Theme 1 Flashcards
Net cash flow
Cash inflow - cash outflow
Opening balance
Closing balance of previous period
Closing balance
Opening balance + net cash flow
Interest (on loans)
Total repayment - borrowed amount / borrowed amount
X100
Profit/ Loss
Total revenue - total costs
Break-even output
Fixed costs/
Sales price - variable cost
Margin of safety
Actual~ budgeted sales - break even in sales
Revenue
Price x quantity
Total costs
T fixed costs + T variable costs
What are the three reasons why business ideas come about
1) changing consumer needs
2) changing technology
3) obsolescence
Two ways in which new business ideas come about
1) Invention
2) Innovation
Definition of risk
The possibility that an enterprise will have lower than anticipated profits or experience a loss
Definition of Reward
The achievement that an entrepreneur/ investor receives when a business succeeds
Three ways risk can impact a business
1) Business failure (e.g. fall in sales)
2) Financial loss (e.g lose belongings)
3) Lack of security (e.g. self employed)
Three ways reward impacts a business
1) Business success (e.g. personal satisfaction)
2) Profit
3) Independence
Definition of enterprise
A person/ organisation with the purpose of producing goods and services
Definition of Entrepreneur
A person who starts a business despite the risks
Three roles/ purposes of a business
1) Purchase from suppliers
2) Produce goods or services
3) Sell to customers & make a profit
5 ways a business can add value
USP Branding Better design Convenience Quality
Roles of an entrepreneur
1) To provide goods / services
2) To make a profit
3) Identify opportunities
+ show initiative
+ be innovative
The 4 customer needs
1) Price
2) Quality
3) Choice
4) Convenience
4 reasons for carrying out market research
1) Reduce risks in business decisions
2) Identify gaps in the market
3) Identify and understand customer needs
4) Identify and understand competitors
Primary research
Collecting info first hand
Secondary research
Collecting data second-hand
Qualitative data
Descriptive data
Quantitative data
Numerical data
Primary research (benefit)
More accurate
Specific to needs
Primary research (drawback)
Costly
Time and resource consuming
Secondary research (benefit)
Less time consuming than p r
Effective at getting quantitative data
Secondary research (drawback)
Not specific and often not presented in a useful way
Surveys (benefit and drawback)
+ Questions can be personalised and specific
- Reply rates are often low
Questionnaires (benefit & drawback)
+ Data collected is usually easy to analyse
- You need well designed questions so that answers are reliable
Focus Groups (benefit & drawback)
+ Range of options and qualitative answers
- Interviewer could influence answer
Observation (benefit & drawback)
+ works well in retail & no influence
- you need to carry out a large number at different times
Internet (benefit & drawback)
+ easy access
- unreliable source, origin and bias
Market reports (benefit & drawback)
+ get info quickly
- costs
Government reports (benefit & drawback)
+ free & lots of data
- might not suit marketer’s needs
Definition of Market segmentation
Separating the market into groups of buyers with similar characteristics and buying habits
Definition of market Mapping
Using a diagram to position and compare products in a market
5 ways to segment the market
Age Lifestyle Gender Income Location
5 areas that could be strengths or weaknesses of competitors
Quality Price Customer service Location Product range
What is the impact of competition on business decision - making
Competition impacts business’ decisions on product differentiation so that they can avoid head-to-head competition
5 financial aims & objectives
Survival Sales & revenue Profit Market share Financial security
5 non-financial aims & objectives
Personal satisfaction Independence Challenge Business awards/ recognition Social benefits
Difference between fixed & variable costs
Fixed costs= do not vary
Variable costs= vary with no. products made
3 fixed costs
Rent
Insurance
Salaries
3 variable costs
Raw materials
Delivery / shipping charges
Packaging
3 reasons why cash is important to a business
1) Pay it’s suppliers and other debts
2) Pay wages to employees
3) Promote the business
Overdraft ST (benefit & drawback)
+ useful in emergencies
- High interest rate for payback
Trade Credit ST (benefit & drawback)
+ helps improve cash flow
- can get bad PR if dont pay back
Personal Savings LT (benefit & drawback)
+ Don’t owe anyone
- Amount available is limited
Venture Capital LT (benefit & drawback)
+ can get large investments contacts and advice
- give up a share of the business
Share Capital LT (benefit & drawback)
+ doesn’t have to be paid back
- lose some/ all control of the business
Loans LT (benefit & drawback)
+ once applied for quicker than share capital process & paid back in instalments
- pay interest
Crowd Funding LT (benefit & drawback)
+ gain publicity if newsworthy
- investors will want something in return
F & F Capital (benefit & drawback)
+ no interest
- could damage relationships
What is the difference between limited and unlimited liability
Limited liability: the business and owner are separate
Unlimited: legally the same (loose personal assests)
Consequences of limited liability
+ reduces risk
- accounts can be viewed by competitors
Consequences of unlimited liability
+ accounts not made public
- more risk to personal assests
Sole trader (benefit & drawback)
+ quick & easy to set up
+ 100% control
- unlimited liability
- a lot of pressure on one person
Partnership (benefit & drawback)
+ shared risk
+ share ideas and experience
- profits shared
- partners may disagree
Private Limited Company LTD (benefit & drawback)
+ limited liability
+ more trusted than other companies
- more complex set up
- published some financial info
Franchising (benefit & drawback)
+ reputation already established
+ training & support given
- initial investment cost high
- owner has little freedom
Three factors influencing the location of a business
1) Market (where customers are)
2) Competitors
3) Transport
Identify the 8 stakeholders in a business
Shareholders Managers Pressure groups Employees Customers Local community Government Suppliers
Name two possible conflicts between stakeholders
Share holders (want profit) and Managers (want to invest profits and grow) Workers (want higher pay) and Customers (want lower prices)
Give 4 different types of technology used by businesses
1) E-commerce
2) Social Media
3) Electronic payment systems
4) Digital communication
Definition of Legislation
The laws that a business must comply with
Example of a consumer law
The consumer Rights Act 2015
Purpose to protect consumers
Example of an employment law
Health and Safety at work Act (HASAWA)
Equality act
(To protect employees)
Consumer law (benefit & drawback)
+ Good publicity if followed
- business must know the law and keep up to date
Employment law (benefit & drawback)
+ employees happier and more motivated ( high productivity and customer service )
- meeting H & S regulations is costly
