Business Unit 2 IAL Edexcel

Business Plan

A written document outlining a business’s aims, strategy, financial forecasts, and operations, used to guide decision-making and secure finance.

Owner’s Capital

Personal funds invested by the owner into the business, often used at start-up to avoid debt.

Retained Profit

Profit kept in the business after tax and dividends, used to fund growth or act as a reserve.

Sale of Assets

Raising finance by selling unused or non-essential fixed assets to improve cash flow.

Peer-to-Peer Funding

Borrowing money from individuals via online platforms, bypassing traditional banks.

Business Angels

Wealthy individuals who invest in start-ups for equity, often offering expertise too.

Crowdfunding

Raising small sums from many people online, often offering equity or rewards in return.

Loan

Borrowed money repaid over time with interest, usually from a bank.

Share Capital

Money raised by issuing shares in a limited company to external investors.

Venture Capital

Investment in high-risk businesses in exchange for equity and strategic input.

Overdraft

Short-term borrowing by withdrawing more than is in the bank account.

Leasing

Renting equipment or property long-term without owning the asset.

Trade Credit

Buying goods or services now and paying the supplier at a later date.

Grant

Non-repayable funding from government or organisations, often with conditions.

Sole Trader

A business owned and run by one person with unlimited liability.

Partnership

A business owned by 2–20 people sharing responsibility, profits, and liabilities.

Private Limited Company (Ltd)

A company with limited liability and private shareholders.

Public Limited Company (plc)

A large company with limited liability and publicly traded shares.

Franchise

A licensed business model where a franchisee operates under an existing brand.

Social Enterprise

A business that aims to make profit while achieving social or environmental goals.

Lifestyle Business

A business created to support the owner’s preferred lifestyle and interests.

Online Business

A business that operates primarily over the internet.

Limited Liability

Business owners are only liable for debts up to the amount they invest.

Unlimited Liability

Owners are personally responsible for all the business’s debts.

Sales Volume

The number of units of a product sold in a given period.

Sales Revenue

Total income from sales, calculated as price × quantity sold.

Fixed Costs

Costs that stay the same regardless of output level.

Variable Costs

Costs that change directly with production output.

Total Costs

The sum of fixed and variable costs incurred by a business.

Average Costs

Total costs divided by the number of units produced.

Sales Forecast

An estimate of future sales based on market trends and data.

Consumer Trends

Changes in customer preferences that influence demand.

Economic Variables

Factors like interest rates or inflation affecting business performance.

Actions of Competitors

Strategies by rival firms that influence market conditions.

Contribution

Selling price minus variable cost per unit, used to cover fixed costs.

Break-even Point

The level of output where total revenue equals total costs.

Margin of Safety

The difference between actual and break-even output.

Break-even Chart

A graph showing costs, revenue, and break-even output.

Cash Flow Forecast

A prediction of cash inflows and outflows over a period.

Use of Cash Flow Forecast

Helps avoid cash shortages and plan for borrowing.

Limitations of Cash Flow Forecast

Can be inaccurate if assumptions are incorrect.

Budget

A financial plan showing expected income and expenditure.

Historical Budget

A budget based on previous financial data.

Zero-Based Budget

A budget built from scratch, requiring justification of all expenses.

Variance Analysis

The comparison of budgeted figures to actual performance.

Difficulties of Budgeting

Includes inaccuracy, rigidity, and conflict over targets.

Gross Profit

Revenue minus the cost of goods sold.

Operating Profit

Gross profit minus operating expenses.

Profit for the Year

Profit left after interest and tax deductions.

Gross Profit Margin

Gross profit as a percentage of sales revenue.

Operating Profit Margin

Operating profit as a percentage of sales revenue.

Net Profit Margin

Profit for the year as a percentage of revenue.

Profitability

The ability of a business to generate profit.

Liquidity

The ability of a business to meet short-term financial obligations.

Current Ratio

Current assets divided by current liabilities.

Acid Test Ratio

Current assets minus inventory, divided by current liabilities.

Working Capital

The difference between current assets and current liabilities.

Improving Liquidity

Can be done by cutting costs, delaying payments, or increasing inflows.

Overtrading

Expanding too quickly without enough working capital.

Business Failure

When a business cannot continue due to financial issues.

Internal Causes of Failure

Poor cash flow, bad marketing, or poor inventory control.

External Causes of Failure

Market conditions, competition, or economic changes.

Job Production

Producing one-off, specialised items for each customer.

Batch Production

Producing groups of identical products in set quantities.

Flow Production

Continuous production of standardized items, often on an assembly line.

Cell Production

Teams work on a product in stages, combining flow and flexibility.

Productivity

Output per unit of input over a period.

Efficiency

Producing at minimum cost without wasting resources.

Labour-Intensive

Production relying more on human labour than machinery.

Capital-Intensive

Production relying more on machinery than human labour.

Capacity Utilisation

Actual output as a percentage of maximum possible output.

Under-Utilisation

Using less capacity than available, wasting resources.

Over-Utilisation

Operating beyond capacity, risking quality and worker stress.

Improving Capacity Utilisation

Increase demand or reduce maximum output.

Inventory Control Diagram

A chart showing stock levels and reorder points.

Buffer Inventory

Extra stock held to avoid running out.

Poor Inventory Control

Leads to stockouts, waste, and increased costs.

Just-in-Time (JIT)

A system that reduces inventory by ordering only when needed.

Waste Minimisation

Reducing unnecessary use of materials and time.

Lean Production

Efficient production using minimal resources.

Quality Control

Inspecting products at the end of production.

Quality Assurance

Ensuring quality at every stage of production.

Quality Circles

Employee groups who meet to suggest improvements.

TQM

Total Quality Management involving all staff in quality improvement.

Kaizen

Continuous improvement through small, ongoing changes.

Inflation

A sustained rise in general price levels over time.

Exchange Rate

The value of one currency in terms of another.

Interest Rate

The cost of borrowing money or return on savings.

Taxation

Compulsory charges by the government on income and business.

Government Spending

Public sector expenditure influencing business demand.

Business Cycle

The fluctuations in economic activity over time.

Consumer Protection

Laws ensuring fair treatment and safety for consumers.

Employee Protection

Legislation safeguarding workers’ rights and conditions.

Environmental Protection

Laws to reduce business harm to the environment.

Competition Policy

Rules to prevent unfair competition and monopolies.

Health and Safety

Regulations to protect employee wellbeing at work.

Intellectual Property Rights

Legal rights protecting inventions, brands, or creations.

Number of Competitors

Refers to how many rivals exist in a market.

Size of Competitors

Describes whether rivals are large, small, or dominant.

Behaviour of Competitors

Actions taken by rivals, e.g. pricing or advertising.