Business key words UNIT 5:

Start-up Capital

The finance needed by a new business to pay for essential equipment and premises before trading begins

Working Capital

The finance needed for day-to-day expenses; it is calculated as current assets minus current liabilities

Capital Expenditure

Spending on non-current (fixed) assets that are expected to last for more than one year

Revenue Expenditure

Spending on day-to-day items (e.g., wages and materials) that are consumed immediately or quickly

Internal Finance

Finance obtained from within the business’s own resources, such as retained earnings or the sale of unwanted assets

External Finances

Finance obtained from sources outside the business, such as bank loans or venture capital

Retained Earnings

Profit kept within the business after tax and dividends to finance future activities

Trade Credit

An agreement allowing a business to buy goods now and pay the supplier at a later date

Debt Factoring

Selling claims on money owed by customers (trade receivables) to a third party to gain immediate cash

Hire Purchasing

Buying an asset by making regular payments over time, where the business owns the asset after the final payment

Leasing

A contract allowing a business to use an asset in return for regular payments without having to purchase it

Share Capital

Permanent finance raised by selling shares in a company to external investors

Debentures

Long-term loans issued by a company that pay a fixed rate of interest for a specific period

Venture Capital

Finance provided by specialist investors for high-risk, high-potential start-ups in exchange for an equity stake

Microfinance

Providing very small loans to poor entrepreneurs who cannot access traditional commercial banks

Crowd Funding

Raising finance from a large number of people who each invest a small individual amount online

Cash Flow

The movement of cash into (inflows) and out of (outflows) a business over a specific period

Net Cash Flow

The difference between a business's total cash inflows and total cash outflows in a given period

Liquidity

A measure of how easily a business can meet its short-term debts and liabilities

Direct Costs

Costs that can be specifically identified with a particular unit of production or cost centre

Indirect Costs

Costs that cannot be easily linked to one product and are incurred by the whole business. (Overheads)

Marginal Cost

The cost incurred by a business when producing one additional unit of output

Full Costing

A costing technique that allocates all costs, including both direct costs and a proportion of all indirect overheads, to each product or unit produced by a business

Contribute Costing

The technique of only allocating direct (variable) costs to a product and then calculating how much each unit "contributes" toward covering fixed overheads

Contribution

The amount each unit sold pays towards fixed costs; calculated as selling price minus variable cost

Break-even point

The level of output where total revenue equals total costs, resulting in zero profit.

Margin of safety

The amount by which a business's current output level exceeds the break-even point

Cost Centre

A section of a business (e.g., a department) to which costs can be specifically allocated

Profit centre

A section of a business to which both costs and revenues can be allocated to calculate profit

Budget

A financial plan for the future that establishes targets for revenue or costs over a specific period

Incremental Budgeting

Setting a budget by using last year's figures as a base and adjusting them for changes

Zero Budgeting

A method where every department must justify its entire budget request from a base of zero

Flexible Budgeting

Setting budgets that adjust automatically based on the actual level of output achieved

Variance

The difference between a budgeted figure and the actual figure achieved at the end of a period

Adverse Variance

A difference that reduces profit compared to the budget (e.g., higher costs or lower revenue)

Favourable Finance

A difference that increases profit compared to the budget (e.g., lower costs or higher revenue)