term,
making it easier for an entrepreneur to
forecast interest payments and cash-flow

Repayments are made in instalments
meaning the business can access substantial
amounts of cash that does not need to be
paid in one-go

58
Q

What are some drawbacks of using bank loans?

A

Time consuming - a new business would need to
produce a detailed business plan in order to gain
a bank loan

Security - normally has to be given to the bank on
some of the assets of the business/entrepreneur’s
personal assets; the bank will have control over
these assets if the business fails

Lack of flexibility - a small business might take a
loan out for £50,000, but finds it only needed
£30,000; interest must be paid on the full loan
amount, which increases the costs of the business

59
Q

What is share capital as a source of finance?

A

Time consuming - a new business would need to
produce a detailed business plan in order to gain
a bank loan

Security - normally has to be given to the bank on
some of the assets of the business/entrepreneur’s
personal assets; the bank will have control over
these assets if the business fails

Lack of flexibility - a small business might take a
loan out for £50,000, but finds it only needed
£30,000; interest must be paid on the full loan
amount, which increases the costs of the business

60
Q

What are some benefits of using share capital?

A

Large sums of money can be
raised

Capital does not have to be
repaid

There is no interest –
dividend payments can be
missed if profits are low

61
Q

What are some drawbacks of using share capital?

A

Possible loss of control if the
original owners sell more than
50% of the total shares

Need to satisfy shareholders
expectations of dividends and
share price growth

62
Q

What is venture capital as a source of finance?

A

Venture capital can be gained from professional investors, who typically
invest between £10,000 to £750,000 into businesses that may be seen as
high risk, but have the potential to be very successful. Venture capitalists
tend to have made their money by setting up and selling their own business
– in other words they have proven entrepreneurial expertise.

63
Q

What are some benefits of using venture capital as a source of finance?

A

Venture capitalists often make their
own skills, experience and contacts
available to the firm

They have access to large amounts of
funds

64
Q

What are some drawbacks of using venture capital as a source of finance?

A

The venture capital company or investor will
usually want a share of the business and of
the profits, which can result in some loss of
control over the firm for the entrepreneur,
which he/she may not want to give up

Unless a business can offer the prospect of
significant turnover growth within five
years, it is unlikely to be of interest to a
venture capital firm

65
Q

What is crowd funding as a means of finance?

A

This is a way of raising money through a crowd funding
platform, publicising a proposal seeking to attract a large
number of worldwide small investors.

66
Q

What are some benefits of using crowdfunding as a source of finance?

A

Provides cheap investment, when other
sources of external finance may not be
available

If the project is newsworthy, it might attract
good publicity

Social media can be easily used to keep
investors informed of the progress of the
business venture, which might then provide
ongoing finance

Investors may have experience or skills that
they can offer the business

67
Q

What are drawbacks of using crowdfunding as a means of finance?

A

Investors will need to be offered a return; this
might be free use of the good or service produced
or a share in the profits. Some schemes will also
provide shares, which dilutes the control of the
original owners of the business

Risk that there will be a limit to the amount of
money investors are willing to invest

The business idea may not be of interest and
attract little finance; time and money spent
organising the crowdfunding campaign will be lost

68
Q

What is retained profit as a means of finance?

A

When a business has worked out its profits, the owners or
shareholders can decide whether to take the profits for
themselves or reinvest the profits back into the business.

69
Q

What are some benefits of retained profit?

A

A cheap form of finance, as no interest has
to be paid

Flexible – business owners have complete
control over how any profits are reinvested
and the proportion that is kept in the
business, rather than paid out as dividends

Retained profits do not dilute or reduce the
ownership of the organisation. For
companies, there is no risk of a takeover

70
Q

What are drawbacks of using retained profit as a source of finance?

A

If a business needs some temporary finance
because it is facing difficulties, then it is unlikely
to have any profits that it can use

Growth may be slow if it is dependent on retained
profits, as profits may not be high enough to
finance the growth quickly

Using too many profits in the business, may upset
shareholders who may feel that their dividend
payments are too low

71
Q
A

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