Flashcards in Theme 1.3 Deck (51)
What is a business aim?
A business aim is what a business wats to achieve
What is a business objective?
A business objective is how the business will achieve its aims. They should be a set of measurable targets which a business can set and revisit to find out how well they are doing.
What are the two types of aims and objectives?
Financial and Non-Financial
Give examples of Financial Aims
Survival (Especially at start-up), Maximise Profit (difficult at first), Increase Market Share (control the market with your product), Maximise Sales (increases market share) and Financial Security (pay off debt in loans and go beyond break even).
Give some examples of Non-Financial Aims
Accomplishing a personal challenge (some people want the challenge of setting up and running a business), Achieving Personal Satisfaction (satisfaction that comes with owning a business, especially if it allows them to pursue an interest), Gaining Independence and Control (Being your own boss, control over decisions and how to work, flexible working hours) and Doing what is right for society (moral, environmental, eco-friendly, helpful to elderly).
What are the different factors that affect the aims and objectives of a business?
The size and age of the business (Many small and new businesses may focus on survival and growth. Larger firms may focus on increased profit and market share), Who owns the business (for small businesses owned by only one or a small number of people, non-financial aims such as personal satisfaction may be more important than increasing market share but for larger businesses with many shareholders, there may be aims and objectives on how to maximise profit so shareholders get more money), The level of competition (If competition is high, a business may focus on survival or maximising sales but if there is low competition, then increasing market share may be the main aim).
What is revenue?
Revenue is the income earned by the business.
What are fixed costs?
Fixed costs don't vary with output. They have to be paid even if the business produces nothing. Eg. Rent, salary, insurance. These fixed costs are only fixed over a short period of time as an expanding business's fixed costs will go up.
What are variable costs?
Variable costs increase as the firm expands output. Eg. raw materials, factory labour, running machinery.
What is the formula for total variable cost?
Quantity sold x variable cost per unit
What is the formula for total costs?
Total Costs = Total variable costs + Total fixed costs
What is interest?
Interest is a charge which is incurred for borrowing money.
What is the formula for interest?
Interest = (Total repayment - Borrowed Amount) / Borrowed Amount x 100
What is profit?
Profit is the difference between revenue and costs over a period of time. Profit = Revenue - Costs.
What is the break-even point (break-even level of output)?
The level of sales a firm needs in order to just cover the costs.
What are the two ways break-even point can be measured?
The number of units a firm needs to sell to break even or the revenue the firm needs to cover its costs.
What is the formula for break-even point in units?
Fixed Cost / (Sales Price per unit - Variable Cost per unit)
Break-even point for revenue
Break-even point for revenue (or costs) = Break-even point in units x Sales price
What is the margin of safety?
The gap between the current level of output and the break-even output.
What is the equation for margin of safety?
Margin of safety = actual sales (or budgeted sales) - break-even sales
What does a break-even diagram show?
It has the number of sales or output on the x-axis and costs and revenue on the y-axis. It is also useful for seeing how changes in revenue and cost may affect the break-even output
What is the impact when revenue increases?
It is likely to have a positive impact on the business as long as costs remain the same. Increased revenue can lead to increased profit however if the costs rise at the same time as revenue rises, this could reduce any profit made from the increased revenue.
What is the impact if revenue decreases?
When revenue decreases, it is likely to have a negative impact on the business, unless costs also decrease at the same time. A business must try to do everything to reduce costs.
What is cash?
The amount of money a business has in its bank account that it can spend immediately.
Why is cash important to a business?
A business must have enough money in its bank to pay its regular bills and any money it owes. A business without cash or reliable cash flow will fail, even if it is making a profit.
Why can managing cash flow sometimes be difficult?
Not all customers pay at the point at which they receive the products or services. They may be sent an invoice which they are expected to pay once they receive it. They may also have a credit arrangement allowing them to pay for a product or service within a certain time limit.
Why is it important to pay suppliers?
A supplier is responsible for ensuring that raw material or products arrive on time and in perfect condition to be used or sold. The supplier will do this only if they are paid on time.
What are Overheads?
Fixed costs that come from running an office, factory or shop, which are not affected by the number of specific products or services that are sold.
Why is it important to pay overheads?
Failure of paying overheads such as electricity and rent could lead to these things being withdrawn which could lead to business failure.