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1.3 - Putting a business idea into practice


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Financial objectives
Targets expressed in money terms such as making a profit, earning income or building wealth.
Revenues (or sales revenue or turnover or sales turnover)
The amount of income received from selling goods or services over a period of time.
Sales volume
The number of items or products or services sold by a business over a period of time.
Fixed costs
Costs which do not vary with the output produced such as rent, business rates, advertising costs, administration costs and salaries.
Total costs
All the costs of a business; it is equal to fixed costs plus variable costs.
Variable costs
Costs which change directly with the number of products made by a business such as the cost of buying raw materials.
Profit
Occurs when the revenues of a business are greater than its costs over a period of time.
Loss
Occurs when the revenues of a business are less than its costs over a period of time.
Cash
Notes, coins and money in the bank.
Cash flow
The flow of cash into and out of a business.
Inflow
The cash flowing into a business, its receipts.
Outflow
The cash flowing out of a business, its payments.
Net cash flow
The receipts of a business minus its payments.
Insolvency
When a business can no longer pay its debts.
Cash flow forecast
A prediction of how cash will flow through a business in a period of time in future.
Opening balance
The amount of money in a business at the start of a month.
Closing balance
The amount of money in a business at the end of a month.
Cumulative cash flow
The sum of cash that flows into a business over time.
Trade credit
Where a supplier gives a customer a period of time to pay a bill (or invoice) for goods or services once they have been delivered.
Stocks
Materials that a business holds. Some could be materials waiting to be used in the production process and some could be finished stock waiting to be delivered to customers.
Business plan
A plan for the development of a business giving forecasts of such items such as sales, costs and cash flow.
Long-term finance
Sources of money for businesses that are borrowed or invested typically for more than a year.
Short-term finance
Sources of money for businesses that may have to be repaid either immediately or fairly quickly, such as a overdraft, usually within a year.
Share
A part ownership in a business; for example a shareholder owning 25% of the shares of a business owns a quarter of the business.
Personal savings
Money that has been set aside and not spent by individuals and households.
Share capital
The monetary value of a company which belongs to its shareholders; for example, if five people each invest £10,000 into a business, the share capital will be £50,000.
Shareholders
The owners of a company.
Venture capitalist
An individual or company which buys shares in what they hope will be a fast growing company with a long-term view of selling the shares at a profit.
Loan
Borrowing a sum of money whihc has to be repaid with interest over a period of time, such as 1-5 years.
Security (or collateral)
Assets owned by a business which are used to guarantee repayments of a loan; if the business fails to pay off the loan, the lender can sell what has been offered as security.
Mortgage
A loan where property is used as security.
Dividend
A share of the profits of a company received by shareholders who own shares.
Retained profit
Profit which is kept back in the business and used to pay for investment in the business.
Leasing
Renting equipment or premises.
Overdraft facility
Borrowing money from a bank by drawing more money than is actually in a current account. Interest is charged on the amount overdrawn.
Factoring
A source of finance where a business is able to receive cash immediately for the invoices it has issued from a factor, such as a bank, instead of waiting the typical 30 days to be paid.