Start-up Planning and Running Costs

The process of starting a new business, involving setting up operations, legal structure, and securing funding.

Understanding the target market, competitors, and customer needs. This helps determine the need for the product or service.

A detailed plan outlining a business' goals, strategy, and financial projections.

Costs that remain constant regardless of business activity or sales, like rent or utilities.

Costs that vary based on production or sales levels, like raw materials.

Costs that have both fixed and variable components, like a phone bill with a flat charge plus per-minute usage fees.

The financial gain when total revenue exceeds costs and expenses.

Expenses necessary for day-to-day business operations, like salaries or marketing.

Revenue generated minus all costs associated with making and selling the product or service.

Revenue minus the cost of goods sold and all operating expenses. Shows true profitability of business operations.

The financial outcome after deducting all expenses from revenue. Represents overall profitability.

A process of forecasting future cash inflows and outflows to ensure sufficient funds for daily operations.

A business structure where one individual is the owner and bears all the risks and profits.

A type of business where two or more individuals share ownership, profits, and liabilities.

A business structure where partners have limited liability, meaning they are only responsible for their investment.

A separate legal entity from its owners, with limited liability and shares not traded publicly.

A company whose shares are traded on a stock exchange, offering growth potential but with greater regulations.

A non-profit business focused on serving the community, with profits reinvested for social good.

A business owned and run by members, sharing profits and democratic decision-making.

Funds generated from within the business, such as retained earnings or owner investments.

Funds raised from outside the business, such as bank loans, equity financing, or grants.

Profit kept within the business for future investment rather than distributed to owners.

A business plan clearly outlining the financial goals, strategies, and projections for future success.

The amount each unit sold contributes towards covering fixed costs and generating profit.

A snapshot of a company's assets, liabilities, and equity at a specific point in time.

Resources owned by a business that have value.

The obligations or debts the business owes to others.

The difference between a company's current assets and current liabilities.

The value of the owner's interest in the business, calculated as assets minus liabilities.

A financial tool that helps businesses understand the relationship between costs, volume, and profitability.

Measures the profitability of a business in relation to the capital employed (equity and debt).

The percentage of sales revenue that exceeds the cost of goods sold (COGS).

A technique that compares budgeted results to actual results.

A financial tool that helps assess the potential outcomes of different scenarios.

Tracks the money coming in and going out of a business.

A financial statement that summarizes all revenues and expenses incurred during a period.

A financial statement showing the inflow and outflow of cash over a period, highlighting money coming into and going out of the business.

Measures how easily an asset can be turned into cash without impacting its price. It's essential for meeting short-term obligations.

A technique for predicting future business outcomes by considering various scenarios and adjusting key factors like sales, costs, or interest rates.

Comparing actual financial results with planned budgets to understand discrepancies and identify reasons for the differences.

The difference between actual results and budgeted outcomes. It can be favorable (better than expected) or adverse (worse than expected).

This happens when a business cannot meet its financial obligations because it owes more than it owns.

A situation where actual income or savings exceed planned expectations, indicating positive performance or efficiency.

When actual income is lower or costs are higher than planned, indicating potentially negative performance or inefficiencies that need to be addressed.

Revenue is money earned from business operations, while capital expenditure is long-term investment in assets.

Profit/loss shows financial success, while surplus/deficit indicates whether income exceeds or falls short of expenses.

A method used to calculate the point where sales revenue equals total costs, indicating the point where a business starts making a profit.

A technique that determines how much money from sales contributes to covering fixed costs, helping assess the profitability of each sale.

Cash is money available now, while profit is a wider measure of business performance across a period.

Regularly tracking cash flow helps businesses avoid financial problems, make informed choices, and manage liquidity effectively.

A business needs to balance both profit and cash flow to ensure long-term success and stability.

Costs that stay the same no matter how much you produce, like rent or your salary.

Costs that change directly with how much you produce or sell, like materials used for each item.

Operating Profit Margin reveals the percentage of revenue left after all operating costs, excluding interest & taxes, highlighting efficiency.

Measures a company's ability to pay short-term liabilities with current assets, indicating liquidity and short-term financial health.

Costs that have both fixed and variable parts, like a phone bill with a base cost and charges per minute.

The total money your business earns from selling goods or services.

Assesses a company's ability to meet short-term liabilities with the most liquid assets, excluding inventory, for a more conservative measure.

Money spent on things that help your business run every day, like salaries or utilities.

The gearing ratio shows what percentage of a company's capital comes from borrowing, highlighting financial risk.

Inventory Turnover quantifies how quickly a company sells and replenishes its inventory, showing efficiency in managing stock.

Money spent on assets that help run your business for a long time, like buying new equipment or a building.

Trade Receivables Collection Period measures the average days it takes to collect payments from customers, indicating cash flow health.

The difference between your total revenue and total costs, telling you if you made a profit or loss.

Trade Payables Payment Period measures the average days a company takes to pay its suppliers, highlighting credit terms and financial health.

When your total revenue is more than your total expenses, meaning your business has made money.

Asset Turnover measures how effectively a company utilizes its assets to generate revenue, highlighting asset efficiency.

When your total expenses are more than your total revenue, meaning your business has lost money.

The point where your total revenue equals your total costs, meaning you break even – no profit or loss.

Helps businesses decide the right prices by figuring out how many sales they need to cover their costs.

It assists in forecasting and understanding how changes in costs and prices impact your profitability.

It shows you how many units you need to sell to start generating profit.

It helps you assess the risk of making a loss if you don't reach the break-even point.

Break-even analysis is helpful for setting your financial goals and budget for the future.

The actual money that a business has on hand, including cash in the bank and cash in hand.

The difference between your total revenue and total expenses, even including things not paid in cash like depreciation.

Cash is a measure of how much money you have available to pay bills, while profit is a measure of how much money you have earned.

Financial statements primarily focus on past performance, offering limited insights into future trends or emerging opportunities.

Financial reports neglect external factors like market shifts, customer satisfaction, or employee morale, impacting overall business health.

High-level summaries can overlook important details within financial information such as specific operating expenses or market segment performance.

Financial data can be manipulated or misrepresented intentionally, especially if accounting practices lack consistency.

Analyzing competitors' financial reports helps understand their market performance, including profitability, spending, and financial strength, providing valuable insights for improvement.

Businesses adapt their plans based on changing customer preferences, new technologies, and evolving regulations, staying competitive in the market.

Understanding customer needs, market size, competitor landscape, and growth potential helps businesses tailor products and services to match market demands.

Combining financial information like profitability ratios, solvency ratios, and activity ratios with non-financial information like market trends, customer opinions, and competitor actions, and strategic considerations like long-term goals and future opportunities, is crucial for making informed decisions.

Profitability ratios measure a company's ability to generate profits from its revenue and capital, showcasing financial success.

Solvency ratios assess a company's capacity to fulfill its long-term financial obligations, demonstrating stability and financial health.

Activity ratios examine a company's efficiency in managing operations, including inventory, receivables, and payables, indicating effective resource utilization.

Financial data provides objective information and benchmarks for comparison, but its limitations in forecasting future trends and capturing non-financial factors should be considered.

Published accounts of competitors, market trends, and industry research help businesses stay competitive and make informed decisions based on external factors.

Financial ratios provide valuable insights into a business's financial health, but they should be used alongside qualitative data and considered within the context of industry norms and market conditions.

Profitability ratios measure a company's ability to generate profits from its revenue and capital, showcasing financial success. Solvency ratios assess a company's capacity to fulfill its long-term financial obligations, demonstrating stability and financial health. Activity ratios examine a company's efficiency in managing operations, including inventory, receivables, and payables, indicating effective resource utilization.

A snapshot of the company's ability to meet its short-term financial obligations, like paying suppliers or covering operating expenses. Strong liquidity means the business has enough cash on hand to function smoothly.

A combination of all three types of ratios (profitability, solvency, and activity) provides a comprehensive view of a company's financial health. They can help make strategic decisions and identify areas for improvement.

A business needs to balance profitability (generating enough income) with liquidity (having enough cash on hand). A high profit margin may not be sustainable if a company struggles to meet its immediate financial obligations.

Analyzing a business solely based on their profitability ratios can be misleading, as profitability may be influenced by external factors like market conditions. A comprehensive analysis considers industry trends and competitor performance for a clearer picture.

While profitability ratios show how well the business is performing, they don't necessarily guarantee long-term sustainability. A company needs to ensure it has enough cash flow to manage operations and meet its financial obligations.

Financial ratios provide valuable insights, but don't tell the whole story. Analyzing them alongside external factors like market conditions, industry trends, and competitor performance can offer a more realistic picture of a company's financial health.