Starting A Business

Question 1

What is an entrepreneur?

Answer 1

A person who is willing to take risks involved in starting a business.

Question 2

What is a social enterprise?

Answer 2

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

Question 3

Businesses can be classified in terms of their stage in the production process. Please give these three classifications.

Answer 3

1. Primary Sector - organisations involved in the first stage of production and use of raw materials e.g. Farms, Fishing Fleets, oil companies
2. Secondary Sector - organisations involved in using primary resources and converting them into products e.g manufacturers
3. Tertiary Sector - organisations that provide services such as estate agents, solicitors and delivery firms

Question 4

Give 4 examples of sources for business ideas

Answer 4

1. You may decide to set up a business and then think about what you want to do. Innocent Drinks
2. You may have an idea first and then decide to set up a business. Dyson.
3. You might notice a growing trend in a market and realise there is an opportunity. Growth in environmentally friendly products.
4. You may have seen an idea working elsewhere such as in a different country. The idea of the Body Shop originally came from the USA.

Question 5

How do you identify if there is a gap in the market and/or there is likely to be demand for your product?

Answer 5

You undertake market research which means gathering and analysing data in order to understand if there is a suitable market

Question 6

Give 4 benefits of market research.

Answer 6

1. Understand key features of the market
2. Understand different potential customers
3. Understand who the competitors are
4. Understand what trends may be incurring.

MCCT

Market, Customers, Competitors, Trends

Question 7

In terms of market research what market trends may you look for as an entrepreneur?

Answer 7

1. Is the market growing? Compare the market for DVDs to online films.
2. Are particular parts of the market growing i.e certain computer games such as online gaming may be growing faster than arcade type games that are not online.
3. What is the main competition and how does the new business idea differ from what already exists.
4. Is a niche market emerging?A niche market is a small part of a bigger market.

Gay Prostitute Called Nick

Growing, Parts, Competition, Niche

Question 8

What is meant by market research?

Answer 8

Market research is the process of gathering, analysing and presenting data relevant to marketing.

Question 9

What is Primary market research?

Answer 9

Primary market research involves gathering and analysing marketing data that has not been collected before.

Question 10

What is secondary market research?

Answer 10

Secondary market research involves gathering and analysing marketing data that has been collected before.

Question 11

What is meant by market share?

Answer 11

Market share is indicated by the sales of one product compared to the total market sales.

Question 12

What is a franchise business?

Answer 12

A franchise occurs when one firm sells the right to use its products and/or its brand name to another business.

Question 13

What is the name of a person who sells a franchise?

Answer 13

Franchisor

Question 14

What is the name of the buyer of a franchise?

Answer 14

Franchisee

Question 15

Give 2 to 5 advantages of a franchise

Answer 15

1. The idea already exists and you will be able to check its track record.
2. The brand name may be well established so people are familiar with it (Subway or Macdonalds) although this is not always the case.
3. The franchisor will usually supply support,training and existing methods (know-how). The level of support will vary from franchise to franchise.
4. Franchisee can share ideas and experience with other franchisees.
5. Some costs (such as national advertising and marketing) can be shared between franchisees.

Question 16

What are the 2 main disadvantages of buying a franchise?

Answer 16

1. If there is a problem with one of the franchisees such as poor service or some sort of scandal this can affect badly on other franchisees.
2. Franchisee may be controlled to a high level by franchisor thereby restricting the franchisee’s freedom.

Question 17

Name 3 to 6 reasons why someone would want to start their own business

Answer 17

1. They want to be their own boss and make their own decisions.
2. They want to keep all of the profits for themselves.
3. They have an interest or hobby and this grows into a business.
4. They want to prove something to themselves and possibly others.
5. They need a job and starting their own business is one way to earn money.
6. Social enterprise - in other words a business that provides a service to others without any focus on profits.

Question 18

What is meant by setting business objectives?

Answer 18

A business objective (or aim) should be a realistic target that provides a focus for everything you do any by which your business can be measured.

By way of an example an objective could be to achieve 1000 customers or to increase profit by 20%

Question 19

What 4 reasons are there to show that business objectives important to an entrepreneur?

Answer 19

1. They help with decision makings do establishing priorities. - Example - if an objective is to grow overseas sales then this may mean spending more money on overseas advertising spend and less money on domestic advertising.
2. It helps investors understand the direction of the business and as such they may be prepared to support certain business decisions.
3. It provides a target from which people can compare the actual results with the planned results.
4. It can motivate everyone in the business because they understand the direction of the business and feel more connected.

Question 20

Give 7 examples of what business objectives may focus on.

Answer 20

1. Survival - to break into a new market as a new business is hard. As such to simply survive and get your business name known can be seen as an achievement.
2. Providing a good product - doing a good job, providing a good product and taking a pride in your work are valid business objectives.
3. Earning a profit - decent profit in the long run is essential to most businesses. What is meant by “decent profit” will depend on each entrepreneur.
4. Customer satisfaction - if customers are satisfied they are more likely to return and profits will go up.
5. Market share - market share measures the sales of one product or business as a percentage of the total sales.
6. Being ethical - such as paying staff a fair wage, treating suppliers with respect, not relying upon solve labour in third world countries. Being ethical avoid bad publicity and could attract more customers.
7. Environmental and sustainability targets - limiting energy or carbon footprint or actively recycling or obtaining materials from sustainable sources.

Question 21

What is the equation for market share?

Apply the formula to work out the following:
If your sales are £20,000 and the total market sales are £400,000, your market share is…….?

Answer 21

Total market sales

£20,000. X 100
———- = 5%
£400,000

Question 22

To be effective what must a business objective state?

Answer 22

1. What the target is - ie to increase profit by 20%
2. When it has to be achieved - eg within 2 years
3. Who is to achieve it - who is responsible for making it happen
4. How should it be achieved - what is acceptable and not acceptable behaviour.

Question 23

Business objectives should be achievable and involve only those resources that are available. Give some examples of such resources

Answer 23

1. Time - managers should have sufficient time to achieve their objectives
2. People - does the business have sufficient staff to achieve the objectives?
3. Money - is there sufficient money to buy the resources and materials required?
4. Equipment - does it have the machinery and facilities needed to achieve the target?

Question 24

What is meant by non profit making organisations?

Answer 24

Public sector organisations such as schools and hospitals. In the private sector social clubs and charities.

Question 25

When answering a question always look for the objectives of the people starting up a business. Only the. Can you judge whether it has been successful.

Answer 25

An 18 year old boy setting up a YouTube business may regard £15,000 annual profits as a success. However, a new business set up by Virgin may regard profits of £15,000 as a complete failure.

It is all relative!

Question 26

What is meant by stakeholder?

Answer 26

A stakeholder are individuals and organisations that are affected by and affect the activities of the business. Stakeholders can include Employees, Suppliers, local government, the Community and the Buyers.

Question 27

Explain the importance of stakeholders when setting objectives

Answer 27

An objective should be set by the owners of the business but the stakeholders views should also be taken into account.

By way of example of stakeholders views:

Employees may want the business to grow or they may want the business to be environmentally friendly - this could influence the object is that are set.

Suppliers may want to be paid on time so this could impact upon cash flow and felt certain objectives.

The Community may want the business to behave responsibly and focus on recycling.

Buyers may have an influence if they provide a significant amount of income to a firm.

Question 28

How can stakeholders influence a business?

Answer 28

Stakeholders can influence a business by:

1. NEGOTIATION - employees may negotiate for better pay and suppliers may demand better terms and conditions
2. DIRECT ACTION - customers can stop buying the products of a business if they are unhappy with the way it behaves. Employees can go on strike and refuse to work if they do not get what they want.
3. REFUSAL TO COOPERATE - local councils can refuse to cooperate (eg refusing planning permission) with a business if they do not like it’s behaviour. Employees could protest against their employer by working slow or going on strike.
4. VOTING - The owners of a business can make their views clear and can vote on what the organisation should do next.