Business 1.3.1 - 3.4

• What is an aim?

  An ultimate purpose
• What is an objective?

  A goal sought in order to achieve an aim
• What are financial aims & objectives of a business?

  Survival, profit, sales, market share & financial security
• What are non-financial aims & objectives of a business?

  Social objectives, personal satisfaction, challenge, independence & control
• Why do business aims & objectives differ between businesses?

  Due to size of a business, the level of competition and the type of business
• What is revenue and how is it calculated?

  Revenue is income earned by a business from sales

  Revenue = number of sales x sales price
• What are costs and what types are there?

  Costs are all of the expenses a business incurs (pays)

  • Fixed costs - do not vary as company changes output
  • Fixed costs = total costs - total variable costs
  • Variable costs - change directly with output
  • Variable costs = total costs - total fixed costs
• What is profit & how is it calculated?

  Profit is the amount of money a business makes

  Profit = total revenue - total costs
• How do we calculate average unit cost?

  Total cost / output
• What is interest & how is it calculated?

  Interest is known as the added value on a loan

  Interest = total repayment - borrowed amount / borrowed amount x 100
• What is break-even & how is it calculated?

  Break-even is the amount of sales when a business' revenue is equal to the total costs of a business

  Break-even = fixed costs / (sales price per unit - variable cost per unit)
• What is the margin of safety & how is it calculated?

  Margin of safety is how much output would have to fall by until the business reached the break-even level of output

  Margin of safety = actual or budgeted output - break even point
• What is the importance of cash to a business?

  • Pay suppliers, overheads & employees
  • Prevent business failure (insolvency)
  • difference between cash & profit
• What is cash?

  The money that a business can spend immediately
• What is cash inflow & how is it calculated?


  Cash coming into the business

  Cash inflow = net cash flow + total outflows
• What is cash outflows & how is it calculated?

  Cash going out of the business

  Cash outflows = total inflows - net cash flows
• What is net cash flows & how is it calculated?

  Net cash flows is equal to cash inflows minus cash outflows

  Net cash flows = total cash inflows - total cash outflows
• What is the opening balance & how is it calculated?

  Amount of cash that a business starts to trade with

  Opening balance = closing balance of previous period
• What is the closing balance & how is it calculated?

  Amount of cash that a business finishes trading with

  Closing balance = opening balance + net cash flow
• What are examples of cash flow problems?

  Problems with payments with suppliers, employees & creditors
• What are solutions to cash flow problems?

  • Increasing cash inflows via increasing sales
  • Reduce cash outflows via delaying payment of bills
  • Overdrafts allow a business to have a negative current account balance in a short-term
  • Rescheduling cash payments via trade credits
  • Finding new sources of finance to overcome liquidity problems
• What are sources of short term finance?


  Trade credit - when firms pay suppliers at a later date

  Hire purchases - when a business buys something & instead of paying upfront they make instalments

  Overdraft - when a business spends more than the amount of cash they have in their current account
• What are sources of long term finance?


  Retained profit - profit that has been saved whilst operating

  Venture capital - when experienced business people with access to large amounts of capital offer investment for a portion of the company in return

  Loans - when a business borrows money from the bank but has to pay back with interest on the money borrowed

  Personal saving - money invested by owner of company
• What are sources of long term finance (continued)?

  Crowdfunding - encouraging investors to put in small amounts of money into a business

  Share capital - when a firm sells some of its shares to other people in exchange for a percentage of the company in return.