Business Studies- 1.1 & 1.2

Question 1

What is a business plan and why is it useful? (4)

Answer 1

-A business plan is a report by a new or existing business that is a written document that describes a business, its objectives, its strategies, the market it is in and its financial forecasts.

• Drawing up a business plan forces owners to:
• focus on their aims.
• clarify thoughts and gap in the market.
• helps test the financial viability.
• a business plan is essential to raising finance from outside providers - particular investors and banks

Question 2

What is a business?

What are good and services?

Answer 2

A business in an organization that provides goods and services.
Goods are physical products that consumer can have such as cards or burgers.
Services are non physical items such as hairdressing, dental treatment.

Question 3

What is an entrepreneur? What is an enterprise?

Answer 3

A person who organizes, manages, and takes on the risks of a business with the aim of making a profit from the business.
-Enterprise is essentually a business or a company.

Question 4

How can competition be improved? List 3 factors.

Answer 4

1) Price- if there are retailers offering the same product, the retailer will lower their price to appeal to the customers.
2) Products-in order to appeal to customers, businesses may launch new products range that they believe will be superior to the products the other businesses offer.
3) Customer service- helps obtain customer loyalty.

Question 5

How can a business make their product stand out? (2)

Answer 5

A product can be differentiated through the factors of:

• establishing a strong brand image to be identified with.
• a USP of goods and service, whether that be a tagline or a slogan.
• Other competitive factors, such as a product having a better location, design, appearance, or price than rivals.

Question 6

How are new business ideas developed? How can it affect a business- briefly explain. (3)

Answer 6

1) Change in what consumer wants- lifestyle and technological changes affect their needs
2) Change in technology- forces business to be more modern and keep up with the trend
3) Products and services become obsolete where they are no longer used due to technology imrpoving drastically.

Question 7

How can changes in technology affect a business? (3)

Answer 7

1) CIT-they can find a cheaper way to reach the customer- online and enable businesses to set up a website- reducing costs.
- help customer segmentation and therefore help the business analyse the different needs and necessities of groups of people- may help them deliver their product/service with the consumer more effectively.
- social media as a way to reach customers and improve their own analytical data to see the changes in what consumer wants.

Question 8

How do new business ideas come about?(2)

Answer 8

1) Adapt an existing product or service to keep up with the changes in what consumers wants.
2) Create a completetely original product or service that hasn’t been produced before to satisfy a new or previously unknown customer trend- done by spotting a gap in the market.

Question 9

What is social enterprise?

Answer 9

A business that is set up to help society rather than to make a profit and make a difference.

Question 10

What can be forms of risks when a business is set up?

Answer 10

1) Business failure,
2) Financial loss,
3) Lack of security.

Question 11

Define what is business failure, financial loss and lack of security

Answer 11

1) Business F- business might fail because there could be
- unexpected costs, probs with cashflow, unexpected drop in sales revenue.
2) FL- competitive risks, technical risks and financial risks.
3) LOF- descisions by themselves- huge amount of stress and incredibly risky as well.

Question 12

What is the role of a business enterprise? List 3

What is the role of entrepreneurship? List 3

Answer 12

1) Produce goods or services,
2) Meet customer needs.
3) Add value- convenience, quality, branding, USP.

1) Organises resources,
2) Makes business decisions,
3) Takes risks.

Question 13

What is added value and why is it important?

What can be sources of added value?(5)

Answer 13

Added value increases the worth of a product the business creates and added value is the difference between the price of the product and the cost of the input used to make it.

-Quality, design, convenience, USP, branding.

Question 14

How does added value affect a customer?

Answer 14

Adding value will also help increase product trial where consumers will be be more likely to buy a new product if they have a strong brand and also do repeat purchases where consumers will be most likely to choose a strong band again if associated with a positive feeling. It helps build customer loyalty and allows a business to charge at a higher price.

Question 15

Why is it important to understand customer needs for a business. (3)

Answer 15

• Generate more sales, obtain business survice
• Assures the customer for a re-purchase- customer loyalty.
• Keeping up with the trend of the market.

Question 16

What is the purpose of market research?

Define two forms of market research.

Answer 16

Identify and understand customer needs, gathering data about customers, competitions and market trends- helps reduce risk and identify gaps in market(Niche)

-Primary Research- New information which has not been collected before and this can be in the form of:
Focus groups, interviews, observations, questionnaires.

Secondary Research-New information which has not been collected before and this can be in the form of:
Focus groups, interviews, observations, questionnaires.

Question 17

How can social media help market research? List 5

Answer 17

• Can help track trends and therefore reduce costs as it is online based.
• Can also help see emerging, hidden trends.
• Also help customers communicate with business.
• Research con be conducted in a matter of mins or hours- use market research to follow increasingly specific aspects of the business’ marketing efforts.
• broaden audience engagement and obtain useful, accurate and honest data from real time customers.

Question 18

What is market segmentation?

What can segmentating a market be split into?

Advanatages of market segmentation?

Answer 18

Dividing a market into distinct groups of buyers who have similar needs, characteristics, or buying habits

• Split into location, demographics, income, lifestyle, age and behaviour- segmented to understand customer appeal.

–breaking down a market into submarkets can help lead to business opportunity as it can be used to identify a business opp through market map- understand customer needs and what they appeal to.

Question 19

What is a market map?

Answer 19

-Enables businesses to see all the products or service in the market, identify competitors, spot market gap where business can invest products.

Question 20

What is a monopoly?

Answer 20

A monopoly exists when one firm has 25% or more of the market, so reducing competition.

Question 21

What is an aim or an objective?

Examples of aims and objectives? List 5

What can be non-financial aims? (5)

Answer 21

An aim or objective of a business is a statement as to what they’re trying to achieve in the next 12 months.

• 1) Survival- short term, typical for a start up business or when new firm enters a market- often at a time for crisis.
  2) profit- objective achieved by increasing revenue or decreasing costs.
  3) Sales- maximise the amount made from selling products to enable survivial/ further growth.
  4) Market share- increase the volume or value for sales and its mesasured as a % for the entire market.
  5) Financial security

NF

1) Social objectives- help society as a whole and make sure business has pos effect on others.
2) Having independance and control.
3) Challenge.
4) Personal satisfaction/achievement.
5) Customer satisfaction.

Question 22

What is the equation for total cost? Def of fixed cost, sales volume and profit?

Answer 22

Total cost= fixed costs+ variable costs.

• Fixed costs do not vary with the nu of products made.
• Sales volume- nu of products or services sold over a period of time.
• Profit- revenue is greater than cost over a period of time.

Question 23

How to calculate variable cost and sales revenue?

Answer 23

Variable cost- costs which change directly with the number of products made( Variable cost per unit x nu of units= variable cost)

-Sales revenue is the amount of income received from selling goods and services over a period of time. Its greater than costs
( sales volume x price)

Question 24

What is the equation for total cost? Def of fixed cost, sales volume and profit?

What is price, loss and forecast?

Answer 24

Total cost= fixed costs+ variable costs.

• Fixed costs do not vary with the nu of products made.
• Sales volume- nu of products or services sold over a period of time.
• Profit- revenue is greater than cost over a period of time.

Price- amount of money customers give to buy one prodcut.

• Loss- reveneue is less than costs over a period of time.
• Forecast- prediction of the future.

Question 25

What is profit and the calculation? How can businesses use profit?

When is a loss made and how can it be reduced or turned into profit?(2)

Answer 25

Profit is the surplus left from revenue after paying all costs.

• Profit= total revenue- total costs.
• > Use profits- rewards owners, invest in growth, or save for future.

A loss is made when the revenue made from sales is not enough to cover the costs of production. They can be turned into profits:

• cutting costs- letting staff go or paying lower wages.
• increasing revenue- cutting price and selling more items if the demand is elastic.

Question 26

When is break even point reached?

Breakeven adv and disadv?

How to calculate breakeven output?
-cost of breakeven output

Answer 26

The total revenue matches the total costs of the business, so no profit or loss

• Above it- profit.
• Below- loss.

Adv:
-allows firms to plan the levels of production and how it’ll be profitable.
Disadv:
- makes assumptions about various factors such as all units are sold, external environment is stable and accurate forecast demand.

Breakeven output(units)= total fixed cost/ contribuiton per unit( selling price per unit- variable cost per unit)
-breakeven output in units x sales price

Question 27

What is the margin line of safety?

How to calculate profit of a business using margin of safety.

How to calculate total contribution? How to calculate total contribution per unit?

Answer 27

The diff between the sales(units sold) and breakeven output.
-> actual budgeted sales(Units sold)- breakeven output.

Margin of safety( Units sold- breakeven output) x (selling price-variable cost)

Total revenues- Total variable cost.
-Selling price(per unit)- Variable cost(per unit)

Question 28

How to improve margin of safety?(3)

Answer 28

• Increase the contribuition per unit so reduce variable and selling price.
• Lower the breakeven by turning fixed costs into variable costs.
• Increase actual sales by selling more.

Question 29

How does Cash flow into the business as?

• What’s difference between cash flow and profit?
• What happens if a business runs out of cash?

Answer 29

• Recipts.
• Cash flow is the movement of money in and out of a business whereas profit is retained from revenue after total costs and expenses have been paid.
• If a business runs out of cash-it becomes insolvent which means it can result in business failure.

Question 30

Why is having a cashflow forecast important?

What’s the equation for net cash flow, opening and closing background?

Answer 30

-It is important to identify where the business needs to raise finance and get an overdraft.

Net cash flow= total receipts- total payments.
Opening balance= previous month closing balance.
Closing balance- net cash flow + opening balancing.

Question 31

How can a business improve its cash flow?(2)

Answer 31

• Reducing cash outflows such as delaying payments.

- Increasing cash flow by chasing debtors, selling assets, or securing an overdraft.

Question 32

What is a Private Limited Company? Adv and Disadv?

What is a Public limited company? Disadv?(4) Adv? (2)

Answer 32

Owned and run by shareholders who are family and friends where they cannot trade on the stocks on stock exchange and the owner remains in control.

Adv- easier to raise finance, limited liability.

PLC

A company owned by shareholders where the shares can be traded openly on the stock market. Usually well known businesses or a chain of retailers.

Adv:

Seen as more prestigious and potentially reliable.
-May be able to negotiate better with suppliers.

Disadv-
original owners may lose control and ownership of the business.
-More complex accounting and reporting procedure.
-Risk of hostile takeover.
-Increased media attention.
-Less privacy in relation to financial problem.
-have more statutory and legal requirements.

Question 33

What is franchising?

What is a franchise between?

Why is franchising less risky?

Answer 33

-is to buy into an existing business and acquire the right to use an existing business idea.

-A franchisee, who buys the right from a franchisor to copy a business format.
And a franchisor, who sells the right to use a business idea in a particular location.

• Opening a franchise is usually less risky as a franchisee is running a well established chain and will also get the support and supplies needed from the franchisor.
• It’s easier to gain customers, it’s a tried and tested model and easier to raise bank finance.

-

Question 34

2 Advantages and 3Disadv for the franchisee?

Answer 34

Adv for the franchisee are that:

• it is their own business,ongoing advice and support from the franchisor
• don’t need experience and running a business with a reputation and a name therefore there is a lower failure and risk rate. T

Disadv:

• are that the franchisee does not own the business format
• large proportions of revenue go to the franchisor and you are supposed to act in the best interest of the franchisor.
• you have restricted trade and marketing activities and franchise needs to earn enough profit to save both franchisee & the franchisor.

Question 35

2 Adv and Disadv for 3Franchisor?

Answer 35

Advantages for the franchisor:

• is that it helps with expansion,
• lower investment needed and regular fees and payment provide a strong revenue

Disadv:

• are that poor franchisee could damage the reputation of the whole franchise
• franchisee’s benefitting from the franchisor’s model
• and have to have robust management systems to control the franchises.

Question 36

What are the factors that influence a business’ location? Give 6 factors.

Answer 36

• Cost- locations guaranteed to bring in a stream of customers are the priciest and also have to take advertising into consideration around area. Costs of raw materials as well and labour.
• Proximity to the market: needs to be close to potential customers and should be at their convenience and also want a location that the customers can feel safe in. Nearness of the market and delivering the goods are important because it deals with the cost and how expensive it’d be
• Staff: are there sufficient number of people available to work with the right skill at the right wage.
• Material: if raw materials are bulky and expensive to transport, it will be an interest to have a location near them.
• Competitors- Help identify strengths and weakness of competitiors and if there is more of competition, it helps establish and see if products would be able to sell and compete.
• Infrastructure: the transport, the telecommunication.An efficient transport network enables staff to get to work easily. It also allows supplies to be brought in from far afield and permits finished products to be moved to market cheaply and quickly.

Question 37

What is the benefit of a marketing mix? Give 3 factors

Answer 37

• helps business become more dynamic and well prepared if something was to go wrong as the business understands their products, people & price so they would be able to respond to different outcomes efficiently
• It also helps a business differentiate from competitor when analysing a marketing mix and by improving it, gives a good competitive advantage.
• also be a guide to improve business and people and process are important to organization and optimising both helps improve overall working.

Question 38

How can technology influence the marketing mix?(3)

Answer 38

Product- firms to develop new ‘packaged’ products pr by providing online integrated customer services.

• Price- Technology easily enables to compare prices with competitors and the marketplace. Also having an online base reduces costs of having a physical base.
• Promotion: advertising, website, sale promotions can all be provided on the internet and online and it gives an easier access to the customers.

Question 39

What is a stakeholder and give examples?

Answer 39

A stakeholder is a person who is affected or interested in a business activities.
Examples include manager, customers.

Question 40

What are the 4 main ways technology is used by busiess?

Answer 40

-E-commerce, Social media, digital communication, payment systems.

Question 41

How is E-Commerce and Social media used by a business?

How is digital communication and payment system used by a business?

Answer 41

1) E-commerce is when the internet is used to carry out a business task and this can be done by using computers or smartphones. Allows business to trade any time and allows to have customers from all across the world and their orders can be processed immediately.
2) Social Media- Allows a business to communicate with customers, read customers comments and reviews and it’s an effective way for customers, and other stakeholders to influence a business.
3) Digital Communication- This is communication through: Email, SMS, Website- allow business to communicate with their customers 24/7 and allow to hold virtual meetings through Skype.
4) Payment systems- Paypal is one company that allows customers and businesses to pay for things online and this means people all over the world can use their local currency to pay for products online.

Question 42

What is the purpose of legislation?
List one legislation law.

Why can legilation be a disadvantage to businesse?(2)

Answer 42

The purpose of legislation is to make sure customers are protected when they buy goods or services from a business and also helps business understand the consequence of not following the law.

-
What is the Customer Protect Act 2015?
Makes sure customers are protected when they buy goods or services from a business.

• -lead to an increase in costs for businesses as they would be paying more money for things such as recruitment where they would have to advertise and that would cost a lot of money.
• Also to have a ‘public liability insurance’ could be very expensive to require for many of the employees.

Question 43

What are the 4 key areas of employment the Employment Law covers?

Answer 43

1) Recruitment- employers must act fairly advertising, selecting and interviewing candidates, offering candidates job, training the employee and producing employees with contract of employment.
2) Pay-national minimum wage applied to different age groups.
3) Discrimination- business cannot treat someone differently to someone because of a particular characteristic such as disability, ethnicity or gender.

4)Health and Safety- safe place to place, suitable equipment and provide training to use the equipment, premises are safe for anyone to visit,etc.
§

Question 44

What is trademark?

What is the HMRC? What is income tax?

What is VAT? What is Corporation Tax?

What is National Insurance Contributions(NICs)

Answer 44

1) a symbol, word, or words legally registered or established by use as representing a company or product.
2) The government authorities in the UK responsible for collecting tax.
3) A tax on the value of income earned by workers( this includes sole traders, who pay income tax on their earnings, workers and employees). Business must take their tax from an employee’s earnings before paying them their wages and this is ‘Pay as You Earn’.
4) VAT- A tax on the value of sales. It is paid by businesses to the government,
5) Corporation Tax- A tax on the profits of limited companies. Only paid by limited companies.
6) NIC- Tax on the earnings of workers and sole traders however NICs are used by the government to pay for worker’s future benefits eg pensions and incapacity benefits.

Question 45

Influences in economy?

How does interest rate affect?

Who’s the most affected by interest rates?

Answer 45

The economy is doing well(known as boom)-> Sales will increase-> therefore prices will increase or launch new products.

The economy is doing bad(known as recession)-> Sales will decrease-> lower price or introduce special promotion to attract customers.

• increase in interest rate, that will result in having to pay more to borrow loans and therefore people will pay back loans more quickly. If interest rate is high, savers are paid more money for keeping their money in the bank.
• decrease in interest rate: borrowers have to pay small amounts of money to borrow from a bank which means they have more money to spend, savers will be paid small amount of money for keeping their money in the bank
• The effect of increased interests rates hits luxurious, high-end brands because it means customers won’t be able to buy their products due to their income falling as a result.

Question 46

What happens when money is borrowed from creditors?

Answer 46

Money borrowed from creditors is paid over time, with an additional rate of interest. Creditors ask for security just in case the debtors won’t be able to pay back and so the borrowers may have to offer their assets such as their house as collateral

Question 47

What’s inflation?

What does low inflation mean?

Answer 47

An increase in price over a period of time and changes every month. It is monitored by the Bank of England.

-Low inflation can benefit a business because it means that the amount it pays to its suppliers’ should be low and low inflation means that employees are less likely to ask for pay increases.

Question 48

External influences are in the form PESTEC. Define each term and their influence.

Answer 48

Social-This more so varies on the trends and the changes in consumer needs such as changes in lifestyle, opinions and they have to be accommodated by a business if they don’t want to go out of business.

-Changes in trends and opinions will require a business to change its outlook and its products accordingly or they risk losing customers and because of this, they’d have to carry out more market research in order to do so.

Techno-As technology is evolving, businesses need to make sure they are constantly accommodating to their customers with good communication and they have to be flexible or they risk running out of business.
-Provide opportunities for businesses to adopt new breakthroughs, innovations, and inventions to cut costs and develop new products

Enviro–how key structural changes in the world affect their demand and supply of products.
-They also need to think about being ‘environmentally-friendly’ in order to maintain their reputation and not have a bad image.

Competitive-competing with other business with the same product to win over the same customer.

• release a new line of products.
• have to keep up with trends and market-market research.

Question 49

What is organic growth?(4)

What is inorganic growth?(3)

What is a merger and a takeover?

Answer 49

Organic Growth = Internal growth.
-when a business expands its own operations rather than relying on takeovers and mergers.
-examples of organic growth:
-release new products(innovation, research and development) or
approaching the market in a different manner by developing their marketing mix
- expanding overseas(finding new markets)
- expanding their units and location.

inorganic growth

• From mergers and takeovers
• joint ventures( two companies work together)
• strategic alliances( work with another business from abroad).

Merger-Merger involves a NEW FIRM being created by two existing firms ‘merging’
whereas
Takeover-involves an EXISTING firm having more than 50% of another firm thereby having control.

Question 50

Why can growth be an objective? Give 2 reasons.

Why can gowth not be desirable? 2 reasons.

Answer 50

• firms may wish to benefit from an economic of scale where the more firms they create, the cheaper it becomes and therefore allows them to reduce their average costs and help increase profitability.
• increase market share which help increase brand recognition.
• growth may not be desirable as it can make communication more difficult which then slows down the decision making for there are more people/departments to consult
• coordinating many more resources can be difficult and overtrading can be a risk where cash leaves more quickly out of a business then it comes in.

Question 51

Define ethics

Why do businesses want to be ethical?

Define what pressure groups do?

Answer 51

Ethical behaviour is doing what is morally right

-Procides customers with a good image of the business and saves their reuptation.

They are an organised group that seeks to influence government policy or protect or advance a particular cause or interest

Question 52

How can pressure groups put pressure on a business? Give 5.

How can pressure groups damage the business? Name 4

Diadv of behaving ethically?

What are the advantages of behaving ethically?

Answer 52

Boycott,
Campaigns(advertising)
-creation of a wesbite.
-direct action causing disruption.
-adverse(negative) publicity.

How can pressure groups damage the business? Name 4

• Damage brand name,
• Increased cost due to cutting down waste and changing methods.
• Lost revenue(total income)
• Loss of market share.

What are the advantages of behaving ethically?

• Better reuptation.
• Allows buisness to add value.
• Source of differentiation.
• Business has a USP comapred to competition.
• allows the company to target more market segments.

Diadv of behaving ethically?

• Higher cost- reduces profit.
• Cannot compete on price.
• customers may just be interested in price.
• industry may be very competitive.

Question 53

How can a business and their activities affect the environment(7)

Answer 53

• Traffic congestion,
• Air pollution,
• Noise pollution.
• Water pollution.
• Recycling, reusing,
• Resources depletion
• Global warming.

Question 54

What is Globalisation?
How does globalisation affect a business in 3 simple ways?
What are imports?
What are exports?

Answer 54

Globalisation:- businesses operate on an international scale and gain an interntional influence or power.

How does globalisation affect a business in 3 simple ways?
1) Import, 2) Export 3) Business Location

What are imports?
goods brought into a country from abroad.
-Money paid for these items moves out of the countr.
-Domestically produced goods will compete with goods from outside the country.

What is exports?
-Exports are goods produced in a country and then sold abroad, money flows back into the country.

Question 55

What is international trade?

What is a tariff?

What is trading block?

Answer 55

What is international trade?
The buying and selling of goods and services among different countries, but barriers can prevent this

What is a tariff?
an import tax on imported goods and services and makes product more expensive- so customer switch from the internationally produced product to one that was producded domestically.
-A tariff protects country from international competition and this is known as a protectionist measure.

What is trading block?
-Created by the gov of diff countries to act together to promote trade amongst themselves( EU-can trade freely without additional taxed being charged)

Question 56

What are multi-national businesses?
Why do companies wish to be multinational? (4)
Advantages of multinationals(7)
Disadvanatages of multinationals? 5

Answer 56

multinational organisation is a company which has its headquarters in one country but has production facilities in other countries (eg Nike, Coco Cola)

Why do companies wish to be multinational?

• Increase market share from domestic market to a new market.
• Secure cheaper premises and labour(Nike-sweatshops) cost and labour will be cheaper in developing countries.
• Avoid tax or tax barriers
• Gov grants- gov giving money to open up a new business.

Advantages of multinationals

• Can avoid legislation from home country
• Wage and costs of raw materials can be cheaper over seas
• Grants can be issued for the business to set up in that country
• can benefit from economics of sale( so the larger the business, the lower the cost).
• create jobs-improve economy.
• bring expertise.
• wider target market.
• can spread risk between operations in diff countries.

Disadvanatages of multinationals?

• Loss of focus on key markets.
• Culturural & language differences between countries.
• Exploiting workforce- damage to reputation if found to be operating unethically.
• low paid jobs.

Question 57

Name me one consumer law?

Answer 57

Sale of Goods Act (1 mark). Products must be sold of satisfactory quality (1 mark).

Question 58

What is meant by the term buffer stock?

Answer 58

a minimum stock level

held by a business

Question 59

What does centralised organization and decentralised organization mean?

Answer 59

authority should rest with senior management at the centre of a business (centralised), or whether it should be delegated further down the hierarchy, away from the centre (decentralised)

Question 60

What is a centralized structure and what are the advantages and disadvantages? (3)

Answer 60

Centralized keeps decision making at the top of the heirarchy amongst the most senior management.

Adv:

• prevents other parts of the business becoming too independent,
• quicker decision making,
• easier to coordinate and control from the centre such as budgets.

Disadv:

• lack of authority down the heirarchy may prevent motivation.
• local or junior managers are more likely to be in touch with the customer needs.
• misses the opportunity of training and developing junior staff with management.

Question 61

Define decentralized structure and the advantages and disadvantages?

Answer 61

• decision making is spread out to include more managers in the heirarchy as well as different business units and locations.

Adv:

• decision made closer to the customers and may result in a better customer service.
• better ability to respond to local circumstances.
• Ability to react to changes in the market
• Better communication
• Increases shared ideas within the business.
• better motivation.

Disadv:

• Stores may become less uniform
• Brand may become confused
• Managers may need training
• Decentralisation may increase costs
• Loss of control.

Question 62

Asses how important increasing productivity is? (4) (3)- not

Answer 62

Important because:

• could provide scope to lower price.
• will allow for more retained profit to fund new products.
• can help reduce unit costs.
• lead to higher profit per unit.

Not important because:

• Business could have little competition.
• depends on market targeted and if they are wlling to pay high anyway.
• promotion,product quality and advertising could be more important

Question 63

Define the term productivity?

Answer 63

The number of products made that pass quality control.

Question 64

State four ways other than increasing wages, as to how a business could motivate their employees?

Answer 64

1) Promotion & Praise.
2) More training and support.
3) Benefits such as discounts.
4) Flexible working and good working conditions.

Question 65

What is quality control?

Answer 65

The process of checking that a product/ service meets a certain minimum agreed standard at the end of the manufacturing process.