Putting a business idea into practice

Question 1

Financial objectives

Answer 1

Targets expressed in money terms such as making a profit, earning income or building wealth.

Question 2

SMART

Answer 2

Specific, measurable, achievable, realistic and timed

Question 3

Revenues
Sales Revenue
Turnover
Sales Turnover

Answer 3

The amount of income received from selling goods or services over a period of time

Question 4

Total Revenue

Answer 4

TR = P x Q

Total Revenue = Price x Quantity

Question 5

Sales volume

Answer 5

The number of items or products or services sold by a business over a period of time.

Question 6

Fixed costs

Answer 6

Costs which do not vary with the output produced such as rent, business rates, advertising costs, administration costs and salaries.

Question 7

Total costs

Answer 7

All the costs of a business; it is equal to fixed costs plus variable costs.
TC = FC + VC
Total Costs = Fixed Costs + Variable Costs

Question 8

Variable costs

Answer 8

Costs which change directly with the number of products made by a business such as the cost of buying raw materials.

Question 9

Profit

Answer 9

Occurs when the revenues of a business are greater than its costs over a period of time.
TR - TC = P

Question 10

Cash flow

Answer 10

The flow of cash into and out of a business

Question 11

Inflow

Answer 11

The cash flowing into a business, its receipts

Question 12

Outflow

Answer 12

The cash flowing out of a business, its payments

Question 13

Net Cash Flow

Answer 13

The receipts of a business minus its payments

Inflows – Outflows = Net Cash Flow

Question 14

Insolvency

Answer 14

When a business can no longer pay its debts

Question 15

A prediction of how cash will flow through a business in a period of time in future

Answer 15

Cash Flow Forecast

Question 16

Opening Balance

Answer 16

The amount of money in a business at the start of the month

Question 17

Closing balance

Answer 17

The amount of money in a business at the end of the month

Question 18

Trade credit

Answer 18

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

Question 19

Stocks

Answer 19

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.

Question 20

Long term finance

Answer 20

Sources of money for businesses that are borrowed or invested typically for more than a year e.g Mortgage, Venture Capitalist

Question 21

Short term finance

Answer 21

Sources of money for businesses that may have to be repaid with immediately or fairly quickly, such as an overdraft, usually within a year.

Question 22

Personal Savings

Answer 22

Money that has been set aside and not spent by individuals and households.

Question 23

Share Capital

Answer 23

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

Question 24

Shareholders

Answer 24

The owners of a company

Question 25

Venture Capitalist

Answer 25

An individual or company which buys shares in what they hope will be a fast growing company with a long term view of selling the shares at a profit.

Question 26

Loan

Answer 26

Borrowing a sum of money which has to be repaid with interest over a period of time, such as 1-5 years.

Question 27

Security (or collateral)

Answer 27

Assets owned by a business which are used to guarantee repayments of a loan; if the business fails to pay off the loan, the lender can sell what has been offered as security.

Question 28

Mortgage

Answer 28

A loan where property is used as security.

Question 29

Dividend

Answer 29

A share of the profits of a company received by shareholders who own shares.

Question 30

Retained Profit

Answer 30

Profit which is kept back in the business and used to pay for investment in the business.

Question 31

Leasing

Answer 31

Renting equipment or premises.

Question 32

Overdraft

Answer 32

Borrowing money from a bank by drawing more money than is actually in a current account. Interest is charged on the amount overdrawn

Question 33

Factoring

Answer 33

A source of finance where a business is able to receive cash immediately for the invoices it has issued from a factor, such as a bank, instead of waiting the typical 30 days to be paid.