Business Flashcards
Define invention
The creation of new products or processes usually as a result of extensive research
Define innovation
The practical application of an idea or invention into a good or service that customers will pay for
Define risk
Any situation which brings exposure
Give examples of risks a business may face
Failure, financial loss and lack of security
What is the general rule of thumb when it comes to how many years a business will operate with no profit?
3 years
What should a business owner avoid doing when starting a business?
Putting too much money, into the business, that they can’t afford to lose
Why is lack of security a risk for business?
Being self employed means there is no regular income, not set hours, no assets paid for (cars and houses) and no holiday days
List some non-financial rewards from business success
Being a household name, winning awards, growing their business and create ne opportunities
List some financial rewards from business success
Profit, business sucess and independence
Why could being independent be seen as good?
Make your own hours, providing jobs to others, a sense of achievement and doing something you’re passionate about
True or False? Risk is unavoidable
True
Before making a decision what must a business do?
Balance the risk of any decisions against the potential rewards (risk reward assessment)
Define business
An individual or organization whose aim is to satisfy the needs or wants of consumers by providing goods and/or services that they will buy
What are the three purposes of business activity?
To meet customer needs, produce goods/services and to add value and give a reason to buy
Define a market orientated business
A business that provides products because consumers want them
What do market orientated businesses look for?
Gaps in the market
What are the four customer needs?
Price, quality, convenience and choice
Define price
The amount that someone is willing to pay for a good or a service
Define quality
The percieved standard of a good or a service
Define convenience
How easy it is for a customer to obtain a product or service
Define choice
Refers to giving customers a number of options
What is the best way to get customers to buy?
Know who the customers are
Identify what those customers needs are
Define market research
The organised gathering, recording and analysis of data in order to better understand the behaviour of customers
Why do business undergo market research?
Identify a gap in the market
Inform business decisions
Reduce the business risks
Understand customer needs
What are the two methods of market research?
Primary and secondary research
Define primary research
New information collected first hand
Define secondary research
Existing information collected by someone else
Give examples of primary research
Surveys
Focus groups Questionnaires
Give examples of secondary research
The internet, market reports and government reports
What is quantitative data?
Data expressed in quantities (stats)
What is qualitative data?
Data expressed in quality (opinions)
Define market segmentation
The process of dividing a market into smaller groups that contain consumers with similar needs, wants or characteristics
What are the ways a market can be segmented?
Behaviour
Geographical location
Demographic
Psychographical
Define a gap in the market
An unmet consumer need that provides an opportunity for businesses to increase their sales
What can a market map help identify?
The competition and how they compare
What is a unique selling point?
One way in which a business can gain a competitive advantage over other businesses
What two things must a business need?
Aims and objectives
What are business aims?
The long-term outcome that is desired from undertaking business activity
What are business objectives?
The short-term specific targets that are set to help a business achieve its overall aims
Give examples of financial aims?
Survival Sales Profit Market Share Financial Security
Define profit
The difference between the amount recieved for selling products and services and the cost of making or providing them
How could a business increase revenue?
Sale more
Increase prices
Define market share
The proportion of sales within a market that are accounted for by a particular company or product
Give examples of non-financial aims?
Social (society improvement)
Personal satisfaction
Challenge
Independence
What makes aim and objectives differ?
The purpose of the business
The size of the business
The age of the business
Why is cash important to a business?
It’s needed to pay suppliers, overheads and employees
Define insolvency
A situation where a business is not able to pay the debts that it owes
Define cash inflows
Cash that is coming into the business
Give examples of cash inflows
Sales
Loans
Grants
Define cash outflows
Cash that is leaving the business
Give examples of cash outflows
Materials
Rent
Wages
Define net cash flow
The difference between the cash flowing into an out of a business, over a given time period
What is the net cash flow formula?
Net Cash Flow = Inflow - Outflow
Define cash flow forecast
A financial document that estimates the amount of cash coming into and out of a business over a given period of time
What can a business do by producing a cash flow forecast?
Identify problems before they happen
Plan how to use excess cash
Compare their forecast to their actual cash flow to monitor the business
Support applications for any borrowing
What three things makes up a cash flow forecast?
Receipts, payments and net cash flow
Define receipts
Cash that the business expects to recieve
Define payments
Cash that the business expects to send
What is cash needed to spend on?
Stock Premises Staff Equipment Marketing Overheads
Give examples of internal sources of finance
Personal Savings
Retained Profit
Give examples of external sources of finance
Overdraft Share Capital Trade Credit Crowd-funding Loan Venture Capital
What is retained profit?
Profit kept
What are the pros of retained profit?
No interest
Doesn’t have to be repaid
What are the cons of retained profit?
A new business won’t have any
Limited to how much previous profit has been retained
What is personal savings?
Cash invested by an owner
What are the pros of personal savings?
No interest
Doesn’t have to be repaid
What are the cons of personal savings?
Owner must be willing to invest the amount
What is an overdraft?
When a bank allows more money to be spent than there is in a bank
What are the pros of an overdraft?
Flexible
Cheaper source of short-term finance
What are the cons of an overdraft?
High interest
Agreed in advance
Expensive if used over long-term
What is trade credit?
A source of finance provided by supplies where it allows goods to be paid for at a later date
What are the pros of trade credit?
Discounts for early payments
Allows to “buy now and pay later”
What are the cons of trade credit?
It may not be available from all suppliers
Additional charges may be incurred if payment not made on time
What is a loan?
An amount of money that is borrowed for a fixed period of time that must be paid back plus an agreed rate of interest
What are the pros of a loan?
Regular repayments help with budgeting
Large purchases can be made
What are the cons of a loan?
Interest
Lenders may ask for security
What is share capital?
The money raised by selling additional shares
What are the pros of share capital?
The money does not have to be paid back
Large amounts can be made
What are the cons of share capital?
Only available in Ltd’s or Plc’s
Involves costs
Future profits have to be shared with more owners
Shares sold may earn value after sold
What is venture capital?
Money that is invested by specialist investors
What are the pros of venture capital?
Venture capitals provide experience and business contacts
Large sum of money
What are the cons of venture capital?
Costs high
Danger of control of the business being lost
Loss profits
What is crowd-funding?
Money that is raised by a large number of people
What are the pros of crowd-funding?
Providing access to large amounts of money quickly
Raising awareness of a new business or product
What are the cons of crowd-funding?
Providing cheap or free products costs money
New product ideas could be copied unless properly protected
What factors affect which source of finance is appropriate?
Age of the business
How long the finance is required for
Define short-term sources of finance
Finance required for 12 months or less
Give examples of short-term sources of finance
Overdrafts
Trade credit
Define long-term sources of finance
Finance that is required for more than a year
Give examples of long-term sources of finance
Personal Savings Loans Venture Capital Crowd-funding Share Capital Retained Profit
Define liability
Being legally responsible for any debts or financial commitments of a business
What are the two types of liability?
Unlimited and limited liability
What does unlimited liability mean?
The owner is responsible for all debts
What does limited liability mean?
The business is responsible for all debts, not the owner
Give examples of types of businesses
Sole Trader
Partnership
Limited Company
What are unincorporated businesses?
Businesses that are not a separate legal entity (legal action is taken against owner)
What are incorporated businesses?
Businesses that are a separate legal entity (legal action is taken against business)
What are the pros of sole traders?
Owner makes all decisions Usually small - so little captial needed Very easy to setup Can respond quickly to changes in customer needs Individualised services can be provided Accounts can remain private
What are the cons of sole traders?
High costs Difficult for the owner to take holidays Long hours Illness can cause problems Unlimited liability Extra capital may be hard to raise
What is the deed of a partnership?
An agreed legal document that outlines the rules by which a partnership will be run
What is included in a deed of partnership?
Who the partners are
How much each partner has invested
How profit is shared
The process when a partner leaves or joins
What is a limited partnership?
When at least one partner does not play an active role in the business
What are the pros of partnerships?
Easy to setup Responsibilities are shared Allows family ownership of the business Acounts can remain private Capital can be obtained from partners Usually small - so need less capital
What are the cons of partnerships?
Possible disagreements
External capital may be difficult to obtain
Ordinary partners have unlimited liability
Possible legal costs of drawing up a deed
What are dividends?
Profit left over that is paid to shareholders
What are the pros of ltd’s?
Shares can be sold
Limited liability
Finance can be raised by selling shares
Staff are likely to have specialist skills
Extra capital makes growth easier
Likely to have more staff so easier to cope with absences
What are the cons of ltd’s?
Accounts are not private
Shares can only be sold privately
Profits shared
Decisions may take longer
What are the pros of franchising?
Free advertising Easier to borrow Most problems will have been overcome Good chance of success Training provided Franchisor will provide support and help
What are the cons of franchising?
Can't make decisions Cannot sell the franchise without the agreement of the franchisor Have to pay royalties to the franchisor Have to buy supplies from franchisor Risk that franchise can be removed
What determines where a business chooses to locate?
The type of business activity
Proximity to resources and competitors
The nature of the permises required
What must a business locate close to?
It’s competitors
It’s labour
It’s market
It’s materials
What has the internet done to business location?
Removed the need of it
Why has the internet removed the need of business location?
It gave businesses access to a wider range of customers and removed the need for large physical presmises
What is marketing about?
Identifying your customers and then finding out what they want
What are the four p’s?
Product
Price
Place
Promotion
What are methods of promotion?
Advertising
Branding
Sales Promotion
Public Relations
What does place refer to?
Where a product is sold and how it gets there
Define business plan
A formal document outlining what a business wants to achieve and how it intends to do be sucessful
What should a business plan include?
Marketing Mix Business Idea Market Research Aims and Objectives Financial Forecasts Sources of Finance Location
What two financial forecasts can be used in a business plan?
Break-even Calculations
Cash Flow Forecast
Why should a business do businesses plan?
Survival
Finance
Risks
Objectives
What is the first priority for a business?
Survival
What are the reasons for a business to fail?
Poor Plans
Not Knowing The Market
Poor Financial Control
What is the most common cause of business failure?
Running out of cash
Define stakeholder
People or groups who have an interest in the activites of a business as they may be affected by them
Give examples of stakeholders
Customers Suppliers Owner Employees Local Authorities
What are the two types of stakeholders?
Internal and external stakeholders
Define an internal stakeholder
People or groups who are directly involved in the daily activites of a business
Define an external stakeholder
People or groups who are not involved in the daily activites of a business, but are affected by them
What actions may stakeholder groups take?
Protests
Boycotts
Negative Publicity
Give an example of stakeholder groups that may have conflict
Owners & Managers - Profit-related objectives
Customers - Non-profit related objectives
How do businesses resolve conflict?
Identify the cause
Identify solutions
Negotiate
Agree on a solution
What are the benefits of meeting stakeholder needs?
Improved relationships
Access to a wider network of contacts
Improved reputation
What are the drawbacks of meeting stakeholder needs?
Time consuming
Risk of upsetting other stakeholders
Where is technology used in business?
Payments
Social Media
Communication
E-commerce
How does technology affect sales?
Customers will:
Have more infomation
Have access to much wider range of products
Will share their experiences
How does technology affect costs?
Better technology means more efficient production so less staff but also equipment is expensive and staff will need training
How does technology affect marketing?
More customers
More information, so firms need to be competitive
What is the purpose of legislation?
Consumer Protection
Employee Protection
Prevent Exploitation
What does the equality act prevent?
Gender, religious, sexual orientation, disability, race and age discrimination
Whats the impact of complying with laws?
Time costs
Financial costs
Whats the impact of not complying with laws?
Fines Legal costs Loss of revenue Cost of replacing products Bad publicity Difficulties in recruiting
Define economy
The production and consumption of goods and services within a country
What does the economic climate refer to?
Consumer Income
Business Confidence
Business Investment
Job Vacancies
What are the four different climates of the business cycle?
Recession
Recovery
Boom
Slump
What are the economic factors?
Interest Rates Exchange Rates Inflation Unemployment Taxation
Define interest rates
The amount charged by a lender for borrowing a sum of money
Who sets the base interest rate?
The Bank of England
How does interest affect consumers?
Higher mortgage payments
Borrowing less money
How does interest affect business spending?
Reduce investment
Reduce production
Look to save money
Define exchange rate
The price of one currency expressed in terms of another currency
Define inflation
A general and sustained increase in price levels
How does inflation affect businesses?
Reduced sales
Lower investment
Lower wages
Harder to compete with foreign firms
Define unemployment
People who are able, available, willing and actively seeking work, but do not currently have a job
What are the positive effects of unemployment?
Larger pool of people - wider choice when recruiting
Wage don’t need to be as attractive
What are the negative effects of unemployment?
Incomes lower - less customer spending
Define taxation
A financial charge imposed by a government to fund various public expenditures
Give examples of taxes
Income Tax Corporation Tax Value Added Tax National Insurance Council Tax
Define direct tax
Tax paid directly to the government
Define indirect tax
Tax collected by other organisations and paid indirectly to the government
Give examples of direct uk taxes
Income tax and corporation tax
Give examples of indirect uk taxes
Value added tax and landfill tax
How does taxation affect bussines?
Reduction of profit - more money a business has to spend
Reduction of revenue - less consumer income
How do business respond to changes in legislation?
Increase minimum wage -
Reduce staff
Increase prices
Stricter health and safety rules -
Withdraw products
Make changes to products
How do business respond to changes in economic climate?
Making changes to the product
Targeting different customers
Changing prices
