WEBVTT 00:00:00.500 --> 00:00:03.955 Welcome to GCSE Edexcel Business revision. 00:00:04.105 --> 00:00:08.021 Unit B U S 3: Putting a business idea into practice. 00:00:10.700 --> 00:00:12.833 An aim is a broad intention; 00:00:12.983 --> 00:00:23.180 an objective is a more specific target used to guide decisions and judge progress. “Increase monthly sales by 10 percent within six months” is more measurable than “do well”. 00:00:25.833 --> 00:00:31.960 Financial objectives include survival, profit, sales, market share and financial security. 00:00:32.110 --> 00:00:36.621 A new business may prioritise paying bills before attempting rapid growth. 00:00:39.300 --> 00:00:47.949 Market share as a percentage equals the quantity business sales divided by the quantity total market sales multiplied by 100. 00:00:48.099 --> 00:00:52.931 Use comparable sales measures and the same period for the business and the whole market. 00:00:55.600 --> 00:01:02.777 Non-financial objectives include social benefit, personal satisfaction, challenge, independence and control. 00:01:02.927 --> 00:01:08.931 A social enterprise may use profits to support its purpose rather than maximise owners' income. 00:01:11.600 --> 00:01:16.900 Objectives differ with the owner's priorities, size, resources and market conditions. 00:01:17.050 --> 00:01:23.139 A start-up with scarce cash may choose survival; an established profitable business may choose expansion. 00:01:25.800 --> 00:01:34.353 Objectives can conflict: improving quality may raise costs, while expanding quickly can put independence at risk if investors gain influence. 00:01:37.033 --> 00:01:43.208 Worked example: a business sells 24,000 pounds in a market worth 300,000 pounds. 00:01:43.358 --> 00:01:52.444 Market share equals the quantity 24,000 divided by the quantity 300,000 multiplied by 100 equals 8 percent . 00:01:52.594 --> 00:01:57.393 A rising sales figure does not ensure rising share if the market grows faster. 00:02:00.067 --> 00:02:02.307 Revenue is income from sales. 00:02:02.457 --> 00:02:06.153 Revenue equals selling price multiplied by quantity sold. 00:02:06.303 --> 00:02:10.380 Use the actual price after discounts; revenue is not profit. 00:02:13.033 --> 00:02:18.558 Fixed costs do not change with output within the relevant period and range, such as monthly rent. 00:02:18.708 --> 00:02:21.565 Fixed does not mean the amount can never change. 00:02:24.233 --> 00:02:29.183 Variable costs change as output changes, such as ingredients or packaging. 00:02:29.333 --> 00:02:35.029 Total variable cost equals variable cost per unit multiplied by quantity produced. 00:02:37.700 --> 00:02:42.112 Total costs equals total fixed costs plus total variable costs. 00:02:42.262 --> 00:02:48.425 Compare revenue and costs for the same time period and state any assumption about output and sales. 00:02:51.100 --> 00:02:53.980 Profit equals revenue minus total costs. 00:02:54.130 --> 00:02:56.293 A negative result is a loss. 00:02:56.443 --> 00:03:00.874 Higher revenue can coincide with lower profit if costs increase faster. 00:03:03.533 --> 00:03:07.758 Worked example: a stall sells 400 meals at 8 pounds each. 00:03:07.908 --> 00:03:12.815 Variable cost is 3 pounds per meal and fixed costs are 1,000 pounds. 00:03:12.965 --> 00:03:24.654 Revenue equals 3,200 pounds; variable costs equals 1,200 pounds; total costs equals 2,200 pounds; profit equals 1,000 pounds . 00:03:27.333 --> 00:03:29.541 Interest is the cost of borrowing. 00:03:29.691 --> 00:03:40.239 For the stated repayment period, interest as a percentage equals the difference between total repayment and amount borrowed, divided by amount borrowed multiplied by 100. 00:03:40.389 --> 00:03:43.970 Do not call a multi-year total percentage an annual rate. 00:03:46.633 --> 00:03:56.307 Worked example: borrowing 2,000 pounds and repaying 2,160 pounds after one year means 160 pounds interest. 00:03:56.457 --> 00:04:08.593 Interest percentage equals the quantity 160 divided by the quantity 2,000 multiplied by 100 equals 8 percent , assuming these repayments contain no separate fees. 00:04:11.267 --> 00:04:17.367 Break-even is the output at which total revenue equals total costs: there is neither profit nor loss. 00:04:17.517 --> 00:04:22.255 Contribution per unit equals selling price minus variable cost per unit. 00:04:24.933 --> 00:04:32.527 Break-even output in units equals fixed costs, divided by the difference between selling price and variable cost per unit . 00:04:32.677 --> 00:04:38.373 If contribution is zero or negative, extra sales do not cover fixed costs under this model. 00:04:41.033 --> 00:04:47.410 For indivisible units, round a fractional result up to find the first whole-unit output that covers all costs. 00:04:47.560 --> 00:04:51.594 State the unit: products, tickets or another quantity, not pounds. 00:04:54.267 --> 00:04:59.507 Break-even sales revenue equals break-even units multiplied by selling price. 00:04:59.657 --> 00:05:05.437 Margin of safety equals actual or budgeted sales units minus break-even sales units. 00:05:08.100 --> 00:05:18.499 Worked example: using the meal stall's 1,000 pounds fixed costs and 5 pounds contribution, break-even equals 1,000 divided by 5 equals 200 meals . 00:05:18.649 --> 00:05:24.887 At 400 meals, margin of safety equals 400 minus 200 equals 200 meals . 00:05:27.567 --> 00:05:33.123 A break-even chart has output on the horizontal axis and money on the vertical axis. 00:05:33.273 --> 00:05:39.405 The revenue and total-cost lines intersect at break-even; below that output the business makes a loss. 00:05:39.555 --> 00:05:41.816 Meal stall break-even chart 00:05:46.467 --> 00:05:52.641 With other values unchanged, higher fixed costs or variable cost per unit raise break-even output. 00:05:52.791 --> 00:05:57.050 A higher selling price lowers it, but the price rise may reduce demand. 00:05:59.700 --> 00:06:06.738 The chart assumes constant price and variable cost per unit, fixed costs within a range and sales of the output shown. 00:06:06.888 --> 00:06:12.721 Bulk discounts, unsold stock or limited capacity make actual results less predictable. 00:06:15.400 --> 00:06:17.949 Cash is money available to make payments. 00:06:18.099 --> 00:06:26.243 Suppliers, rent and employees must be paid when due; insufficient cash can cause insolvency even when the business reports a profit. 00:06:28.900 --> 00:06:30.628 Profit and cash differ. 00:06:30.778 --> 00:06:38.820 A credit sale may create revenue before the customer pays; a loan brings cash into the business but is not sales revenue or profit. 00:06:41.500 --> 00:06:46.427 Cash inflows include receipts from customers, finance received and asset sales. 00:06:46.577 --> 00:06:51.761 Cash outflows include payments to suppliers, wages, equipment and loan repayments. 00:06:54.433 --> 00:06:58.673 Net cash flow equals cash inflows minus cash outflows in the period. 00:06:58.823 --> 00:07:02.393 Closing balance equals opening balance plus net cash flow. 00:07:02.543 --> 00:07:06.155 The next period's opening balance is the previous closing balance. 00:07:08.833 --> 00:07:22.165 Worked example: opening cash 1,200, pounds inflows 3,000 pounds and outflows 3,500 pounds give net cash flow minus 500 pounds and closing cash 700 pounds . 00:07:22.315 --> 00:07:26.631 Negative net flow does not automatically mean a negative closing balance. 00:07:26.781 --> 00:07:28.979 From opening to closing cash 00:07:33.633 --> 00:07:40.000 A cash-flow forecast estimates future receipts and payments, helping identify when finance is needed. 00:07:40.150 --> 00:07:44.005 It is a prediction, not a record of certain future outcomes. 00:07:46.667 --> 00:07:52.287 Seasonal demand, late customer payments or unexpected repairs can change the forecast. 00:07:52.437 --> 00:07:57.267 Compare actual cash with the forecast and investigate significant differences. 00:07:59.933 --> 00:08:09.789 Possible responses include chasing overdue payments, negotiating later supplier payments, delaying non-essential spending or arranging suitable finance. 00:08:09.939 --> 00:08:14.570 Each has consequences, such as damaged supplier trust or borrowing costs. 00:08:17.233 --> 00:08:22.613 Choose finance by amount, purpose, repayment period, cost, risk and effect on ownership. 00:08:22.763 --> 00:08:28.362 A source suited to covering a temporary cash gap may be unsuitable for buying long-lived equipment. 00:08:31.033 --> 00:08:35.529 An overdraft allows a bank balance to fall below zero up to an agreed limit. 00:08:35.679 --> 00:08:41.736 It is flexible for short-term gaps but can involve interest, fees and withdrawal or review by the bank. 00:08:44.400 --> 00:08:48.276 Trade credit lets the business receive supplies and pay later. 00:08:48.426 --> 00:08:54.729 It helps cash timing but is not free cash; late payment can harm relationships or lose credit facilities. 00:08:57.400 --> 00:09:04.044 Personal savings avoid interest and outside control but put the owner's money at risk and may be insufficient. 00:09:04.194 --> 00:09:07.159 They are not available equally to every entrepreneur. 00:09:09.833 --> 00:09:14.059 A loan provides borrowed capital with agreed repayments and interest. 00:09:14.209 --> 00:09:19.606 Ownership is retained, but repayments create cash outflows even when sales disappoint. 00:09:22.267 --> 00:09:26.705 Venture capital involves investment, often in exchange for ownership. 00:09:26.855 --> 00:09:31.867 Investors can bring expertise but may seek strong growth and influence over decisions. 00:09:34.533 --> 00:09:38.595 Share capital is money raised by selling ownership shares in a company. 00:09:38.745 --> 00:09:43.577 It does not require loan repayments, but ownership and potential profits are shared. 00:09:46.233 --> 00:09:49.133 Retained profit is profit kept in the business. 00:09:49.283 --> 00:09:56.182 It avoids new borrowing or dilution, but a new business may have none and an established business may have other uses for it. 00:09:58.833 --> 00:10:02.796 Crowdfunding raises contributions from many people through a platform. 00:10:02.946 --> 00:10:11.367 It can test interest, but success is uncertain and fees or obligations depend on whether funding involves rewards, loans or equity. 00:10:14.033 --> 00:10:19.430 Fictional decision: a seasonal shop needs 2,000 pounds for a one-month cash gap. 00:10:19.580 --> 00:10:26.992 An agreed overdraft may fit better than selling shares permanently, provided later receipts can repay it and fees are affordable. 00:10:29.667 --> 00:10:32.672 That completes Putting a business idea into practice. 00:10:32.822 --> 00:10:36.167 Revisit the notes and test yourself on the revision website.