Business Aims & Cash Flow

Aims are long-term goals; objectives help attain these aims.

Maximizing Profit: Income must exceed costs for profitability.
Survival: At startup, covering basic expenses, eventually shifting focus to profit maximization.
Increasing Market Share: Invest in marketing to attract customers from competitors.

Maximizing Sales: Increased sales lead to greater profit and market share.
Financial Security: Achieving sufficient revenue to self-fund the business.
Personal Satisfaction: Entrepreneurs find fulfillment in managing successful businesses.
Ethical Decisions: Business practices shaped by ethical beliefs about society.
Independence: Entrepreneurs seek control over their business outcomes.

Break-Even Point: Level of output where total costs equal total revenue. Above this is the 'Margin of Safety'.
Total Costs: \text{Total Costs} = \text{Fixed Costs} + \text{Variable Costs}
Contribution per Unit: \text{Contribution per Unit} = \text{Sales Price per Unit} - \text{Variable Cost per Unit}
Break-Even Output: \text{Break-Even Output} = \frac{\text{Fixed Costs}}{\text{Contribution per Unit}}

Insolvency: The risk that a business is unable to pay its debts as they fall due, potentially leading to liquidation.
Financial Loss: The possibility that total costs will exceed total revenue, resulting in a negative profit.
Interest Rate Risk: Fluctuations in interest rates can increase the cost of servicing business loans and overdrafts.
Credit Risk: The risk that customers who have been granted credit will fail to pay, leading to bad debts and reduced cash flow.

Cash Flow: Inflow and outflow of cash within a business.
Net Cash Flow: \text{Net Cash Flow} = \text{Cash Inflow} - \text{Cash Outflow}
Positive Net Cash Flow: Inflows exceed outflows; Negative can lead to insolvency.
Cash is different from profit; a business can be profitable yet have cash issues.