Topic 1.3: Putting a business idea into practice - Part 1 - Coggle Diagram
Topic 1.3: Putting a business idea into
E. SOURCE OF BUSINESS FINANCE
(See Part 2)
B. BUSINESS REVENUES, COSTS & PROFITS
is also referred to as sales revenue or turnover. It is the total amount of income made by a business from selling a product (good) or service. It is a form of cash inflow.
Revenue = selling price x quantity (quantity is number of units sold)
Increase = New Number - Original Number.
% increase =
Increase ÷ Original Number × 100.
If your answer is a negative number, then this is a percentage decrease.
Decrease = Original Number - New Number
% Decrease =
Decrease ÷ Original Number × 100.
If your answer is a negative number, then this is a percentage increase.
- Costs which do not change in relation to output
- Costs which change as a result of changes in output
Total variable costs =
variable cost per unit x Number of units sold (quantity)
TOTAL COSTS =
Total fixed costs + Total variable costs
Total revenue – Total costs
If revenue is greater than total costs = PROFIT
If revenue is less than total costs = LOSS
If revenue is equal to total costs = BREAK EVEN
is the cost of borrowing money. A business might borrow in the form of an overdraft, loan or mortgage. Interest paid will be a cash outflow.When a business borrows money from the bank, the bank will charge them an interest rate.
Interest on loans (%) =
(total repayment – borrowed amount) x 100 borrowed amount
D.CASH AND CASH- FLOW
(See Part 2)
C. BREAK EVEN
is the point at which revenue and total costs are the same, meaning the business is making neither a profit nor a loss.
Break even point (BEP) =
fixed costs ÷ (selling price per unit − variable cost per unit)
Break even point in revenue =
BEP x selling price unit
Why is Break even important?
- Break even analysis is useful for new star-up businesses as it will allow them to see if their business is viable (worthwhile or doable). This is because they will know how many products or services they need to sell to cover their total costs. They can then decide whether that is an achievable amount. Break even analysis also help a business make a decision about what price to charge, how much to produce or sells and help in managing costs.
Margin of Safety
is the number of units or the percentage of sales exceeding the break-even point.
Margin of safety =
Actual output/sales – break even level of output (BEP) or sales
A. BUSINESS AIMS & OBJECTIVES
2. NON-FINANCIAL AIMS & OBJECTIVES
1. Social objectives
- A business may prioritise the people around them by doing things in an ethical or environmentally friendly manner. For example, an entrepreneur may aim to provide only products that are sustainably sourced or use only solar energy to power their business. This will allow the business gain a positive reputation. This could increase sales and profit.
2. Personal satisfaction
- This relates to an entrepreneur feeling happy that they have created a successful business out of a hobby or personal interest leading to financial security as the entrepreneur will have enough personal wealth that allow them to live comfortably.
- Some entrepreneurs like the personal challenge that comes with setting up their own business and making a success of it.
4. Independence & control
- Some entrepreneurs will like the idea of being their own boss, so they set up and run their own business. By doing this, they have the freedom to make their own decisions and can control their own working hours leading to personal satisfaction and financial security.
1.FINANCIAL AIMS & OBJECTIVES
- Business survival refers to keeping the business operating for a certain amount of time. Most businesses initially aim to survive their first year.
- refers to any money left over after all costs have been taken away from any revenue made by a business. Businesses usually aim to make a profit within the first two years.
- This refer to an amount of a product or service sold by a business. A business will set a target for how much it wants to sell each month and year.
4. Market share
- This is the percentage of the total sales in a market made by one business. Sometimes a business will prioritise increasing their market share so that they can become the dominant firm
5. Financial security
- relates to a business being able to generates enough revenue so that the business afford to pay off all its costs and have enough cash left to survive. It also relates to an entrepreneur wanting to have enough personal wealth so that they live comfortably without financial worry.