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Business-Theme 1 > Topic 1.3 - Putting a Business Idea Into Practice > Flashcards

Topic 1.3 - Putting a Business Idea Into Practice Flashcards

1
Q

What is an aim?

A

The overall goal a business wants to achieve

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2
Q

What is an objective?

A

The practical step of a particular goal the business wants to achieve

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3
Q

Give some examples of financial aims and objectives for a business

A
  • Survival
  • Profit
  • Wealth
  • Income
  • Financial Security
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4
Q

Give some examples of non-financial aims and objectives for a business

A
  • Personal satisfaction
  • Challenge
  • Independence
  • Control
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5
Q

What is profit maximisation?

A

Trying to make the most profit possible

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6
Q

What Is profit satisfaction?

A

Trying to make enough profit to keep the owners comfortable

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7
Q

What is revenue?

A

The income that a business receives form it’s sales

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8
Q

How do you calculate revenue?

A

Revenue = Price x Quantity

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9
Q

What does the term ‘Income Stream’ mean?

A

The source of regular income that a business receives

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10
Q

What is a fixed cost?

A

Costs that do not vary no matter how many products or services a business sells E.g rent

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11
Q

What is a Variable Cost?

A

These costs change as output changes. If a business sells more items It will need more raw materials therefore VC will increase

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12
Q

How do you calculate total costs?

A

Total cost = Total fixed costs + Total variable costs

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13
Q

What is footfall?

A

The amount of people in a certain area

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14
Q

What does it mean when a business has monopoly?

A

They have control and dominate other shops

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15
Q

What is a profit?

A

The amount of revenue left over once costs have been deducted

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16
Q

What is an income statement?

A

A financial statement showing the amount of money earned and spent in a particular period of time

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17
Q

How do you calculate Gross profit?

A

Gross profit= Sales revenue - Cost of sales

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18
Q

How do you calculate net profit?

A

Net profit = Gross profit - other operating expenses and interest

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19
Q

What is interest?

A

When a business borrows money from a bank they will charged an interest which is a percentage of the original amount borrowed

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20
Q

How do you calculate interest?

A

Interest in % = (Total repayment - borrowed money) divided by borrowed amount x 100

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21
Q

What does the ‘break even point’ mean?

A
  • The point where revenue received meets all the costs of a business
  • The point where a business starts to make profits
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22
Q

How do you calculate the break even point in units?

A

Break-even point in units= Total fixed cost divided by(Sales price - variable)

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23
Q

How do you calculate the break even point in currency?

A

Break even point = break even points in units x sales price

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24
Q

What is the margin of safety?

A

How much sales can fall before the business break- even point is reached again

25
Q

How do you calculate margin of safety?

A

Margin of safety = actual or budgeted sales - break even sales

26
Q

How would you draw a break even diagram?

A
  • Products and services on the x axis
  • Costs and revenue on the Y axis
  • Fixed cost is drawn as a horizontal straight line
  • Revenue line
  • Variable Cost line
27
Q

What is the impact on a business if revenue increases?

A
  • Increased profit ( when costs are kept the same)

- If costs also rises as revenue rises then profit may stay the same

28
Q

What is the impact on a business if revenue decreases?

A
  • Business failure
  • Business has to reduce their costs
  • Save as much money as possible ( turning of light etc.)
29
Q

What is the impact on a business if costs increase?

A

Profits will be affected

30
Q

What is the impact on a business if costs are decrease?

A

Benefits business as they will make more money per unit sold

31
Q

What is a commodity market?

A

The physical or virtual marketplace for buying, selling and trading raw or primary products

32
Q

What happens when a business becomes insolvent?

A
  • Business is unable to pay debts owed
  • Banks are allowed to seize assets
  • Company becomes redundant
33
Q

Define cash

A

The asset that the business holds which allows it to bu supplies and pay wages

34
Q

What important decisions does cash flow allow?

A
  • taking on more staff
  • opening a new branch
  • identifying risk (run out of cash and need to borrow more money)
  • taking money out of business to invest/use as reward
35
Q

What is a receipt?

A

Written acknowledgement that a person has received money in payment following a sale or other transfer of goods/provision of a service

36
Q

What is a cash flow statement?

A

Record of the cash inflows and outflows to a business in the past

37
Q

How can you use cash flow statements?

A
  • monitor performance of business
  • compare performance from month-month/year-year
  • past cash flow can be compared with predicted cash flow
38
Q

What is net cash flow?

A

The difference between cash coming in and the cash flowing out over a period of time

39
Q

What is negative cash flow?

A

More money is going out than it is coming in

40
Q

What is positive cash flow?

A

More money is coming in than going out

41
Q

Why do businesses use cash flow forecasts?

A
  • plan future strategies
  • if they want to borrow money
  • any agency will need a cash flow forecast (part of business plan)
42
Q

How do you improve cash flow?

A
  • seek more equity capital (for a company - issuing new shares)
  • borrow money
  • delay paying bills as long as possible
  • reduce stock levels
  • sell assets like buildings
43
Q

What is liquidation?

A

When a business doesn’t have enough cash

44
Q

What is the margin of safety?

A

The amount of sales that a business needs to generate above break-even point

45
Q

What is the net cash flow equation?

A

Net cash flow = cash inflows - cash outflows in a given period

46
Q

What are some types of short term finance?

A
  • trade credit
  • overdrafts
  • credit limit
  • credit period
  • frequency of payment
  • cheque
  • retrospective discount
47
Q

Define trade credit

A

A credit arrangement that is offered only to businesses by suppliers

48
Q

Define overdraft

A

A facility offered by a bank that allows an account holder borrow money at a short notice

49
Q

Define credit limit

A

The max amount of credit that a business has with a financial institution

50
Q

Define credit period

A

The max time that a business can take to pay what is owed per month

51
Q

Define frequency payment

A

The frequency with which a business will pay a supplier

52
Q

What is method of payment?

A

The way in which the business sends the money owed to the supplier

53
Q

Define retrospective discount

A

A discount applied when the business has purchased a certain number of goods/spent a certain amount of money with a supplier

54
Q

What are the different types of long term finance?

A
  • personal savings
  • venture capital
  • share capital
  • loans
  • retained profit
  • crowdfunding
55
Q

What is venture capital?

A

Money lent by a large business or successful entrepreneur to a small start up business

56
Q

What is share capital?

A

The amount of money invested in a. Business by shareholders

57
Q

Define loan

A

Amount of money lent to an individual that will be paid off with interest over an agreed period of time

58
Q

What is retained profit?

A

Profit that is reinvested into the business

59
Q

What is crowdfunding?

A

A business obtains funding from a large number of people who pay a small amount of money to the business

Business-Theme 1 (6 decks)

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