Section 1 - Starting a Business Flashcards
Why might one start a business?
- Employment
- Earn more money
- Own boss; control
- Salary
- Workload
- Passion, pursue dream
- Unhappy with other similar businesses
- Meet demand
What are goods?
Products to sell to people
What are services?
What you do to provide for the public
What is a customer?
Someone who purchases the product
What is a consumer?
Someone who sues the product
What is a need?
Satisfy our basic requirement for living
What is a want?
Things we desire beyond our needs
What is an entrepreneur?
Anyone who takes a risk and starts their own business
What characteristics must an entrepreneur have?
- Business minded
- Innovative
- Good leader
- Forward thinking
What is a primary industry?
Extracting raw materials from the land or sea
What is a secondary industry?
Manufacture, processing raw materials into finished goods
What is a tertiary industry?
Selling finished goods to the customer
What is the chain of production?
Primary–>secondary–>tertiary (industries)
What is a franchise?
Where a business sells their rights to another business to use their name, product or process
What is a franchisor?
The actual business, the businesses under control of the owner
What is a franchisee?
The people who asks to become the franchisee
What is the role of the franchisor when franchising?
- Train franchisee workers
- Take a % of profit from franchisee
- Provide advertisement for franchisee
- Provide idea/product
- Give support
- Give you equipment
What is the role of the franchisee when franchising?
- Ask to open their own business as part of a company
- Pay franchisor starter fee
- Provide staff
- Promote the brand
- Stick to price/product
What are the advantages of franchising for the franchisor?
- Keep control
- Regular royalty payment
- Business grows
- Less organisation
- Franchisee motivated so more success of brand
What are the disadvantages of franchising for the franchisor?
-Reputation reliant on others
What are the advantages of franchising for the franchisee?
- Sell established product using successful brand image
- Easy to obtain bank loan (less risk)
- Easy to start up
- National marketing
- Help + training available
What are the disadvantages of franchising for the franchisee?
- No flexibility; must follow franchise model
- Must pay % of profit to franchisor (royalty)
- Could receive all profits if set up alone
What is a niche product?
Products for specific people, a special target market
What is a mass product?
Products for a wide audience
What is a niche market?
Where businesses target a small, specific segment of the market + tailor their product to meet customer needs
What is a mass market?
Where businesses target their product at the entire market + appeal to all customers
What happens if a business uses a niche strategy?
- Attractive to small businesses
- Specialised
- Less competition
- Unique
- Quality
What happens if a business uses a mass strategy?
- Standardised product
- High competition
- Global businesses
- Economies of scale
- Generally lower prices
What is a shareholder?
Someone who owns part of a business
What is a stakeholder?
Someone who is interested in, or affected by a business
What is an aim?
A goal to achieve at the end, a final goal, long term goal
What is an objective?
Individual stages to get to an aim, targets set to achieve your aim
What is a mission statement?
Summary of aims/values of a business
What aims might a start up business have?
- Survive as a business
- Break even + then start making profit
- Conduct market research
- Provide good product/service
- Gain loyal customers
- Raise awareness of the business
What ways can a business measure their success?
- Profit
- Sales figures
- Number of stores
- Number of loyal customers
- Customer feedback
- Market share
- Meeting aims/objectives
- Number of staff
- Number of countries operated in
What examples of stakeholders are there and how are they affected by the business?
- Customers: need product, want choice
- Employees: paid more if company is doing well, employment, job security
- Competitors: same customers, better prices, other business tactics as similar business
- Suppliers: more a business sells, more they need
- Shareholders: get more money if company does well
- Bank: make sure they can back loans
- Government: tax, provide jobs to tackle unemployment
- Owners: profit
What is a business plan?
A written report showing what the business plans to do + what it needs to do in order to achieve its aims/objectives. Will include business’ financial documents
What do businesses write a business plan?
- Gives business direction/structure
- Know when they are on track
- Organisation
- Attract investors
- Know how to achieve aims/objectives; measure success
- Secure finance; more chance of loan
What are the contents of a business plan?
1) Mission/Aims: overall targets
2) Objectives: how to achieve aims
3) Market Environment: place/trends
4) Competition: who?
5) Product/Service: idea
6) Marketing: how you intend to advertise
7) Distribution: how to get product to customers
8) Funding: how much money you need
9) Forecast: predict sales/profit
10) Time: how long to achieve everything
What is a sole trader?
A business run + owned by a single individual
What are the characteristics of a sole trader?
- Risk taker
- Organised
- Passionate
- Self motivated
- Independent
- Hard working
- Persevering
What is unlimited liability?
- When you go into debt and have to get out
- Business owner responsible for all debts of business
- May have to sell personal possessions to pay creditors
What are the advantages of setting up as a sole trader?
- Get all profit
- Complete control
- No unexpected loss of job
- Own boss
- More rewarding; greater satisfaction
- Lower costs at start up
- Keep business flexible
What are the disadvantages of setting up asa sole trader?
- Unlimited liability
- Lots of work on your own; pressure, responsibility
- Low money in which to start business
- Reliant on one person
What is a partnership?
Partners are the joint owners of a business. The law says a partnership can have between 2 + 20 people
What is a sleeping partner?
Someone who doesn’t work but get some of the profit (invested initially)
What are the advantages of setting up as a partnership?
- Less pressure/responsibility
- Less work each
- Someone else to rely on
- Share debts
- More money at start
- More support
- More ideas/skills
- Easier to secure a loan
- Easier to set up
What are the disadvantages of setting up as a partnership?
- Unlimited liability
- Less profit as split
- Less rewarding; less satisfaction
- Higher start up costs
- Not always equal share
- Cause arguments/disagreements
- Problems if partner leaves
- All partners responsible for debt
What is a limited company?
Whose owners are legally responsible for its debts only to the extent of the amount of capital they invested
What are the two types of limited company?
- Private limited company (Ltd)
- Public limited company (Plc)
What is limited liability?
Responsible for all debts. Can only have up to a fixed sum taken from them (amount invested)
What are the features of a limited company?
- Ownership divided into shares
- Owners aren’t necessarily involved in running the business
- Separate legal identity to owners
- Have limited liability
- Owners called shareholders
- Profits shared among shareholders
- Memorandum of Association/Articles of Association
What is the role of shareholders in a limited company?
Own part of the business, they’re investors
What are the three documents involved in becoming a limited company?
- Memorandum of Assoiation (external)
- Articles of Association (internal)
- Certificate of incorporation
What is the Memorandum of Association?
Details of the company: address, capital invested, activities involved
What is the Articles of Association?
Details voting rights of shareholders, how profits distributed, duties of directors
What is the Certificate of Incorporation?
Issued by companies house to say limited company has been formed
What is a social enterprise?
A type of business set up for the benefit of society
What are the main factors affecting location?
- Cost of site: not too expensive, afford rent/site
- Availability of labour: where staff, enough to work
- Skills of locals: need skills beneficial to business
- Labour costs: somewhere with low labour costs to maximise profits
- Competition: not too much competition
- Proximity of raw materials: where suppliers can easily reach you
- Proximity to market (transport links): maximise number of customers
- Infrastructure: near roads for access/distribution
- Government incentives: where government may help (e.g. high unemployment areas)
