introduction to business Flashcards
1
Q
entrepreneur
A
someone who sets up a business. They own the business and without them, businesses wouldn’t exist
2
Q
Two financial motives
A
profit maximising - make as much money possible
profit satisficing - to make enough money to maintain their interest in business
3
Q
Non financial reasons to setting up a business
A
ethical reasons
independence, flexibility, to be your own boss
to work from home
4
Q
roles of an entrepreneur
A
creating and setting up a business
running and expanding/developing a business
business innovation
5
Q
skills of an entrepreneur
A
communication
team work
problem solving
organisation
numeracy
informational technology
6
Q
characteristics of an entrepreneur
A
creativity
hard working
resilience
initiative
confident
risk taking
7
Q
intrapreneurs
A
entrepreneurs hiring staff to come up with innovative ideas
8
Q
why do businesses fail
A
being risk averse
fear of failure
legal barriers
lack of entrepreneurial capacity
9
Q
What are sales
A
a quantity or amount sold of a product or number of customers who have used a service
10
Q
formula for sales revenue
A
units sold x selling price
11
Q
variable costs
A
costs that change because of output eg raw materials
12
Q
formula for total variable costs
A
variable cost for one unit x number of units
13
Q
fixed cost(expenses)
A
costs that dont change depending on output
14
Q
formula for total costs
A
all the fixed costs added up + total variable cost
15
Q
profit
A
what is left over of salves revue after the business has paid for certain costs
16
Q
formula for gross profit
A
sales revenue - cost of sales(variable cost)
17
Q
formula for operating profit
A
sales revenue - variable cost - fixed cost
18
Q
order of income statement
A
revenue
cost of sales
gross profit
expenses
operating profit
finance cost
finance income
net profit
tax
exceptional items
19
Q
what is market research
A
gathering information on how consumers purchase goods and services. Finding out what their wants and needs are and to see if they are currently satisfied by other organisations
20
Q
examples of market research
A
focus groups
questionnaires
observations
test marketing
21
Q
stages in market research
A
set your objectives
find out what already exists
choose your methods
22
Q
primary research
A
collecting new data
23
Q
eg of primary research
A
focus groups
surveys
test marketing
observations
24
Q
secondary research
A
research that has already been done
25
eg of secondary research
records of past advertising
sales statistics
loyalty card data
company reports
26
quantitative
a method that brings results in statistic form
27
qualitative
a method that brings results in word form . More in depth response
28
what are focus groups
groups of potential customers are brought together to discuss their feelings about a product or market. They are a good way of getting detailed information about customer taste and preferences
29
Test marketing
selling a new product in a small section of the market in order to assess customer reaction
30
how can you make your research more reliable
larger sample size
31
what do a business need to be aware of when conducting market research
the researches own pre existing opinions
participants/ sample
32
benefit of primary research
involves collecting new data
which is up to data and specific
eg questionnaires and focus groups
allows the business to effectively identify customer wants and needs
create a product which meets customer needs effectively
build customer loyalty
able to increase prices without a significant fall in demand
increase profit margins
more retained profit
33
drawback of primary research
expensive
may need to hire specialist researchers to conduct research
eg focus groups
in order to find customer wants and needs
leads to increase cash outflow on wages
high operating proft
less retained profit
34
benefit of secondary research
has already been completed
do not need to hire researchers
not be a requirement to do focus groups for eg
significantly reduces cash outflow(wages)
more operating profit
more retained profit
35
drawback of secondary research
has been completed in the past and for a different purpose
may not be time or business relevant
making invalid suggestions on how the business can improve
leading to inappropriate product portflolio
less sales
lower gross profit
lower operating profit
less attractive to banks or investors
may struggle to pay bills
struggle to raise capital for future expansion
36
quantitative research benefit
data collected in statistical form
using closed questions
can be completed independently
and easily analysed
specialist researchers are unlikely to be needed
reducing expenses(wages)
cash can be invested into using a larger sample size
leading to more reliable data collected
more likely to product a product which meets customer wants and needs
increases revenue
increases gross and operating profit
37
drawback of quantitative data
data is presented in statistical form
resulting in limited depth
respondents cant explain why they made certain choices
making it difficult to develop new ideas
limiting innovation
less likely to develop unique ideas and competitive products
38
benefit of qualitative data
invites the participant to give a more detailed response
can lead to a deeper understanding of customer wants and needs
resulting in the business being able to produce a product that more effectively meets their needs
increasing customer loyalty
can raise prices without a significant fall in demand
increase revenue
increase profit margins
more retained profit to reinvest
39
drawback of qualitative data
gathering a large volume of detailed responses will require a significant number of researchers
may mean that a lower volume of data is collected as a business may not have the cash to pay for the researchers
resulting in unreliable results as less people are asked
resulting in the wrong product being produced or the wrong price being changes
40
market orientation
emphasises understanding needs and wants of its target market and tailors its products and services effectively
41
product orientation
primarily focused on the quality and features of the product itself often believing the product will sell based on its inherent value
42
benefit of product orientation
involves focusing on developing the product
lots of investment in r&d of the function of the product
improved innovation by having unique ideas
differentiates from competitors
increase in customer loyalty
can raise prices
increase in revenue
high gross profit margins
increased retained profit
able to invest in further r&d to continue innovating
43
drawback of product orientation
expensive
lots of investment in r &d needed in order to innovate
increased fixed cost
eg paying wages to scientists
leads to lower operating profit margins
reduced retained profit
less capital to reinvest in further r&d
unable to effectively differentiate
lower sales in long term
44
benefit of market orientation
involves focusing on customer wants and needs
allows the business to create products based on customer trends
and use market research to quantify demand
allowing them to produce products which are likely to have a high sales volume
increasing sales revenue
increase gross profit
increase operating profit
increase retained profit
able to reinvest in conducting further market research
45
drawback of market orientation
market research is needed to find out customer wants and needs
high amount of investment is needed into market research
eg focus groups
in order to find out customer wants and needs
leads to increased cash outflows on wages for specialist researchers
lower net cash flow
reduced cash reserves
may be unable to pay day to day bills
business unable to operate
46
differentiation
making the product or service different from competitors
47
how can a business differentiate
distinctive design
branding
performance
exceptional customer service
48
market mapping
a visual illustration of how current businesses are perceived in the market
49
when using a market map what do entrepreneurs need to consider
might be a gap because customer dont have needs and wants in that area
helps spot a gap in the market and if exploited appropriately it could lead to differentiation
it is only as effective as the information that it is based on. if the wrong or not enough people are asked then it will not give an accurate reflection of customer perceptions
50
benefit of using a market map
helps businesses identify gaps in the market
one identified businesses can conduct r&d
and design a product that matches characteristics of
product is likely to be unique
differentiates
more customer loyalty
can raise prices
more sales
more gross and operating profit
51
drawback of using a market map
based on consumer opinions
to ensure decisions based on opinions are valid
businesses need to collect data from a large sample size
may require a large number of researchers
to collect and analyse data and display in a market map
if business recruits researchers it will increase cash outflows
if cash outflows are greater than inflows
may lead to a negative net cash flow
52
the marketing mix
product
price
promotion
place
53
marketing segmentation
focusing on one element of the characteristics that make up the customer profile.
geographic
demographic
psychographic
behavioral
54
geographic segmentation
targeting customers based on where they live
55
demographic segmentation
targeting customers based on age gender income
56
psychographic segmentation
targeting customers based on hobbies beliefs and attitudes
57
behavioral segmentation
targeting customers based on user status, usage rate, occasions and loyalty
58
benefit of market segmentation
a business can target market research at a specific group
rather than trying to create a product for all customers
this can help a business understand their customer needs more effectively
meaning they can adapt their design mix to better meet their needs
ensuring the business product is more differentiated
increases customer loyalty
can raise prices without a significant fall in demand
increases their sales revenue and profit
59
drawback of market segmentation
expensive
need to create multiple products
to meet the needs of different segments
eg using geographical segmentation to create different products for different customers in different countries
therefore unable to benefit from marketing economies of sale
at smaller group of customers
this means that the fixed costs of r&d to produce the product
spreads over less units
leadings to higher fixed cost
lower operating profit margins
60
prototype
validating the design of a product
presenting to investors or licenses
intellectual property protection
removing kinks in manufacturing
testing and refining the product
61
difference between r&d and market research
market research is finding customer wants and needs and r&d is taking action of market research
62
design mix
finding the right balance between creating something that people desire to have, that they can afford to buy and works reliably
63
examples of design mix
aesthetics - 5 senses
function - how the product performs
economic manufacture - how much it costs to product the product
64
benefit/importance of aesthetics/ function
65
drawback of prioritising aesthetics/function
66
benefit/ importance of economic manufacture
67
drawback of prioritising economic manufacture
68
benefit of changing design mic to reflect social trend
69
drawback of changing design mix to reflect social trends
70
benefit to adapting to business in extract- how have they adapted the design mix
71
drawback of adapting business in extract
72
what is a business plan
a document that illustrates the thought process of the start up business or the future planning of an established business. it will show what the business is expecting to sell and to who. it is usually designed to be persuasive to attract investment so it will also make claims about how much profit the business expects to make
73
what does a business plan include
executive summary
the product or service
thr market
marketing plan
operational plan
financial plan
conclusion
74
benefit of a business plan
75
drawback of business plan
76
sales forcasting
an attempt to estimate the likely number of products that will be sold by the business over a future period
77
factors affecting sales forcast
consumer trends
actions of competitors
income
78
methods of sale forcasting
correlation - the relationship
extrapolation - extend the line of best fit to estimate future sales
79
benefit of sales forcasting
80
drawback of sales forcasting
81
what is cash
the money the business have available to spend here and now
82
cash inflows
money entering the business
83
cash outflows
money leaving the business
84
what happens if a business runs out of cash
1. can no longer pay bills and they owe people money such as banks, suplliers snd insurance companies etc
2. forced by the courts to pay the amounts they owe do they need to sell assests such as land, machinery and vehicles etc
3. the value of what they sell is used to pay off their debts but as they have sold most or all of what they own they can no longer operate
85
cash flow forcast
estimate the amount of money the expect to flow in and out of their bank account within a specific period
86
cash sale
when the customer pays immediately after they the good or service. the cash goes right into the business bank account immediately
87
credit sale
business makes the product
customer receives the product without paying
customer payer within a given time
88
trade credit
credit sale from business to business
89
Benefit of cash flow forecast
90
Drawback of cash flow forecast
91
Receivables and payables
Receivables - customers that owe me cash(business has made credit sales)
Payables - business owes cash to someone else(supplier)
92
Break even
Revenue=costs
Not making profit or a loss
93
Break even formula
Fixed cost/ selling price -variable cost per unit
94
Margin of safety formula
Amount sold or expected to sold - break even
95
Benefit of break even
96
Drawback of break even
97
Sole trader
An individual who operates a business on their own
98
Benefit of sole trader
99
Drawback of sole trader
100
partnership
two or more individuals share the ownership and operation of a business
101
benefit of a partnership
102
drawback of partnership
103
what is unlimited liability
being legally responsible for something such as debt
104
benefit of a private limited company(Ltd)
105
drawback of a private limited company(Ltd)
106
benefit of a public limited company( PLC)
107
drawback of a public limited company(PLC)
108
benefit of limited liability
109
drawback of limited liability
110
franchise model
111
what is a franchisor
a company that has established a brand and business model and offers others the opportunity to operate under their brand name and system
112
benefit of franchisor
113
drawback of franchisor
114
benefit of franchisee
115
drawback of franchisee
116
finance
to prove funding for a business. management of finance such as capital, cash and to ensure there is enough of it
117
internal sources of finance
owners capital
selling assets
retained profit
118
external sources of finance
bank overdraft
share capital
crowd funding
business angels
grants
peer to peeri
bank loan
119
what us capital
wealth in the form of money or other assets owned by a person or organisation or available for a purpose
120
benefit of owners capital
business will not have to pay any money back, no debt and no interest
121
assets
something valuable that an entity owns, benefits from, or has use of in generating income
122
retained profit
profits that are reinvested into the business rather than paid to shareholders as dividends
123
benefit of owners capital
124
drawback of owners capital
125
benefit of retained profit
126
drawback of retained profit
127
benefit of selling assets
128
drawback of selling assets
129
bank loan
a sum of money that a bank lends to a business, which must be repaid with interest over a specific period
130
business loan factors
credit
collateral
cash flow
time in business
debt load
industry
131
overdraft
132
peer to peer funding
type of lending in which you get a loan from an individual not a bank or financial institution
133
business angel/ venture capitalist
an investor who is willing to invest in high risk, high growth firms at a very early stage.
134
benefit of business angles
135
drawback of business angels
136
crowd funding
137
two types of crowd funding
reward- investors receive perks such as discounts on the products or early release
equity- investors receive shares in the business which means they get the share of profits
138
share capital
139
leasing
using another firms assets
140
grants
sum of money given from the gov for a particular cause that benefits society
141
benefit of family snd friends as a source of finance
142
drawback of family and friends
143
benefit of peer to peer funding
144
drawback of peer to peer fundint
145
benefit of business angels
146
drawback of business angels
147
benefit of crowd funding
148
drawback of crowd funding
149
benefit of loans
150
drawback of loans
151
benefit of share capital
152
drawback of share capital
153
benefit of overdrafts
154
drawback of overdrafts
155
benefit of leasing
156
drawback of leasing
157
benefit of trade credit
158
drawback of trade credit
159
benefit of grants
