1.3 Business gcse edexel

• What is a Businesses financial aim when starting up?

  financial aims and objectives: survival, profit, sales, market share, financial security​
• Non financial aims for a business when starting up?

  non-financial aims and objectives: social objectives, personal satisfaction, challenge, independence and control ​
• Define Profit:

  Profit = Total revenue - Total costs
• what is the point of having business objectives?

  setting targets the business can work to achieve

  Provide a clear focus for the business
• What is the definition for revenue?

  The money coming into business.
• What is the calculation for revenue?

  Revenue = number of items sold x the selling price
• how to calculate costs in a business?

  Total costs = variable cost + fixed cost
• What is the calculation for business?

  total amount repaid-principal/principal x 100
• what is the break even point?

  The point at which costs and revenue are equal ( no profit or loss is made)
• How do you calculate Margin of safety?

  margin of safety = actual output - break even output
• what is the margin of safety?

  The amount sales can fall before a break even point
• What are 2 advantages of break even?

  Allows businesses to calculate the minimum number of sales needed to make  a profit

  Can predict the outcome if variables such as cost or price change
• What are 2 disadvantages of break even?

  Only shows how many sales are needed. It doesn’t do anything towards achieving them

  New entrepreneurs will find it difficult to accurately predict costs or revenues​
• When insolvency occur in a business?

  Insolvency can occur when a business does not have enough cash to pay its debts by their due date.
• what is a cashflow forecast?

  cash flow forecasting involves predicting the future flow of cash in to and out of a business’ bank accounts. A cash flow forecast will usually be for a 12-month period.
• what is an overdraft and what can it be used for?

  The facility to overspend on a current account up to an agreed sumThe business in effect can withdraw money from the account that is not there meaning they go overdrawn or in the red​
• Advantages of an Overdraft?

  • Only borrowed when required allowing flexibility​
  • Only pay for the money borrowed​
  • Quick and easy to arrange​
  • No charges for paying off the overdraft
• Disadvantages of an Overdraft?

  • The bank can call it in at any time​
  • Only available from a current bank account​
  • Interest payments tend to be variable making it more difficult to budget​
  • Banks may secure the overdraft against the business’ assets​
• What is trade credit?

  • paying suppliers a period of time after the goods or services have been received​
  • In effect the supplier is providing the business with finance for the period of the trade credit e.g. 30 days
  • The business may lose out on discounts offered for immediate or quick payment increasing costs ​
• Disadvantages of trade credit?

  • Higher prices of raw materials
  • Under worst circumstances, one may lose the supplier as well
  • Administration cost
  • only works with a supplier you've been going to for a long time
• Advantages of trade credit?access to supplies without immediate payment

  no interest
• what is venture capital?

  • Investment from an established business into another business in return for a percentage equity in the business ​Also known as private equity finance
• What is an advantage of venture capital?

  • gain money quickly
  • potential to raise huge amount of money
  • they may offer advice and help
• Disadvantages of venture capital?

  • owner must give away part of the business
  • they may have a different vision for the business than the owner does
• what is share capital?

  finance raised from the sale of shares

  a form of equity capital, the shareholder becomes a part of the business
• Advantages of a loan?

  Quick and easy to secure

  fixed interest rate

  Improved cash flow

  borrower retains part of a company
• Disadvantages of a loan?

  interest must be repaid regardless of financial performance

  a firm normally provides security known as collateral

  often more expensive

  a penalty can be charged for early repayment
• What is retained profit?

  kept within a business from profit for the year to help finance future activities
• Name one advantage of Retained profit?

  Avoids interest repayments