1.3 Putting business ideas into Practice

• aims and objectives -- states overall purpose of the business (the long term goal), general description of the overall aims of the business, specific measurable targets to help meet the aims of a business
• financial objectives -- survival, profit, market share, sales, financial security
• non financial objectives -- social objectives, personal satisfaction, independence and control
• purpose of setting objectives -- direction (clear objectives allow businesses to decide on the direction it should take)
• purpose of setting objectives -- focus for employees (important that all employees follow the business objectives to increase efficiency)
• purpose of setting objectives -- allows planning ( business plan will be designed so that the business objectives can be met), clear objectives allow for consistent planning
• role of objectives in running a business -- size of business (customer satisfaction, ethics,etc.), level of competition (profit, customers, etc.), type of business (survival, social, ethics, etc.)
• Breakeven shows how many units a firm needs to produce and sell in order to cover costs. Point at which total costs equal total revenue and therefore where no profit or loss is made
• revenue = total costs
• breakeven is useful to identify the level of output needed, can act as a target
• breakeven is useful to assess the impact of changes on the breakeven point
• breakeven is useful to support an application for a loan/investors
• breakeven formula = fixed costs / contribution
• breakeven by table

  
• breakeven by graph -- should label axess (vertical - revenue & costs in £s; horizontal - output/quantity), 3 lines to be added (fixed costs; total costs; total revenue)
• margin of safety -- number of units you are producing over and above the breakeven point
• breakeven pro: provides target, shows margin of safety, graphs are visual, illustrates effects of changes on breakeven, profit/loss can be viewed at different levels of production, investors/banks etc. will look for breakeven in your business plan
• breakeven cons: relies on predicted data, ignores economies of scale, assume fixed costs never change, assumes output is sold, quickly out of date, easy to construct for single product firms
• revenue is the income gained by a business from selling goods/services. It is a form of cash inflow.
• Both new and established businesses will generate revenue from trading, e.g., selling goods/services. Cash inflows from non-trading sources are not classes as revenue, e.g., loans received, sale of assetc, owners capital injected into the business
• revenue = price x quantity
• total revenue rises in the direct proportion to the quantity sold.
• Costs are the spending that occurs to set up and run a business
• fixed costs - do not change in relation to output;

  variable costs - change as a result of changes in output
• fixed costs - (e.g.) rent & rates for premises, wages and salaries not linked to output, marketing costs, insurance, product development costs
• variable costs - (e.g.) raw materials, other bought in supplies, wages linked to output
• total costs = total fixed costs + total variable costs
• profit is the difference between total revenue and total costs, the reward for risks taken by entrepreneurs
• interest is the cost of borrowing and reward for saving
• cost -- interest in the cost of borrowing money, a business might borrow in the form of an overdraft, loan or mortgage. Interest paid will be a cash outflow
• reward -- interest on savings will be a cash inflow. It is a form of income but is not classed as revenue comes from selling goods and services
• Interest is the cost of borrowing and reward for saving
• Cost -- business might borrow in the form of overdraft, loan, or mortgage. Interest paid will be a cash outflow
• reward -- form of income but is not classes as revenue, as revenue comes from selling goods and services
• Interest — cost of borrowing and reward for saving
• Cost — business might borrow in the form of an overdraft, loan or mortgage; interest paid will be a cash outflow
• Reward — form of income but it not classed as revenue, as revenue comes from selling goods/services
• Interest on loans (%) = (total repayment - borrowed money) / borrowed money x 100
• Cash — lifeblood of a business; without cash business (most of the time) will fail; few businesses have unlimited cash so needs to be managed carefully
• Cash is used to pay suppliers, overheads, and employees