Edexcel GCSE (9-1) Business (1BS0) · Spec 1.3.1, 1.3.2, 1.3.3 and 1.3.4
Putting a business idea into practice
Read the notes, then try the questions. Each one is marked the moment you press Check, and shows the right answer and why.
Key ideas
- Financial objectives include survival, profit, sales and market share. Non-financial objectives include personal satisfaction, independence and social objectives.
- Revenue = price x quantity sold. Total costs = fixed costs + variable costs. Profit = revenue - total costs.
- Fixed costs do not change with output (rent). Variable costs rise with output (ingredients). Break-even output = fixed costs / (price - variable cost per unit).
- A cash-flow forecast predicts money in and out so a business can plan for shortfalls. Cash and profit are not the same thing.
- Short-term sources of finance are an overdraft and trade credit. Long-term sources are personal savings, venture capital, share capital, loans, retained profit and crowd funding. Match the source to the need: an overdraft for a short dip, a loan for a big purchase.
- Margin of safety = actual output minus break-even output. A cash-flow forecast shows cash inflows, cash outflows, net cash flow and the opening and closing balances.
Key terms
- Revenue
- The money a business receives from sales.
- Fixed cost
- A cost that stays the same whatever the output, such as rent.
- Variable cost
- A cost that changes with output, such as materials.
- Overdraft
- An agreed facility to spend more than is in the bank account, up to a limit.
- Venture capital
- Money from investors in exchange for a share of a new, risky business.
- Retained profit
- Profit that is kept in the business instead of being paid out.
- Margin of safety
- How far actual output is above the break-even output.
Common mistakes
- Treating cash and profit as the same. A business can be profitable and still run out of cash.
- Calling survival a non-financial objective. For a start-up it is a financial one.
- Using the wrong break-even formula. It divides by the difference between price and variable cost per unit, not by the price alone.
- Saying trade credit is long-term. It is a short-term source.
Exam tip
Calculate questions give marks for each step, and formulae are not given in the exam. Learn them, show your working, and give units.
Free practice questions
8 questions, 21 marks. Answer, then press Check. The marking guide explains how the marks are worked out. Nothing is saved.
- Question 1 · Multiple choice[1 mark]
Which one of the following is a non-financial objective for a new business?
- Question 2 · True or false[4 marks]
State whether each statement about aims and objectives is True or False.
1. Survival is a financial objective for a start-up.
2. All businesses have the same aims and objectives.
3. A social objective is a non-financial objective.
4. A business aim is a short-term target with a number attached.
- Question 3 · Matching[4 marks]
Match each term to its definition.
- Question 4 · Multiple choice[1 mark]
What is the main purpose of a cash flow forecast?
- Question 5 · Multiple choice[1 mark]
Which one of the following is the formula for break-even output?
- Question 6 · Choose more than one[2 marks]
Which TWO of the following are short-term sources of finance?
Choose 2.
- Question 7 · Matching[4 marks]
Match each situation to the most suitable source of finance.
- Question 8 · True or false[4 marks]
State whether each statement about sources of finance is True or False.
1. Venture capital provides money in return for a share of the business.
2. Using personal savings means the owner pays interest to a bank.
3. Selling an asset can raise cash quickly.
4. Trade credit is a long-term source of finance.