Putting a business idea into practice Flashcards
Financial objectives
Targets expressed in money terms such as making a profit, earning income or building wealth.
SMART
Specific, measurable, achievable, realistic and timed
Revenues
Sales Revenue
Turnover
Sales Turnover
The amount of income received from selling goods or services over a period of time
Total Revenue
TR = P x Q
Total Revenue = Price x Quantity
Sales volume
The number of items or products or services sold by a business over a period of time.
Fixed costs
Costs which do not vary with the output produced such as rent, business rates, advertising costs, administration costs and salaries.
Total costs
All the costs of a business; it is equal to fixed costs plus variable costs.
TC = FC + VC
Total Costs = Fixed Costs + Variable Costs
Variable costs
Costs which change directly with the number of products made by a business such as the cost of buying raw materials.
Profit
Occurs when the revenues of a business are greater than its costs over a period of time.
TR - TC = P
Cash flow
The flow of cash into and out of a business
Inflow
The cash flowing into a business, its receipts
Outflow
The cash flowing out of a business, its payments
Net Cash Flow
The receipts of a business minus its payments
Inflows – Outflows = Net Cash Flow
Insolvency
When a business can no longer pay its debts
A prediction of how cash will flow through a business in a period of time in future
Cash Flow Forecast
Opening Balance
The amount of money in a business at the start of the month
Closing balance
The amount of money in a business at the end of the month
Trade credit
Where a supplier gives a customer a period of time to pay a bill (or invoice) for goods or services once they have been delivered
Stocks
Materials that a business holds. Some could be materials waiting to be used in the production process and some could be finished stock waiting to be delivered to customers.
Long term finance
Sources of money for businesses that are borrowed or invested typically for more than a year e.g Mortgage, Venture Capitalist
Short term finance
Sources of money for businesses that may have to be repaid with immediately or fairly quickly, such as an overdraft, usually within a year.
Personal Savings
Money that has been set aside and not spent by individuals and households.
Share Capital
The monetary value of a company which belongs to its shareholders, for example, if five people each invest £10,000 into a business, the share capital will be £50,000
Shareholders
The owners of a company
