Finance 1

  • Created by: JennD
  • Created on: 05-11-16 18:07
Revenue formula
Revenue= sales x price
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Definiton of direct costs
The expenses to make a certain product
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Examples of direct costs
Labour, raw material and machinery, etc.
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Defintion of indirect costs
The overheads of running the business
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Examples of indirect costs
Salaries, telephone bills, office rent, etc.
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Total cost formula
Total costs= direct costs+ indirect costs
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Definition of fixed costs
Tese are costs whihc do not vary with output and must be paid no mather what (mostly indirect costs)
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Definition of variable costs
These are costs that increase as the business increases (mostsly direct costs e.g. factory labour, raw materials and machinery)
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Why are fixed costs only fixed for a period of time?
As the business expand so do the costs
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Variable costs + fixed costs=?
Total costs
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Average cost formula
Total cost \ output
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Profit formula
Revenue - costs
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5 reasons for the need of finance
To start the business, if have a poor cash flow (need to pay suppliers before get money from customers), the day-to-day running of the business, for customers who who delay payment and to fund expansion
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5 sources of start-up finace
Grants, trade credit, overdrafts, loans and venture capital
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Why is it hard for small businesses to get finance?
There is a greater risk customers won't be able to repay them and small businesses are likely to go bankrupt
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2 ads of grants
Dont have to be payed back and afterwards it is easier to find finance from other sources
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2 dis of grants
Not offered to many people and are ties ti them e.g. have to hire a certain number of employees
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2 ads of trade credit
Have up to 60 days to earn the money needed to pay off the debt and there are no interest charges
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2 dis of trade credit
Some suppliers offer discounts, which will be destroyed for not paying on time and suppliers may be reluctant to offer more goods
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2 ads of overdrafts
They are quick to arrange and it is a good short-term solution
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2 dis of overdrafts
High loan costs and it is only suitable for small amounts
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2 ads of loans
It is flexible over the payment term and it is quick to arrange
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2 dis of loans
Interest costs are varibale (adds risk) and interets must be charged even if the business makes a loss
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2 ads of venture capital
Bussiness is not obliged to pay back the money and brings wealth and expertise to the business
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2 dis of venture capital
High interest rate and lose control as have to give a proportion of shares to the investor
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What 4 organisation help businesses
The government, private firms, charities and chambres of commerce
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Why does the government give help?
Reduces benefits payed out, they recieve taxation revenue and it create jobs
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Definiton of government bank loans
Where the government will money back if you go bankrupt
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How do private firms provide help?
Offer financial support (overdrafts and loans), give advice (how to manage finaces, calulate taxes and keep records) and they help contact suppliers and possible customers
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Mian example of a private firm
A bank
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Why do banks help new business?
Gets them to open an account with them and not with one of their competitors and it reduces the chances of the business going bankrupt
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Example of a charity
The Princes Trust
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What does the Princes Trust offer?
Advice, grants and low-interst loans
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What do chambers of commerce do?
Provide information and support and they act as a link between local businesses and local and central government
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Definiton of cash flow
The money going in and out the business
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Net cash flow formula
Cash inflow - cash outflow
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What happens if you have bad cash flow?
There is not enough money coming into the business meaning you could bankrupt
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Bad cash flows affects...
Staff being paid on time, suppliers won't be able to offer discounts and creditors may not get paid resulting in a bad credit score
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What are the 3 reasons for bad cash flow?
Poor sales, overtrading (taking too many orders) and porr decisions
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3 ways to improve cash flow
Reschedule their receipts of income (make customers pay quicker), reschedule payments to suppliers (negotiate better credit terms) and carry a stock of unsold products (sell old products instead of destorying them)
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Other cards in this set

Card 2

Front

Definiton of direct costs

Back

The expenses to make a certain product

Card 3

Front

Examples of direct costs

Back

Preview of the front of card 3

Card 4

Front

Defintion of indirect costs

Back

Preview of the front of card 4

Card 5

Front

Examples of indirect costs

Back

Preview of the front of card 5
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Comments

thomb022

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Beth Thomas

littleover

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littleover

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this is not in gcse's

StayBlessed

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thanks it helped a lot :D

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