1.3 putting a business idea into practice Flashcards

1
Q

what are ways to compete with other businesses?

A
  • wider product range
  • lower prices
  • better design
  • higher quality
  • more convenient location
  • stronger brand image
  • better customer service
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2
Q

what is product differentiation?

A

making products different from others

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3
Q

why do businesses differentiate their products?

A
  • to target different market segments

- to gain an advantage over rivals when faced with competition

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4
Q

what is a competitive market?

A

when there is a large number of businesses compared to customers

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5
Q

what may businesses do in a competitive market?

A
  • improve efficiency
  • find ways to improve competitiveness
  • differentiate its products/services
  • lowering its prices
  • giving customers special offers
  • cutting costs
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6
Q

what are the drawbacks of a highly competitive market?

A
  • lower prices in order to compete
  • accept lower profit margins
  • cut back on expenditure
  • be careful about how and when it expands
  • monitor its competitors
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7
Q

what are aims?

A

general goals a business sets

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8
Q

what are objectives?

A

they are more specific than aims but contributes to achieving the overall aim. they will be financial or non financial

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9
Q

what are examples of financial objectives?

A
  • profit

- market share

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10
Q

what are examples of non financial objectives?

A
  • independence

- customer satisfaction

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11
Q

why may aims and objectives differ between businesses?

A

due to different stages of development

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12
Q

what is the formula for revenue?

A

REVENUE = PRICE X QUALITY

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13
Q

what are fixed costs?

A

costs that do not change

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14
Q

what are variable costs?

A

costs that change directly with the number of products made

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15
Q

what is the formula for variable costs?

A

VARIABLE COSTS = COST OF ONE UNIT X QUANTITY PRODUCED

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16
Q

what is total costs?

A

the total costs for a business

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17
Q

what is the formula for total costs?

A

TOTAL COSTS = TOTAL FIXED COSTS + TOTAL VARIABLE COSTS

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18
Q

a business sells 100 products
the products cost £5 per unit produced
the total fixed cost is £400
what is the total cost for the business?

A

100x5 (variable costs)=500

500(variable costs)+400(fixed costs)=£900(total costs)

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19
Q

what is profit?

A

when a business is making money

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20
Q

what is the formula for profit?

A

PROFIT = REVENUE - COSTS

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21
Q

what does profit allow businesses to do?

A
  • survive
  • expand
  • provide security/savings
  • reward employees
  • generate wealth
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22
Q

what is the formula for interest?

A

INTEREST (ON LOANS) = TOTAL REPAYMENT - BORROWED AMOUNT/BORROWED AMOUNT X100

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23
Q

what is break even?

A

when revenue = total costs

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24
Q

what is total revenue?

A

the total money generated from sales in a business

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25
Q

what are the total costs?

A

the sum of all the costs

26
Q

what are fixed costs?

A

costs that dont change is a business

27
Q

what is margin of safety?

A

the amount of output between the actual level of output where profit is being made and the the break even level of output

28
Q

how can you tell break even level from a graph?

A

it is where total costs and total revenue meets

29
Q

what is the formula for break even points in units?

A

BREAK EVEN = FIXED COSTS/(SALES PRICE-VARIABLE COSTS)

30
Q

what can break even analysis do?

A

it can identify strategies for lowering break even point and increasing profit

31
Q

what is the formula for margin of safety?

A

MARGIN OF SAFETY = SALES - BREAK EVEN SALES

32
Q

what is cash flow?

A

the money going in and out of a business on a day to day basis

33
Q

what is a cash flow forecast?

A

predicts how cash will flow through a business over time

34
Q

what is cash inflow?

A

money going into the business

35
Q

what is cash outflow?

A

money going out of the business

36
Q

what is net cash flow?

A

cash inflow-cash outflow

37
Q

what is opening balance?

A

the money in a business at the start of the month

38
Q

what is closing balance?

A

the money in a business at the end of the month

39
Q

what is the importance of cash?

A

without cash a business would not be able to:

  • pay suppliers and debts
  • repay bank loans
  • pay wages to employees
  • buy raw materials
  • promote the business
40
Q

what impacts on cash flow?

A
  • change in sales revenue/demand
  • change in costs
  • seasonality in sales
  • business expansion or contraction
  • change in stock levels
  • credit terms can change
41
Q

what is a negative cash flow?

A

when the cash outflows are greater than the cash inflows

42
Q

why would a business need finance?

A
  • paying for expenses
  • expanding the business
  • investing in new products and services
  • starting a new business
  • paying unforeseen costs
43
Q

what is a short term source of finance?

A

finance that is paid immediately or quite quickly and are usually used to buy stock or pay the utility bill

44
Q

what are long term sources of finance?

A

finance paid back over a long period of time and are usually used too finance a new business or to expand q business

45
Q

what are two sources of short term finance?

A

1) Bank overdraft- covering short term expenses that can be paid quickly
2) trade credit- paying for stocks later

46
Q

what are 6 long term sources of finance?

A

1) Personal savings- covering short term expenses
2) Venture capital- raising capital from investors
3) Loan- covering large expenses that will be paid back over a period of time
4) Retained profit- investing in a successful business
5) crowd finding- raising money from people for potentiall reward

47
Q

why do businesses set aims/objectives?

A
  • gives them a target to be measured
  • can motivate workers
  • aids decision making
48
Q

fixed costs: 12,000
variable costs:120
selling price 180
what is the break even?

A

12,000/180-120=200

49
Q

actual sales: 470
break even; 420
what is the margin of safety?

A

470-420=50

50
Q

what are the advantages/disadvantages of an overdraft and definition?

A
a deficit in a bank account caused by drawing more money than the account holds
advantages:
-flexible
-interest is only payed on the amount used
disadvantages:
-high interest
-banks can ask for immediate repayment
-banks can refuse an overdraft
51
Q

what are the advantages/disadvantages of trade credit and definition?

A

Trade credit is the credit extended to you by suppliers who let you buy now and pay later
advantages:
-never run out of products to sell
-can sell products before paying the supplier
disadvantages:
-the supplier may charge higher costs
-supplier may say no

52
Q

what are the advantages/disadvantages of personal savings and definition?

A
money owned by the entrepreneur that is put into a business 
advantages:
-no interest
-flexible
-freedom
disadvantages:
-it is your own money
53
Q

what are the advantages/disadvantages of venture capital and definition?

A

money put into a small business with high potential by a venture capitalist
advantages:
-can give starting money and strategies
disadvantages:
-lose control
-you have to give a large share to the VC

54
Q

what are the advantages/disadvantages of share capital and definition?

A
when someone puts money into a business in exchange for a share in the business
advantages:
-do not need to pay back money
-no interest
-attracts new finance
-raises business profile
disadvantages:
-potential conflicts
-loss of ownership
55
Q

what are the advantages/disadvantages of loans and definition?

A
advantages:
-negotiate terms
-large amounts of money
disadvantages:
-deadlines
-interest
56
Q

what are the advantages/disadvantages of retained profit and definition?

A

retained profit is profit kept by a business to be used to pay costs
advantages:
-quick and easy to access
-flexible
disadvantages:
-less likely to be available for start up businesses
-might need for something else

57
Q

what are the advantages/disadvantages of crowd funding and definition?

A

when a lot of people donate money to a business
advantages:
-promotes the business
disadvantages:
-lets your competitors know you need funds
-may not attract other investors
-may be a waste of time

58
Q

advantages of break even analysis?

A
  • helps understanding on who will invest in a business
  • you can calculate margin of safety
  • shows advantages of keeping fixed costs down
  • calculations are quick and easy
59
Q

disadvantages of break even analysis?

A
  • unrealistic assumptions
  • fixed costs vary when output changes
  • can only show one product at a time
  • can only be used as a planning aid
  • dose not take into account unforseen circumstances
60
Q

how could a business cover negative cash flow?

A
  • cut costs
  • arrange an overdraft
  • use a cheaper supplier
  • discount and promote
  • reduce waste
  • organize trade credit