Topic 1.3 - Putting a business idea into practice

Aims

A general statement of where you're heading, for example 'to get to university'

Market share

The percentage of a market held by one company or brand

Objectives

A clear, measurable goal, so success or failure is clear to see

SMART objectives

Targets that are specific, measurable, achievable, realistic and time-bound

Survival

Keeping the business going, which ultimately depends on determination and cash

Fixed costs

Costs that don't vary just because output varies, for example rent

Profit

The difference between revenue and total costs; if the figure is negative the business is making a loss

Revenue

The total value of the sales made within a set period of time, such as a month

Total costs

All the costs for a set period of time, such as a month

Variable costs

Costs that vary as output varies, such as raw materials

Sales revenue formula

price × quantity sold

Total costs formula

variable costs + fixed costs

Profit formula

total revenue - total costs

Interest

The charges made by banks for the cash they have lent to a business, for example six per cent per year

Break-even chart

A graph showing a company's revenue and total costs at all possible levels of output

Break-even

The level of sales at which total costs are equal to total revenue. At this point the business is making neither a profit nor a loss

Margin of safety

The amount by which demand can fall before the business starts making losses

Break-even output formula

fixed costs / (price - variable costs per unit)

Margin of safety formula

Sales - break-even output

Cash

The money the fi rm holds in notes and coins, and in its bank accounts

Cash flow

The movement of money into and out of the fi rm's bank account

Insolvency

When a business lacks the cash to pay its debts

Overdraft

The amount of the agreed overdraft facility that the business uses

Overdraft facility

An agreed maximum level of overdraft

Cash flow forecast

Estimating the likely flows of cash over the coming months and, therefore, the overall state of one's bank balance

Closing balance

The amount of cash left in the bank at the end of the month

Negative cash flow

When cash outflows are greater than cash inflows

Net cash flow

Cash in minus cash out over the course of a month

Opening balance

The amount of cash in the bank at the start of the month

Crowdfunding

Raising capital online from many small investors (but not through the stock market)

Dividends

Payments made to shareholders from the company's yearly profits. The directors of the company decide how large a dividend payment to make; in a bad year they can decide on zero

Retained profit

Profit kept within the business (not paid out in dividends); this is the best source of fi nance for expansion

Share capital

Raising finance by selling part ownership in the business. Shareholders have the right to question the directors and to receive part of the yearly profits

Trade credit

When a supplier provides goods but is willing to wait to be paid - for perhaps up to three months. This helps with cash flow

Venture capital

A combination of share capital and loan capital, provided by an investor willing to take a chance on the success of a small to medium-sized business