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business: topic 1.3- putting a business idea into practice (revenue, costs…
business: topic 1.3- putting a business idea into practice
aims&objectives
aims
broad targets an entrepreneur has at the back of their mind
objectives
SMART
s
pecific
m
easurable
a
chievable
r
ealistic
ti
me-bound
financial
profit
sales
marlet share
financial security
non-financial
control
challenge
independence
personal satisfaction
revenue, costs & profits
profit=revenue-total costs
revenue=quantity*price
fixed costs
dont change with output
variable costs
do change with output
break even
break even=fixed costs/contribution
contribution=selling price-variable costs per unit
margin of safety=output-break even point
sources of small business finance
short term
external
bank overdraft
+flexible
+well matched to ups and downs of small company cash flows
-bank can cancel at any time, leaving the business with a negative balance
trade credit
+good way of boosting day to day finance
-other businesses may be reluctant to trade with the business if they dot get paid in good time
long term
internal
personal savings
+pays
-loss of own money
retained profit
+the more profit they get, the more likely theyll be to finance from within
-less profit goes towards reinvesting
external
share capital
+no need to repay
+flexibility (dividens not guaranteed each year)
+brings wise heads into boardroom
-big risk of takeover
-may fail
-ownership may get spread thinly among shareholders
loans
+payed back in installments
+you can choose if interest is fixed/variable
+can be long/mid/short term
-bank demands collateral to provide security if loan isnt payed
venture capital
+get finance
-want to contribute to running of business
-want big % of business
crowdfunding
+most effective when the sponsors use social media
+no interest
-theyll get something in return for their investment