1. Putting a Business
Idea into Practice
-Objectives when starting up
- The qualities shown by entrepreneurs
-Estimating revenues, costs and profits
- Forecasting cash flows
- Obtaining finance

2. Objectives When Starting Up
Objectives
Non-
Financial
Financial
Profit Sales Something
Being your To help
Survival maximisatio maximisatio to be proud
own boss others
n n of

3. Qualities Shown by Entrepreneurs
Determined Initiative Risk Taking
Decision
Planning Persuasive
making
Leader Lucky

4. Revenue
• Any money received by a business [from
selling goods or services]
• The total amount of revenue is calculated by:
Total Revenue = Price x Quantity
• A business can forecast its revenue by:
> Estimating the quantity it will sell by looking at its
market research
> Deciding what price they will charge for each unit

5. Costs
• The costs of a business is the total amount of
money it spends on making its goods or services
Fixed Costs – Indirect costs/ Over heads
• Rent
• Salaries
Variable costs – Direct costs
• Raw materials
• Hourly wages
• It is calculated using the following formula
Total Cost = Fixed costs + Variable costs

6. Profits and Loss
• Businesses receive money from selling goods
and services
• They also have to pay costs in order to make
the goods or provide their services
• Profit can be calculated using the formula:
Profit = Sales revenue – Total cost

7. Profit
• when sales revenue is greater than
costs
Loss
•When sales revenue is less than
costs

8. The Cash Flow Forecast
• A cash flow forecast helps a business estimate:
- How much fixed costs will be
- How much it will sell
- How much it will cost to make what is sold
• A cash flow forecast is a very important
document and tries to predict when cash is
expected to come into and leave a business
over a period of time

9. Inflows Outflows
• Money that a • Money that a
business receives business spends
• Sales revenue • Wages and salaries
• Grants • Raw materials
• Loans • Utilities
• Capital • Rent and business
rates
• Interest
• Tax
• equipment

10. A Cash Flow Forecast
Receipts
Payments
Net
In/outflow

11. What Affects Cash Flow
Speed of cash flowing in
and out
Stock Levels: Credit Terms:
Materials a business The time between
must buy to make their receiving goods and
product paying for them

12. It can be used to obtain Businesses can spot
loans since lenders can see problems before they
how much cash is flowing happen and make
into the business changes
Uses of Cash
Flow
Businesses can decide what
they want to do with excess
cash

13. Golden Rules About Cash Flow
• Money is only recorded when cash changes
hands
• It does not record profit
• The closing balance of one month is the
opening balance of another month
• A negative closing balance does not mean that
the firm is bankrupt

14. Why Do Firms Need Finance
• To expand the business
• To buy new equipment
• To buy new premises
• To buy stocks
• To pay bills
• To cover a fall in demand
• To pay workers
• To start a new business

15. Different Types of Finance
Types of Finance
Internal External
- Money obtained within a business - Money obtained from outside the
- Using this type of finance is business (eg. Loan)
cheaper but it means the money - This usually requires interest to be
cant be used for anything else paid on the money obtained

16. Source of
Finance
External
• Long Term
• share/ venture capital
• mortgage
• Government grants
• Short term
• Bank overdraft
• Hire Purchase
• Leasing
• Bank loan
Internal
• Retained profit
• Owners funds
• Sales of assets
• Changing stock levels
• Changing credit terms