Component 1 Business Opportunities Key Terms Flashcards
101 Enterprise
Enterprise
Another name for a business.
Having the skill and taking the initiative and the risk to make a business happen.
101 Enterprise
SME
A small to medium sized business that usually has fewer than 50 employees but no more than 250.
101 Enterprise
Needs
People have a limited number of needs that must be satisfied if they are to survive.
These would include physical needs such as a minimum amount of food, water, shelter and clothing.
101 Enterprise
Wants
Wants are unlimited (infinite) people constantly aim for a better quality of life.
For example, better/more food, better housing, longer holidays, better education, entertainment – in effect any example that is not a basic need.
101 Enterprise
Entrepreneur
An entrepreneur is someone who starts and runs a business.
Perhaps he or she makes a product and then sells that product, or perhaps they provide a service.
They quite possibly employ people and, of course, try to make a profit.
101 Enterprise
Primary Sector
Produces raw materials, e.g. iron ore (that goes into making steel) and oil (that makes petrol, plastics, etc.), as well as producing final products like fish and oranges.
101 Enterprise
Secondary Sector
Manufacturing and construction industries make, build and assemble products.
101 Enterprise
Tertiary Sector
Services give value to people but are not physical goods. Services are sometimes classified as direct services (to people), e.g. the police, hairdressing, etc. and commercial services (to business), e.g. business insurance, financial services, etc.
102 Business Plans
Business Plan
A statement that outlines the way in which a business will attempt to achieve its objectives - giving a clear idea of its operation and direction.
102 Business Plans
Executive Summary
This provides an overview of the business’s aims, objectives and strategy, and is evidence that the proposal is viable.
It sets out how the business is going to be run.
102 Business Plans
The Marketing Plan
Important part of any business plan based on both field and desk research. Market research carried out needs, if possible, to establish the size of the market, the needs of the customers
and the level of competition.
When market research findings have been examined then the marketing plan can be prepared.
102 Business Plans
The Operations Plan
Include details of where the business will
be located, production methods and any
equipment needed. Plus, information on the
costs of production and where the business will
buy supplies may be included.
102 Business Plans
The Human Resources Plan
The number of employees and the skills, experience and qualifications they require will be outlined.
Any management team will also be
identified.
102 Business Plans
The Financial Plan
A variety of forecasting will be necessary:
* a sales forecast indicating potential revenues * a cash flow forecast for the first 12 months
* a profit and loss and balance forecast for the end of the first year
* a break-even analysis.
In addition, information on where the finance for starting and running the business will come from, indicating the available start-up capital as well as any potential borrowing.
103 Markets
Market
A meeting place between buyers and sellers where goods and services are exchanged, usually for money.
Competition
Competition refers to the number of businesses in a market
103 Markets
Mass Market
Mass marketing involves a business aiming products at a whole market, rather than particular parts of them, for example, tomato ketchup, tea bags, ITV, Vauxhall Astra, washing powder
103 Markets
Niche Market
A niche market is a specialized market segment where you cater for the demand for products/services that are not currently being supplied by the main suppliers.
103 Markets
Market Size
The total number of sales, by value or volume, in a market as a whole.
103 Markets
Market Share + Formula
This measures the sales of a firm
relative to the market size.
It is calculated by:
Sales of a business
Total Sales in a Market x 100
103 Markets
Market Segmentation
Market segmentation is breaking down a market into sub-groups that share similar characteristics.
Identifying and targeting of groups of people with similar needs and developing products or services for each of them.
103 Markets
Monopoly
A single producer within a market – one business has 100% of the marketplace. This is known as a pure monopoly.
103 Markets
Oligopoly
There are many businesses but only a few dominate the market.
103 Markets
Monopolistic Competition
The situation in a market in which elements of monopoly allow individual producers or consumers to exercise some control over market prices.
103 Markets
Perfect Competition
A market in which many small firms produce virtually identical products at similar prices. With the ability to enter and leave the market freely. They don’t earn excessive profits.
103 Markets
Consumer Protection
The relationship between consumers and producers is not a relationship that is based on a level playing field. The advantage in almost all purchasing and consumption situations lies with big business.
Consumers are protected by:
Sale and Supply of Goods Act 1994 -
Consumer Credit Act 1974
Trade Descriptions Act 1968 and 1972
Distance Selling Regulations
^ You do not need to know all definitions of each of these laws
103 Markets
Supply
The amount of a product that suppliers will offer to the market at a given price.
103 Markets
Demand
The amount of a product that consumers are willing and able to purchase at any given price.
103 Markets
Market Equilibrium
In a free market, demand and supply equal the equilibrium price. This is the price where quantity demanded is equal to quantity supplied.
103 Markets
Price Elasticity of Demand + Formula
Measures the sensitivity of demand to a change in price.
Percentage change in quantity demanded/Percentage change in price
103 Markets
Price Elastic
A product where a proportionate
increase or decrease in price leads to a
proportionately greater increase or decrease in the quantity sold, i.e. its elasticity is greater than one.
103 Markets
Price Inelastic
Where a proportionate change
in a products price leads to a proportionately
smaller change in the quantity sold, i.e.
elasticity is greater than zero but less than
one.
Such products tend to have high product
differentiation, meaning that consumers
perceive them as having no acceptable
substitutes.
103 Markets
Income Elasticity of Demand + Formula
Measures how sensitive demand is to a change in income.
Percentage change in quantity demanded/Percentage change in income
103 Markets
Income Elastic
A product where a proportionate
increase or decrease in income leads to
proportionately greater increase or decrease in the quantity sold
103 Markets
Inferior Goods
These are cheap substitutes of products people prefer to buy when their income is reduced (such as value line baked beans): negative income elasticity.
103 Markets
Normal Goods
As real incomes increase, the demand for normal goods will also increase: positive income elasticity less than one.
103 Markets
Luxury Goods
The demand for luxury goods will grow at a faster rate than the increase in real income that created the change in demand: positive income elasticity that is greater than one
104 Market Research
Market Research
The process of gathering
primary and secondary data on the buying habits, lifestyles, usage and attitudes of actual
and potential customers.
104 Market Research
Primary Research
(Field research) – collecting primary
data and information that does not already exist.
It is collected for a specific purpose.
Most primary information is gathered through questionnaires, interviews, surveys, focus groups and consumer panel.
104 Market Research
Secondary Research
Desk research) – identifies, collects
and collates information that is already in existence.
This can be collected internally
or externally.
It may be existing business documents, official publications, yellow pages, industry magazines and online desk research.
104 Market Research
Quantitative Data
Involves the collection of data that
can be measured. This means the collection
of statistical data such as sales figures and
market share.
104 Market Research
Qualitative Data
Involves collection of data about attitudes, beliefs, and intentions. Focus groups, participant observation and interviews are common methods used to collect qualitative data.
104 Market Research
Sample
A group of respondents to a market
research exercise who are selected to be representative of the views of the target market as a whole.
104 Market Research
Quota Sampling
The population is segmented
into a number of groups that share specific characteristics
104 Market Research
Random Sampling
Every member of the population has
an equal chance of being interviewed.
104 Market Research
Bias
Something that may cause data
within a sample to be weighted towards one side.
Such statistical bias occurs when one subgroup outweighs the other in a sample.
105 Business Structure
Private Sector
The private sector includes all these businesses that are set up by individuals or groups of individuals, e.g. sole traders, partnerships, companies, charities and cooperatives.
105 Business Structure
Public Sector
The public sector is essentially business activity that is owned/ run by the government for the benefit of everyone, e.g. army, police force, schools, hospitals.
105 Business Structure
Sole Traders
Owned and run by one individual but they may employ people.
They have unlimited liability.
105 Business Structure
Partnerships
Owned and run between 2–20 people.
They have unlimited liability.
105 Business Structure
Unlimited Liability
Where the owners become personally liable for the debts of the business. They are at risk of having personal assets (house, car) seized to pay off debts.
105 Business Structure
Private Limited Company (Ltd)
Often a small business.
Shares do not trade on the stock exchange.
They have limited liability.
105 Business Structure
Public Limited Company (PLC)
Is usually a large, well-known business. Shares trade on the stock exchange. They have limited liability.
105 Business Structure
Limited Liability
The investor/owner is seen as separate to the company (incorporated).
This means they are only liable to the investment in the business.
Personal assets are not at risk to pay debts.
105 Business Structure
Social Enterprises
Social enterprises include for-profit and not-for-profit businesses (e.g. cooperatives) with primarily social objectives, trading for social and environmental purposes.
105 Business Structure
Charities
A non-profit-making organisation established with the aim of collecting money from individuals and spending it on a cause, which is usually specified in its title.
105 Business Structure
Stakeholders
A stakeholder is anyone with an interest in a business. Stakeholders are individuals, groups or organisations that are affected by the activity of the business.
106 Business Location
Location
Location for new and existing
businesses is still largely determined by:
* access to customers
* access to factors of production
* minimisation of costs.
106 Business Location
Infrastructure
Infrastructure used to mean roads, rail and shipping.
However, a more modern definition includes electronic communication systems, training agencies and financial services.
107 Business Finance
Sale of Assets
Established businesses are able to sell off assets that are no longer required, such as buildings and machinery
107 Business Finance
Debt Factoring
Selling 80-85% of your debt to a third party who then ‘owns your debt’ and chases it up for their own profitable interests.
107 Business Finance
Retained/Re-Invested profit
Where a business used profits made at the end of the financial year and reinvest them back into the business to fund expenses.
107 Business Finance
Share Issue
A share issue is the offering for sale of new shares of ownership in a business.
107 Business Finance
Overdraft
An overdraft is the facility to withdraw more from an account than is in the bank account, resulting in a negative balance
107 Business Finance
Bank Loan
A loan is borrowing a fixed amount, for a fixed period. Payments made up of interest and capital are made monthly.
107 Business Finance
Trade Credit
This is an interest-free way to raise finance. Businesses buy items such as fuel and raw material and pay for them at a later date – possibly 30–90 days later.
107 Business Finance
Leasing Assets
Leasing and hire purchase are methods of gaining the use of capital goods, whilst paying a monthly fee.
With a business lease the company gains use of a productive asset, without ever owning it.
108 Revenue and Costs
Revenue
Revenue is the money a business makes from sales. The total amount of money a business receives from its sales is called total revenue.
Total revenue = quantity sold x selling price
108 Revenue and Costs
Profit
The amount left after a business subtracts total costs from the revenue they generate from selling products to customers.
Calculation: Total Revenue – Total Costs
108 Revenue and Costs
Fixed Costs
Do not vary with output. Fixed costs only change in the long run.
108 Revenue and Costs
Variable Costs
Costs that vary in direct proportion to changes in output.
108 Revenue and Costs
Semi Variable Costs
Costs that contain both fixed and variable elements, such as telephone charges where there is a fixed standing charge plus an extra rate that varies according to the number of calls mad.
108 Revenue and Costs
Direct Costs
Costs that arise specifically from the production of a product or the provision of a service
108 Revenue and Costs
Indirect Costs (Overheads)
Costs not directly related to production.
108 Revenue and Costs
Total Costs
Fixed Costs + Variable Costs + Semi-Variable Costs
108 Revenue and Costs
Contribution
It is the difference between the income generated from sales and the variable costs of producing the goods to generate those sales.
Selling price – variable cost per unit
This allows an organisation to analyse whether each of its products covers its own variable costs.
108 Revenue and Costs
Breakeven
A diagram that shows the level of output where a business does not make a profit nor a loss.
Fixed Costs/Contribution (Selling Price – Variable Cost per unit)
108 Revenue and Costs
Margin of Safety
The margin of safety shows how much a producer can reduce output before the business starts to make a loss.
Actual output – Break-even output
