What is an aim?
Aim to achieve things in the business
An overall goal that a business is trying to achieve
Small steps to achieve an overall goal
A process of thought when planning within a business
Break-even analysis allows firms to find out the minimum amount they need to sell to get by
Choose 4 non-financial aims a business may have
Accomplishing a personal challenge
Achieving personal satisfaction
Gaining independence and control
Doing what's right for society
Feeling good on a personal level
to survive within a market
Choose 5 financial aims a business may have
To survive
Maximise sales
Increase market share
Achieve financial security
Maximise profit
To gain rewards
What is an objective?
Specific steps to achieve an aim
Selling a certain amount of products
Earning a high profit
overall goals a business wants to achieve
What is a S.M.A.R.T objective ?
Specific. Measurable. Achievable. Relevant. Time Bound
Specific. Measurable. Achievable. Realistic. Time Bound
Suitable. Measurable. Achievable. Relevant. Time Bound
Suitable. Measurable. Achievable. Realistic. Time Bound
Revenue is the Income earned by a business
How do you calculate revenue?
Revenue = Quantity Sold x Price
Revenue = Price x Fixed Cost
Revenue = Quantity Sold x Variable Cost
Revenue = Quantity Sold x Fixed Cost
What is a fixed cost?
Costs that do not vary with output. They remain the same whether the business produces 100 units or 0 units
Costs you have to pay at the beginning of the business
Costs you pay every quarter
The opposite as a variable cost
What is a variable cost?
Increase with the amount of products produced and sold
The opposite as a fixed cost
Costs that are expensive
Costs that you can pay over a period of 2 months
total costs = fixed costs + variable costs
How do you calculate total variable cost?
Total Variable Cost = quantity sold x variable cost per unit
Total Variable Cost = quantity sold + total costs
Total Variable Cost = quantity sold / price
Total Variable Cost = price / quantity sold
How to calculate Interest (on loans) ?
Interest (on loans) = (total repayment - borrowed amount / borrowed amount) x 100
Interest (on loans) = total repayment - borrowed amount / borrowed amount
Interest (on loans) = (borrowed amount /total repayment - borrowed amount) x 100
Interest (on loans) = (total repayment + borrowed amount / borrowed amount) x 100
Profit = Revenue - Costs
How to calculate break-even point (in units)?
Break-even point (units) = fixed cost / selling price - variable cost
Break-even point (units) = variable cost / selling price - fixed cost
Break-even point (units) = total costs / selling price - fixed cost
Break-even point (units) = total costs / selling price - variable cost
Margin of Safety = Actual sales (or budgeted sales) - Break-even sales
The firm will use budgeted sales if it's trying to forecast its future margin of safety. The budgeted sales will be the sales the business expect to make.
One benefit of a firm knowing its margin of safety for a financial year is...
It can see how much its output can fall before the business starts running at a loss
It knows the amount of sales it will make
It knows how much revenue to expect
It knows how much revenue is needed to equal total costs
Net Cash Flow = cash inflows - cash outflows
What is cash flow ?
The process of cash flowing in and out of a business
paying money out of the business
A source of income
3 examples of cash outflows are...
Paying wages to staff
Buying equipment
Repayment of loans
Receiving a loan payment
3 examples of cash inflows are...
Government grants
Personal funds
Cash sales
Costs of making products
BEP is when total costs = total revenue
What is the margin of safety?
The number of sales above the BEP
The amount of revenue left after costs
Net cash flow
2 ways of increasing revenue are...
Increasing selling price
Increasing amount sold by promotions, offers etc.
Make more products
4 problems with cash flow forecasting?
Sales prove lower than expected
customers don't pay up on time
cost of production proves higher than expected
certain costs aren't included
It is difficult to read
5 main causes of cash flow problems?
Over spending
Getting too big too quick
Too much stock
Giving too much credit to customers
Seasonal demands
variable cost too high
location of store
5 reasons why cash flow forecasting is important?
identifies possible shortfalls in cash balance
shows if business can afford to pay suppliers and customers
spot problems with customer payments
shows bank you've planned your finances
external stakeholders (e.g. banks) may require a regular forecast
fun to make
seems to be professional
Examples of Short-term finance...
Trade Credit
Overdrafts
Short-term bank loan
retained profit
Examples of Long-term finance....
Long-term loans
Personal savings
Share Capital
Crowd Funding
Hire purchase
An overdraft allow a business to take more money out of its bank account than it has paid into it
Chose one advantage and one disadvantage of using overdrafts
Allow businesses to make payments on time even if they don't have enough cash
Have a high interest rate
If it isn't paid off, the bank can take some of the businesses assets
Have to pay back straight after next payment which will cover amount withdrawn
can withdraw as much cash as you want
Chose one advantage and one disadvantage of using personal savings as a source of finance.
Owner could end up loosing own money if the business fails
only a small amount of money
Interest free
Can buy everything straight away and expand quick
