BUSINESS A-LEVEL - THEME 2

Key terms for theme two of business a-level course

Economic Variables

Features of an economy which have an affect on business and consumers (e.g unemployment, inflation and exchange rates)

Internal Finance

The raising of finance/capital from within the business. (E.g Personal savings, retained profit, selling of shares)

Personal savings

Also called owners capital. A source of internal finance which is provided by the business’s owner

Retained profit

Profit kept overtime which is reinvested into the business

Sale of Assets

A type of internal finance involving the selling of assets which belong to a business

Bank Loan

An external method of gaining finance where money is borrowed from a bank which will be paid back with interest

Business angels

Individuals who invest into a business in exchange for a stake in shares

Crow funding

An external source of finance where a large number of individuals provide funding for a business or it’s project. Usually in return for shares, free products or discounts

External finance

Money raised from outside business

Grant

A sum of money given by a government or other organisation. It doesn’t need to be repaid or have interest charged.

Leasing

A contract which acquires the use of resources such as property or equipment

Loan

An external source/method where money is borrowed, it is usually repayable after a fixed term of 12+ months

Overdraft

When a business has a negative balance in their bank account because the amount withdrawn is greater than their current balance

Peer-to-peer funding

When a person lends money to other individuals or business via online transactions

Trade credit

When a firm receives stock/inventory/raw material from a supplier, which doesn’t have to be paid until later

Share capital

The finance raised through a business issuing/selling shares

Venture Capital

An external source of finance where shares are sold to a small number of investors in return for capital interjection into the company

Liability

The obligations/responsibilities/debts which fall upon the business and its owners

Limited liability 

The obligation of a shareholder/investor for their debts of a business is limited to the value of their investment

Unlimited liability

The obligation of a business owner to cover ALL debts of the business

Business plan

A document giving details of a variety of aspects about the business in order to provide a strategic look at the business and to attract investors. It contains details such as the product, costs, revenues, cashflow forecasts

Cash flow

The movement of cash into and out of a business over a period of time

Cash inflow

The flow of cash into a business

Cash outflow

The flow of cash out of a business

Cashflow Forecast

The predicted flow of cash into and out of a business over a period of time

Closing Balance

Cash left in the account at the end of the month.

Net Cashflow

The difference between cash flowing in and out of a business over a period of time

Opening Balance 

Cash in bank at the start of the month

Net cashflow (formula)

Total Cash Inflows - Total cash outflows

Closing Balance (formula)

Net-Cashflow + Opening Balance

Consumer Trends

Habits or behaviour of those involved in the use of goods and services

Economic Uncertainty

When firms/consumers are unable to predict their future sales/income and costs

Sales Forecast

A prediction of the expected level of sales volume/revenue for a business for a future period

Average Cost

The cost of producing one unit

Average Cost (Formula)

Total costs/Output

Fixed costs

Costs that do not changes when output/sales changes

Revenue

The amount of income for a business generated from it’s sales.

Revenue (Formula)

Selling price x Quantity sold

Total costs

Total fixed costs + Total variable costs

Variable costs

Costs that vary according to the level of output

Sales Volume

The number of units sold by a business

Sales Revenue

The volume of the units sold by a business

Fixed Costs

Costs which don’t change with output

Total Variable Costs (formula)

Variable costs x Quantity

Variable Cost per unit (formula)

Total variable cost / Quantity

Break-Even

The level of output where the total revenue is equal to total cost

Unit Contribution

The difference between the selling price and the variable cost per unit

Contribution per unit (formula)

Selling Price - Variable cost per unit

Total Contribution (formula)

Contribution Per Unit X Quantity of units sold

Margin of safety

The difference between the current/planned level of output/sales and the break even level of output