Frankie runs a restaurant. Which one of the following would be an example of a calculated risk for his business? Select one answer. A.There is a 50:50 chance that he would lose over 10 per cent of his customers if he put up his prices by a fifth B.A customer might not like a new recipe C.The price of fish might go up by a quarter over the next 12 months D.The insurance bill for his business has increased by 10 per cent

Keanu runs a small business that makes wooden toys for sale by mail order and over the Internet, as well as to toy shops and gift companies. Which one of the following would be an example of an upside for his business? Select one answer. A.A rise in the wages he pays to his staff B.An increase in the cost of postage C.A rise in taxes on toys D.A fall in the price of wood

Sama runs a hairdressing business. Which one of the following would be an example of a downside for her business? Select one answer. A.A fall in the prices she has to pay her suppliers for hair care products B.A rise in the wages she pays her staff C.A rise in the number of her customers D.A fall in the rent she pays on her business premises

Learning Objectives 1 Identify financial and non-financial objectives of a business 2 Explain different methods of measuring business success 3 Define and calculate revenue and costs

What do the following large organisations want to achieve apart from making profit?

Anything that a business wants to achieve e.g. market leader, be a well known brand and of course maximise profit

Chadwell Pizzeria Imagine that you are setting up your own pizza delivery business What Objectives might you want to achieve in setting up/running this business?

Chadwell Pizzeria Imagine that you are setting up your own pizza delivery business What Objectives might you want to achieve in setting up/running this business?

Financial Objectives

Financial Objectives – targets expressed in money terms such as making a profit income or building wealth

Non-Financial Objectives

Measuring Success Businesses measure their success against their business objectives. As Chadwell Pizzeria owner one of your financial objectives will be to make profit. Profit is the main way of measuring the success of Chadwell Pizzeria but there are other ways it can be measured.

Example Methods of Measuring Success Job Security Employees want to know they are not going to lose their jobs. This helps them plan for the future and motivates them to work hard. The money flowing into the business is greater than money flowing out. Suppliers and workers will be paid on time. Positive Cash Flow Market Share How much of the market a firm has compared to its competitors. It shows the businesses market power and how successful it is compared to its competitors. Job Creation Providing more employment to people. This creates wealth in the economy and helps raise the standard of living.

Revenue Revenue is the amount of money a business will receive from selling a product over a period of time like a day, week or year. Revenue can also be called sales revenue, turnover or sales turnover. To predict total revenues, a business has to predict how much it will sell (sales volume) and what the average price charged per sale will be.

Total Revenue Total revenue = Price x Quantity or TR = P X Q For the Pizzeria this is: £10 x 20,000 (pizzas) = £200,000 for the year

2. A paintball business charges customers £10 for each paintball session. Last year customers paid for 5,000 sessions. This year, It increased its prices to £11 but the number of sessions sold fell to 4,000. What effect will this have had on revenues? Select one answer. Revenues will: A. increase by 10 per cent B. fall by £ C. change from £ to £ D. increase by £1,000 Remember: Total revenue = Price x Quantity or TR = P X Q Top tip: Work out the total revenue for each year

2. A paintball business charges customers £10 for each paintball session. Last year customers paid for 5,000 sessions. This year, It increased its prices to £11 but the number of sessions sold fell to 4,000. What effect will this have had on revenues? Select one answer. Revenues will: A. increase by 10 per cent B. fall by £ C. change from £ to £ D. increase by £1,000

Costs All businesses will have a number of different costs associated with running their business. In pairs, list the possible costs for Chadwell Pizzeria

Now go back to your spider diagram and highlight in two different colours (or distinguish by some other means): 1.The costs that will remain the same – no matter how many pizzas you make 2.Costs that will go up or down depending on the number of pizzas you make

Fixed Costs FIXED COSTS are costs which do not change with the output produced or the services provided. Such as: Rent Business rates Advertising costs Administration costs Salaries Insurance Fixed costs will remain the same and have to be paid regardless of whether the business is busy or not; and how much it makes and sells.

Variable Costs VARIABLE COSTS are costs which change directly with the level of production or service provided such as: Flour Pizza Toppings Pizza Boxes Wages for casual staff With variable costs, the more that is produced or provided, the higher the variable costs will be. Also, if a business does nothing, the variable costs will be zero.

1.Which three of the following are examples of variable costs? Select three answers. A. Rent on a factory unit B. The cost of clothes bought by a high street fashion boutique C. Advertising in a local newspaper D. The salary of the managing director of a company E. Coca-Cola drinks in a fast food restaurant F. Diesel fuel used by a taxi driver G. The interest on a loan

1.Which three of the following are examples of variable costs? Select three answers. A. Rent on a factory unit B. The cost of clothes bought by a high street fashion boutique C. Advertising in a local newspaper D. The salary of the managing director of a company E. Coca-Cola drinks in a fast food restaurant F. Diesel fuel used by a taxi driver G. The interest on a loan

Total Costs Total costs = Fixed costs + Variable costs or TC = FC + VC For the Pizzeria this is: £240,000 per year

3. A maker of electric guitars has fixed costs of £2,000 per month. Last month, it manufactured 50 guitars items. Its variable cost was £70 per guitar. This month, it has produced 60 guitars and the variable cost per guitar has stayed the same. What effect will this have on its total costs? Select one answer. Its total cost will increase A. By 20 per cent B. By £700 C. From £3,500 to £4,200 D. By £70

3. A maker of electric guitars has fixed costs of £2,000 per month. Last month, it manufactured 50 guitars items. Its variable cost was £70 per guitar. This month, it has produced 60 guitars and the variable cost per guitar has stayed the same. What effect will this have on its total costs? Select one answer. Its total cost will increase A. By 20 per cent B. By £700 C. From £3,500 to £4,200 D. By £70

Profit To work out the profit for the Pizzeria, you must calculate the difference between total revenue and total costs. Profit/loss = Total revenue – Total Costs This would be: £285,000 - £240,000 = £45,000 profit What happens if costs were £300,000?

Break Even We may not sell 20,000 pizzas a year! It could be a lot less! Break Even (B.E.P.) = the level of sales a business needs to cover their total costs. At this point total costs = total revenue and neither a profit nor a loss is made.