theme 1 Flashcards
1.1 - Business purpose?
- Provide people with a good or service
- Meet customer needs
- Add value to an existing product.
1.1 - Reasons new business ideas come about
- Advances in technology
- Changes in consumer want
- Products or services becoming obsolete.
1.1 - Role of an entrepreneur
- Organise resources
- Take risks
- Make business decisions
1.1 -Rewards
- Profit
- Business success
- Independence
1.1 - Risks
- Financial loss
- Lack of security
- Business failure
1.2 - Types of markets
- Place
- Trade in a particular type of product
- Potential customers.
1.2 - market size
The market size is the number of individuals within the market which are potential buyers or sellers of a product. It can also mean the total value of products in the market.
1.2 - market share
of individuals within the market which are potential buyers or sellers of a product. It can also mean the total value of products in the market.
1.2 - Competition : what decisions does it affect?
Price Customer service Quality Product range Location.
1.2 - Market research
what’s the point of market research?
- Make informed decisions.
- Spot a gap in the market.
- Reduce risks.
1.2 - Primary research
- Asking customers their opinions.
- Questionnaires, surveys, focus groups, observations.
- Up to date, relevant and specific.
- Expensive and time consuming.
1.2 - secondary research
- Access to a wide range of data, looks at the whole market and past trends.
- Market research reports, government reports, newspapers, and the internet.
- Cheaper, easily found and instantly available.
- Not always relevant, nor specific and is often out of date.
1.2 - Quantitative and qualitative date
- Quantitative information is anything you can measure or reduce to a number.
- Qualitative information is all about people’s feelings and opinions.
1.2 - Using market research
helps to inform decisions a business should make:
- Ideas about the products it sells
- How it promotes itself
- Its pricing
- The place it sells its products.
(market mix)
1.2 - Market segmentation
is when people are divided into different groups.
Allows a business to identify their target market.
- Age
- Income
- Lifestyle
- Location
1.2 - market mapping
Helps a business to understand its place within the market.
Identify the market’s key features.
Identify competitors and gaps in the market.
1.3 - Financial aims
- Survival
- Maximise profits
- Maximise sales
- Increase market share
- Achieve financial security.
1.3 - Non-financial aims
- Personal satisfaction
- Personal challenge
- Gaining independence and control.
- Doing what’s right for society.
1.3 - Objectives
On the way to the aim
Measurable steps
Clear targets
1.3 - Factors that affect the aims and objectives of a business
- The size and age of the business.
- Who owns the business.
- The level of competition the business faces.
1.3 - Revenue
Revenue is the income earned by a business.
Revenue = quantity sold x price
1.3 - Costs
Fixed costs don’t vary with output (e.g. rent, insurance and wages).
Variable costs vary with output (e.g. raw materials, and factory labour).
Total variable costs = quantity sold x variable cost per unit
Total costs = variable costs + fixed costs
1.3 - interest
(total repayment - borrowed amount) /
borrowed amount
x 100
1.3 - Profit
Profit = revenue - costs
1.3 - Break even
Just about covering costs: neither loss nor profit.
Break even (units) = fixed costs / (sales price -- variable cost per unit)
Break even (costs) = break even in units x sales price.
Break even point on a graph is where the lines for total costs and total revenue cross.
1.3 - Margin of safety
margin of safety =
actual sales - break even sales
1.3 - short term sources
Trade credit
Overdrafts
1.3 - long term finance sources
- loans
- personal savings
- share capital
- venture capital
- retained profit
- crowd funding
1.4 - What are sole traders?
- Easiest business to start
- Have just one owner
- Most small business are sole traders (hairdressers, news agents and plumbers).
1.4 - Advantages and Disadvantages of sole traders
Advantages:
- Easy to set up
- Own boss
- You alone decide what to do with nay profit.
Disadvantages:
- May have to work long hours.
- Unincorporated.
- Unlimited liability
- Hard to raise money
1.4 - Definitions of Unlimited reliability and unincorporated
Unincorporated -
The business doesn’t have its own legal identity. If anyone sues the business, they sue the owner personally.
Unlimited liability -
You are legally responsible (liable) for paying back all business’ debts.
Your own personal finances are at risk.
1.4 - What are partnerships?
Two or MORE sole traders.
Each partner has an equal say in making decisions.
- Equal share of profits.
1.4 - Partnerships advantages and disadvantages
Advantages:
- More ideas and expertise.
- More people to share the work.
- More capital.
Disadvantages:
- Each partner is legally responsible for the others actions.
- unlimited liability.
- More disagreements
- Profits are shared.
1.4 - Limited companies
Private and public
- Incorporated: has a separate identity.
- Everything belongs to the company not owner/s.
- Limited liability.
- Owned by shareholders.
1.4 - Private limited companies - what is it and advantaged and disadvantages
Have Ltd. at the end.
Shares are only sold if all shareholders agree.
Advantages -
- Limited liability
- easier to get a loan
Disadvantages -
- More expensive to set up because of legal paperwork.
- legally obliged to publish its accounts.
1.4 - Advantages and Disadvantages of franchising
Advantages -
- Less risk of business failure and brand is already recognised.
- Easier to get a bank loan as its less risky.
- Franchisor might provide training, management and accounting.
Disadvantages -
- Less freedom
- Have to pay a lot of money to start the franchise and have to make regular payments.
1.4 - What factors affect business locations?
1) Location of raw materials
2) Labour supply.
3) competition
4) location of the market
5) Using the internet.
1.4 - Marketing mix
product
price
promotion
place
1.4 - Factors that can affect a business’ marketing mix
Technology
customer needs
competition
1.4 - Business plan : what it contains?
- The business idea
- Business aims and objectives
- Target market
- Marketing mix
- location
- Finance
1.5 - Stakeholders
Stakeholders is anyone affected by the business.
- Owners
- Employees
- Suppliers
- Local community
- Customers
- Government
- Pressure groups.
1.5 - Technology, E-commerce and communications
- E-commerce means buying or selling online.
- Reaches wider markets.
- Convenient.
- Online payments, Chip and PIN and contactless payments.
- Safer and easier.
- Faster can serve more customers.
- Communication: websites, email, mobile apps, live chats and video chats.
- Social media.
1.5 - New technology
Technology has changed the way businesses operate.
- New technology can affect a firms costs and sales
> reduced costs (machines can replace people).
> increased sales (e-commerce)
> very expensive to hire and train staff. - New technology can change a business’ marketing mix.
1.5 - NMW and NLW
NMW - 24 and under (National Minimum wage).
NLW - 25 and over (National Living wage).
- Companies can’t cut their costs by paying workers less.
- Can be fined and get bad publicity.
- Increases a firms costs, increased prices, fall in sales, less revenue, fire staff.
- Benefit: better motivated and increased productivity within staff.
1.5 - Recruitment and discrimination
1) Must not discriminate
2) Make sure any new recruits have a legal right to work in the UK.
Equality act
If discriminated against, individuals can claim compensation.
1.5 -Health and safety laws.
Risks at work are controlled. Need to carry our risk assessments. expensive those who don't follow can be fined and closed. pay compensation to whoever is injured. Leads to bad publicity.
1.5 - Consumer laws
1) The product should be fit for its purpose
2) The product should match its description
3) The product should be of satisfactory quality.
1.5 - Unemployment
- Unemployment means that the economy as a whole produces less output than if everyone was employed (everyone suffers).
- Unemployment can help businesses
> can pay lower wages as lots of unemployed people are desperate for a job.
> can fill jobs easily.
> Government may even give grants to businesses who give jobs which can encourage a firm to grow when unemployment is high. - Unemployment can cause issues.
> Less employment means less disposable income.
Can lead to lack of demand and sales can fall.
> people who have been unemployed for a long time so may lose skills so firms may need to retrain them.
1.5 - Government taxes
Changes to income tax affects spending
- if the amount of income tax decreases, consumers have more disposable income.
- This means that consumer spending is likely to increase, leading to increased revenue for firms.
- The opposite is also true.
Raising business taxes causes slower growth
- Reduces the amount they can reinvest.
- tax increase may force them to cut costs elsewhere (e.g. staff).
- May also consider relocating abroad where tax is cheaper.
- if environmental taxes increase, it encourages firms to become environmentally friendly to reduce taxes.
Lowering business taxes causes faster growth
- business will have more money to reinvest and grow.
- lower business taxes may encourage businesses abroad to come to the uk leading to increased competition.
1.5 - inflation
Inflation is an increase in the price of goods and services
1.5 - customer income
1.5 - interest rates
1.5 - exchange rates
Topics that most likely will need revising
1.5 Exchange rates interest rates consumer income Inflation Government taxes
