Topic 1.3 Putting A Business Idea Into Practice

Question 1

Business aim

Answer 1

The overall target or gaol of the business

Question 2

Objectives

Answer 2

The step a business needs to take to meet its overall aims

Question 3

Business object is are often created using SMART what does it stand for

Answer 3

S-pecific
M-easurable
A-chievable
R-ealistic
T-ime bound

Question 4

Examples of financial aims and objectives

Answer 4

Survival, profit, sales, market share, financial security

Question 5

Examples of non-financial aims and objectives

Answer 5

Social objectives, personal satisfaction, challenge, independence, control

Question 6

Why aims and objectives differ between businesses

Answer 6

Different sectors
Business size and scale

Question 7

Break-even

Answer 7

The point at which revenue and total costs are the same
The business makes neither a profit or a loss

Question 8

What does the break-even level of output tell a business

Answer 8

How many product it needs to sell to reach the break-even point\
Bellow - loss
Above - profit

Question 9

Break-even point calculation

Answer 9

Fixed costs / (selling price - variable costs)

Question 10

What is a break-even graph

Answer 10

Shows the break-even point visually
Shows: revenue, costs, number of products sold and break-even point

Question 11

What is the margin of safety

Answer 11

The amount sales can fall before the break-even point is reached and the business makes no profit

Question 12

Margin of safety calculation

Answer 12

Actual sales - break-even point

Question 13

What is revenue and calculation

Answer 13

The total value of the sales made within a set period of time
Revenue = quantity x price

Question 14

What is fixed costs and variable costs

Answer 14

Fixed costs - cost that does not vary with output e.g. rent
Variable costs - cost that varies with output e.g. raw materials

Question 15

Total costs calculation

Answer 15

Fixed costs + variable costs = total costs

Question 16

Profit calculation

Answer 16

Total revenue - total costs = profit
(If the figure is negative the business is making a loss)

Question 17

Examples of fixed and variable costs

Answer 17

Fixed : rent, appliances, electricity, salary
Variable : ingredients, boxes, fuel, wages

Question 18

Interest

Answer 18

The charges made by banks for the cash they have lent to a business e.g. 6% per year

Question 19

Interest rates

Answer 19

The annual cost of a loan to the borrower

Question 21

Cash

Answer 21

The money the business hold is notes, coins and in it’s bank accounts

Question 22

Cash in

Answer 22

Cash entering the business

Question 23

Cash out

Answer 23

Cash exiting the buisness

Question 24

Examples of cash in

Answer 24

Sales income
Loans received
Investors
Debtors payments
Government funding

Question 25

Examples of cash out

Answer 25

Taxes Loan payments Dividends to shareholders Staff salaries Raw materials

Question 26

Why is cash important to a business

Answer 26

To pay suppliers, overheads and employees To prevent business failure (insolvency) To make a profit

Question 27

Cash flow

Answer 27

The difference between the flows of cash into and out of the business over a period of time

Question 28

Cash flow forecasting

Answer 28

Predicting the future flows of cash into and out of the business bank account

Question 29

Net cash flow calculation

Answer 29

Cash in - cash out = net cash floe

Question 30

Closing balance

Answer 30

Net cash flow + opening balance = closing balance (The closing balance of one month is always the same number as the opening balance of the next month

Question 31

When is cash flow espiecally important

Answer 31

New firms Fast growing firms Erratic sales

Question 32

How can you improve negative cash floe

Answer 32

Cut stock levels Increase credit from suppliers Reduce credit to customers

Question 33

What can long term finance be used for

Answer 33

Provide start-up capital to a business Finance the purchase of assets e.g. buildings Provide money for expansion

Question 34

What can short term finance be used for

Answer 34

Get through periods of poor cash flow Bridge gaps when waiting for customers to pay Provide extra cash when more bookings come in and you need to produce more

Question 35

Sources of long term finance

Answer 35

Personal savings Share capital Loans Venture capital Retained profit Crowdfunding

Question 36

Sources of short term finance

Answer 36

Bank overdraft: seasonal, repay when cash inflows are high, repayment Trade credit: delay cash flow, interest may be charged, business may not be established enough for supplier to offer credit