Business Terminology and notes

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Flashcards by ciara_jessie, updated more than 1 year ago
ciara_jessie
Created by ciara_jessie about 7 years ago
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Terminology for AS Level Business Studies.

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Question Answer
Bank loan Money from a bank which you borrow and then pay back with interest
Board of directors To make major decisions that will affect the owners. Made up of directors that run the business in the interest of the owners.
Budget The money available to spend on your company (guideline)
Corporation Tax A tax that must be paid by a corporation based on the amount of profit generated
CV Curriculum Vitae; A short document that gives the main details about a candidate
Economy The management of incomes, expenditures etc. in a business
Expenditure The total amount of money a company expects to spend
Government Grant Financial help from the government which you don't have to pay back
Interest rate A percentage of the money given that has to be paid back extra
Overheads A cost which cannot be identified with a particular unit of output
Personal Savings Current disposable personal income
Gross Profit The amount of profit a business makes after direct costs have been subtracted from turnover Gross profit = turnover - costs of sales
Net Profit The amount of profit after all costs have been subtracted from turnover Net profit = gross profit - overheads
Profit and loss account A financial statement that summarises the financial transactions for a business over a period of time
Quarter of a year A three month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends
Risk A situation involving exposure to danger
Starting capital The money that is required to start a new business, whether for office space, permits, licenses, inventory, product development, manufacturing etc.
Strategy A plan of action designed to achieve a longterm or overall aim
Trading The action or activity of buying and selling goods and services
Entrepreneur A person who takes the risk in starting a new business A person who organises , operates, and assumes the risks of a business venture
Short term finance Money used to finance activities that are usually going to last less than one year. It is used to manage the day to day expenditures of the business.
Long term finance Money that will be needed for a long period of time- usually over a year, possibly for many years. It tends to be used for setting up and expanding a business.
Bank Loan Long term borrowing for high value purchases
Bank overdraft Short term- up to a certain limit of negative balance allowed
Venture Capitalist Long term- give money in return for a share in the business
Sole trader A type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business
Partnership A legal form of business operation between two or more individuals who share management and profits
Private Limited Company A type of company that offers limited liability, or legal protection for its shareholders but that places certain restrictions on its ownership
Public limited company A company which has offered shares to the general public and has limited liability. A Public Limited Company's stock can be acquired by anyone and holders are only limited to potentially lose the amount paid for the shares
Not for Profit Business A not for profit organization is a type of organization that does not earn profits for its owners. All of the money earned by or donated to a not for profit organization is used in pursuing the organization's objectives. Typically not for profit organizations are charities or other types of public service organisations.
Retained profit You use the profit from last year; 'ploughing profits back into the business'
Personal sources Sources from the owners that are used to finance the business, these can include; savings, inheritance, redundancy payments etc.
Ordinary share capital You become a limited company and sell shares to raise finance
Profit The money you are left with after you've paid your costs. Total sales - total costs Contribution - fixed costs
Cash flow The money going in and out of the business
Fixed costs Costs that you have to pay even if you do not sell or make anything
Variable costs Costs that change as your business grows
Breaking even When you have made enough money to cover all your costs- all money you make after breaking even is profit total revenue = total costs
Revenue Money made before taking way the costs selling price x quantity sold
Loss Profit Breakeven Total costs Costs > sales Sales > costs Costs = sales Fixed costs + variable costs
Contribution The difference between revenue and variable costs of production.
Total contribution Contribution per unit Total revenue - Total variable costs Contribution per unit x no. of units sold Selling price per unit- Variable costs per unit
Margin of safety Difference between break even number of output and current level of output
Breakeven output Fixed costs / Contribution per unit
Finance is needed for; -Business set up -Day to day trading -Growth and development
Key considerations with finance -How much finance is needed -When & how long finance is needed for -What security (if any) can be provided -Whether the entrepreneur is prepared to give up some control (ownership) of the start-up in return for investment
Internal investments Money from inside the business
External investments Money from outside the business
Advantages to a bank loan Disadvantages to a bank loan -More money available to borrow -Easy to plan your expenses -If you miss a payment or can't pay it back then your credit score will go down and you may get into financial trouble -Has to be secured on an asset
Advantages of bank overdraft Disadvantages -Much more flexible, can borrow at any time and any amount up to your limit -High interest rates -Bank can lower overdraft limits or ask for repayments at any time
Advantages to government assistance Disadvantages -Normally you don't have to pay any more back (grant) or you get it at cheaper rates (loan) -Selling point; proves you have set up in an area of high unemployment -Time consuming to prove your business deserves the money -Involves a lot of paperwork
Advantages to venture capitalist Disadvantages -You get a lot of money and experience -Provides the required capital for expansion -Have to give up a stake in your company (loss of ownership) -Lose some of the profits -Expensive to set up
Advantages of a sole trader Disadvantages -Simple; no structure, documentation -Finance; everything you make is yours -You get to make your own decisions -No set wage -Have to do everything; jobs that aren't your strengths -Risk; liable for all debts that come into your business meaning you can lose assets -Difficult to expand whilst staying as a sole trader (limits capital growth)
Advantages of a partnership Disadvantages -All partners have equal share in say of what happens -Share of profits -Wider range of skills -Not on your own in a problem -Self employed -Can't just do what you want -Might have different ideas about what to do -If one partner leaves, a whole partnership can dissolve -Risk; more debt per person
Advantages of a private limited liability company Disadvantages -Reduced risk; keeps business and personal lives separate. Protects assets. -If a shareholder leaves it is easier to sort out than a partner leaving -Easier to raise capital -Legal formalities; have to keep all documentation to check -More open to scrutiny; easy for rival businesses to see what is happening in your business -Less flexible; money not yours
Advantages of a public limited liability company Disadvantages -Limited liability; protects assets -Raises profile; known around -Need professional advice; expensive -More open to scrutiny -Anyone can buy shares; someone else could buy more and more shares until they have over 50%; giving them control!
Advantages of a not for profit business Disadvantages -Helps achieve ethical goals -Easier to raise money; people invest because of a conscience -Able to take limited liability status -Have to make lots of information available so people invest -When people start running out of money they stop investing -Low pay, long hours; employee stress
Advantages to retained profit Disadvantages -No interest; unlike bank loans -Lots of control of business -Doesn't cost you any extra -Good for businesses that can't persuade banks to loan them money -You have to wait for it, and earn it -Hard if your business makes a lot, especially common in early years -Owners earn less from business
Advantages to personal sources Disadvantages -Quick access to money -Handy for businesses with low credit score; they may not be able to take out a loan -Has to be secured on assets which could be repossessed -Intertwines personal life and business; meaning not only the business could go bankrupt but so could you
Advantages to ordinary share capital Disadvantages -Quick, sudden injection of lots of money. -No interest -Best way to get large amount of money to invest in the business -Lose % of the business -Lose some profits -Lose control
How can you increase sales? To increase quantity sold; -cut the price -offer volume-related incentives To achieve a higher selling price; -look to add value rather than simply increase price -does market research suggest that prices are too high or too low?
Footie & Co sells footballs priced at £7.45 each. In a month they sell 234 footballs. Calculate their sales revenue for the month. 234 x £7.45 = £1743.30
In 2010 Ahmed's Toys had a revenue of £3.2M, fixed costs of £2.75M and variable costs of £530 000. Calculate their profit (loss) for 2010. £2.75M + £530 000 = £3 280 000 £3.2M - £3.28M = (£80 000)- Loss
The Pizza Palace has fixed costs of £50 000 per annum. The variable costs are £2.35 per pizza and the average price of a pizza is £6.00. The forecast for the next 6 months is 2500 customers per month. Calculate the profit (loss) for this 6 month period. FC = £25 000 VC = £35 250 TC = £60 000 Revenue = £90 000 Profit/Loss = £90 000 - £60 250 £29 750 profit
Methods of calculating break-even -A table (or spreadsheet) showing sales and costs over different levels of output -A graph which charts sales & costs -A formula which you can use to calculate break-even
Strengths of break-even forecast Limitations -Allows you to calculate the rough no. of units needing to be sold in order to make a profit -Can help stop over or under production -Helps you find the margin of safety -Allows you to see if you should go through the business or not (break-even might be too high) -Quick and easy to do -Not as accurate as lot of assumptions; -you have to assume your selling price stays the same regardless of the amount sold -you have to assume that you will sell all output -you have to assume fixed costs will stay the same (you might need to move warehouses or something)
Reasons to produce a cash flow forecast; -Identify potential shortfalls in cash balances -Make sure the business can afford to pay suppliers and employers -Spot problems with customer payments -As an important part of financial control -Provide reassurance to investors and lenders that the business is being managed properly
Sale and Leaseback Arrangement in which one party sells a property to a buyer and the buyer immediately leases the property back to the seller. This arrangement allows the initial buyer to make full use of the asset while not having capital tied up in the asset.
And what else to revise (ignore if not me) -Look at how to draw breakeven graphs -How to answer exam qs -Look through book to see what have missed -Read chapters; 1, 2, 3, 5, 10, 11, 13, 16, 17, 18, 19, 20 Business Studies AS Level Fourth Edition
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