1.3

• Business aims are the long-term aspirations of an organization
• Business objectives are specific, measurable, achievable, relevant, and time-bound targets (SMART targets) that must be achieved to realize those aspirations
• Aims and objectives align the efforts of all employees towards a common vision and ensure that everyone is working towards the same goals
• They are critical for businesses to function effectively and achieve long-term success
• Common business aims & objectives for start-ups include financial objectives like survival and social entrepreneurship, and non-financial objectives like personal satisfaction and challenge
• Business aims and objectives can vary significantly between different businesses due to factors like industry, size, culture, ownership structure, and geographic location
• Sales revenue is the value of the units sold by a business, calculated as selling price x number of units sold
• Fixed costs (FC) are costs that do not change as the level of output changes, e.g., building rent, management salaries, insurance
• Variable costs (VC) are costs that change directly with the output, e.g., raw material costs, wages of workers directly involved in production
• Total costs (TC) = total fixed costs (TFC) + total variable costs (TVC)
• Total variable cost (TVC) = variable cost (VC) × quantity (Q)
• Cost Calculations:

  • Output (Q)
  • FC
  • TVC = $60 x Q
  • TC = TFC + TVC
• Variable cost in £ for each candle:

  • Step 1: Identify the variable costs in the list
  • Step 2: Total the variable costs listed
  • Step 3: Express the answer in £ per Candle = £2.65
• Reducing costs:

  • Fixed costs may be reduced by relocating to cheaper business premises, reducing salaries for workers, spending less on promotional activities, or seeking lower-priced utilities providers
  • Variable costs may be reduced by sourcing cheaper materials, buying raw materials and components in bulk, or outsourcing distribution and packaging to a third party business
• Profit types:

  • Profit is the money left over after all costs have been accounted for
  • Two types of profit: Gross Profit (GP) and Net Profit (NP)
• Gross Profit Margin:

  • Shows the proportion of revenue turned into gross profit
  • Calculated as Gross Profit / Sales revenue × 100
• Breakeven Point:

  • The breakeven point is the number of units that need to be sold for total costs to equal the sales revenue
  • Breakeven point in units = Fixed Cost / (Selling price − variable cost)
• A break-even chart visually represents the break-even point and helps identify when total revenue equals total costs
• Total costs consist of fixed and variable costs, with fixed costs remaining constant as output increases
• Revenue increases with output, crossing the total costs line at the break-even point
• The margin of safety is the difference between actual or budgeted sales and break-even sales
• Businesses prefer a large margin of safety to ensure continued profit even if demand drops unexpectedly
• Cash flow forecasts predict cash inflows and outflows over a period, crucial for business financial planning
• Net cash flow is calculated by subtracting total outflows from total inflows
• Opening balance is the previous month’s closing balance carried forward, while the closing balance is the opening balance plus the net cash flow
• A cash flow forecast example shows the anticipated cash inflows and outflows over a three-month period
• Analysis of cash flow forecasts helps businesses make informed decisions about financial strategies like arranging overdraft facilities
• The net cash flow is expected to be £1,210 (£5,100 - £3,890)
• The closing balance is expected to be £1,770 (£1,210 + £560)
• In March, the closing balance from February becomes the opening balance
• The business expects sales of £3,100 as its total inflows in March
• Total outflows in March are expected to be £3,940
• The net cash flow in March is expected to be -£840 (£3,100 - £3,940)
• The closing balance in March is expected to be £930 (-£840 + £1,770)
• In a cash flow forecast, the closing balance for a month is the opening balance for the next month