Aims: financial vs non-financial
A business sets aims and objectives — targets that guide it. Financial objectives: survival (the priority for most start-ups), profit, sales, market share and financial security. Non-financial objectives: social aims (community, environment), personal satisfaction, challenge and independence/control. Objectives differ between firms — a start-up may aim only to survive year one, while an established rival chases market share.
Revenue, costs, profit, break-even
Key money relationships in 1.3: Revenue = selling price × quantity sold. Total costs = fixed costs + variable costs (interest on borrowing adds to costs). Profit (or loss) = total revenue − total costs. Break-even output = fixed costs ÷ (selling price − variable cost per unit). Margin of safety = actual sales − break-even output. A higher fixed cost or a lower price raises break-even output.
Cash flow and sources of finance
Cash flow is money moving in and out over time — NOT the same as profit. A cash-flow forecast predicts monthly: inflows, outflows, net cash flow = inflows − outflows, and closing balance = opening balance + net cash flow. A firm can be profitable yet run out of cash if customers pay late, so it uses sources of finance: short-term (overdraft, trade credit) and long-term (savings, retained profit, loan, share capital, crowd funding).
Drawn from real examiner reports.
Revenue ≠ profit
Revenue = selling price × quantity sold — the money coming IN, before any costs. Profit = total revenue − total costs — what is left AFTER all costs (fixed, variable and interest). Sell 2000 units at £3 and revenue is £6000, but if total costs are £4000, profit is only £2000. On 'calculate revenue' do not subtract costs; on 'calculate profit' you must.
June 2023 Paper 1 Q3(b): candidates selected the right figures but did not apply revenue = quantity × price, and some used the wrong month's sales.
A cost ≠ a price
A cost is money the business pays (rent, wages, materials, interest). A price is what it charges customers. Asked to state a fixed cost, many gave a membership fee or selling price — money coming IN, not a cost going out — and scored 0. Keep the direction clear: cost = money out; price = money in (part of revenue).
June 2024 Paper 1 Q7(a): asked to state a fixed cost for a gym, many gave the membership fee, confusing a cost with the price charged, and scored 0.
Total cost: variable cost is per unit
In a total-cost calculation the variable cost is usually given per unit, so multiply it by output before adding fixed costs: total cost = fixed costs + (variable cost per unit × output). The selling price is irrelevant to total cost — it never appears in the formula. Candidates who 'had a go' by combining every number, including the price, went wrong.
June 2024 Paper 1 Q2(c): a common error was not realising the variable cost was per unit, and that the selling price was irrelevant to the total-cost calculation.
Break-even change: subtract the original
When a variable such as the selling price changes, recalculate break-even output with the new figure — then, if the question asks for the change in break-even, subtract the original break-even from the new one. Many recalled the formula but stopped at the new value, or could not apply it once a variable changed: recall without understanding.
June 2023 Paper 1 Q2(c): many recalled the formula but could not apply it when the selling price changed, and failed to subtract the original break-even to give the change asked.
Closing balance: inflows − outflows
Net cash flow = cash inflows − cash outflows (in that order), and closing balance = opening balance + net cash flow. When outflows are the larger figure the net cash flow is negative — do not flip it to outflows − inflows just to get a positive number. A recurring error reversed the subtraction in exactly this way.
June 2023 Paper 1 Q5(a): a recurring error was subtracting inflows from outflows because outflows were the larger figure, rather than the reverse.
Non-financial aims ≠ financial ones
Non-financial aims include social objectives, personal satisfaction, challenge and independence/control. When a question asks about non-financial aims, do not analyse financial objectives (cutting costs, gaining customers) instead. Application attached to a wrong answer earns no AO2 — a well-applied answer about profit still scores 0 if the aim is financial.
June 2023 Paper 1 Q4(b): many did not know non-financial aims and analysed financial objectives instead, scoring 0 even where the wording was applied to the business.
An average divides by the count
To find a mean (e.g. average monthly sales, or the average of menu prices), add the figures and divide by how many there are. A common slip adds the numbers but forgets to divide, or divides by the wrong count. These 'simple' averages need the least business knowledge yet are often the worst-answered calculation — do not rush them, and use a calculator.
June 2024 Paper 1 Q5(a): the average-of-sales item needed the least business knowledge yet was the worst-answered calculation; candidates added but forgot to divide.
Cash flow ≠ profit
A profitable business can still run out of cash. Profit = revenue − total costs, and can include sales not yet paid for. Cash flow is the money actually in and out now: if customers pay late, cash runs dry while the firm looks profitable on paper. A weak grasp of how an overdraft works undermines a short-term-finance answer.
June 2024 Paper 1 Q6(c): on an overdraft-versus-trade-credit justify, candidates choosing an overdraft revealed weak understanding of how overdrafts work.
9-mark Justify: pick one, weigh, conclude
The 9-mark Justify which one is AO3-heavy. Apply each point to the named firm and build a chain of cause and effect. Then give a supported judgement: pick one option, weigh it in context, and add a new 'it depends' comment. Listing both is not evaluation.
Put the answer on the answer line
Write the final answer on the answer line — if correct it scores full marks automatically, and workings are read only if it is wrong. Obey to 2 decimal places exactly where stated (a whole-number result often signals an error), and bring a calculator.
Understand the calc, not just the formula
Learn every spec formula, but also understand what it calculates. Recall alone fails when a variable changes or a formula must be rearranged. Practise applying each formula to changed figures, not just reciting it — that is what separated marks on break-even.
A new business sets aims and objectives. They may be financial or non-financial.
| Financial | Non-financial |
|---|---|
| survival | social objectives (community, environment) |
| profit | personal satisfaction |
| sales | challenge |
| market share | independence / control (being your own boss) |
| financial security | — |
Objectives differ between businesses: a start-up may just aim to survive its first year, while an owner who wanted to escape a boss may value independence more than profit.
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