1.3: putting a business idea into practice

• business aim


  a long-term goal that a business hopes to achieve
• business objective


  a stated measurable target that a business plans to achieve
• smart targets


  Specific

  Measurable

  Achievable

  Realistic

  Time-bound
• financial aims


  aims focused on money
• financial aims examples


  - making profits

  - increasing sales

  - gaining market share

  - financial security

  - business survival
• why would a business want to make profits?

  to secure financing from a bank, attract investors to fund its operations and grow its business
• why would a business want to increase sales?

  to make profit and help the business grow
• why would a business want to gain market share?

  to allow the business to operate on a far greater scale, leading to increased profitability
• why would a business want financial security?

  to be able to pay off all costs while still having left over money as profit or for unexpected circumstances
• why would a business want to survive?

  to operate for a certain amount of time and become established
• non-financial aims


  aims focused on values and personal motives
• non-financial aims examples


  - social purposes

  - personal satisfaction

  - challenge

  - independence/control
• what social purposes may a business have?

  ethical, political or environmental purposes
• how can personal satisfaction be achieved by running a business?


  by running a business based on personal interests
• why may a business be set up for challenge?

  to motivate an entrepreneur
• why may running a business provide the feeling of independence/control?

  allows an entrepreneur to be their own boss and potentially the boss of others
• fixed costs


  costs that do not vary with the quantity of output produced
• fixed costs examples


  rent, salary, insurance, equipment cost and market research
• variable costs


  costs that vary with the quantity of output produced
• variable costs examples


  wage, raw materials, utilities and taxes
• total costs


  the sum of the fixed and variable costs for any given level of production
• revenue


  the income a business receives from sales
• profit


  the money from the revenue left over after paying costs
• interest


  the charge on loaned money
• profit margin


  the percentage of revenue left after paying business expenses
• what are the ways to increase profit margin?

  - reducing costs

  - increasing price
• how does reducing costs increase profit margin?


  profit will increase with lower costs
• how does reducing costs affect products?

  quality will be negatively affected as less money would be put into the production of the products
• how does reducing costs affect demand?

  the quantity demanded will increase as customers are more likely to pay for lower prices
• how does increasing price increase profit margin?

  profit will increase with higher revenue
• how does increasing price affect products?

  quality will be positively affected a more money would be put into the production of the products
• how does increasing price affect demand?

  quantity demanded will decrease as customers are less likely to pay for higher prices
• break-even


  Point where total revenue equals total costs
• break-even level output


  The quantity that must be sold for total revenue to equal total costs
• margin of safety


  difference between your actual or expected profitability and the break even point
• loss is made when...

  when a business's costs are more than its revenues
• profit is made when...

  when a business' revenue exceeds its costs
• break-even chart


  a graphic presentation of the break-even analysis that shows when total revenue and total cost intersect to identify profit or loss for a given quantity sold
• cash inflow


  money into the business
• cash outflow


  money leaving the business