Theme 1 Flashcards
What is the difference between a good and a service?
- a good is a tangible product
- a service is an experience that is intangible
What is the difference between a consumer and a customer?
A customer purchases the product and the consumer uses the product.
What 3 reasons do new business ideas come about?
- changes in technology
- changes in consumer needs
- a product becoming obsolete
What does it mean if a product is obsolete?
Outdated and no longer in use.
What are payment platforms?
- enable businesses to take online payments
- usually free for customer to use, take a small amount of commission from the seller and provide the customer with peace of mind
What is an entrepreneur?
Someone who creates a business, takes on financial risks with aim of making profit.
What 2 ways do new business ideas come about?
- original ideas
- adapting existing concepts
What are 3 risks that start-ups face?
- business failure
- lack of financial security
- financial loss
What is the difference between variable and fixed cost?
- variable costs depend on the amount of products you manufacture e.g. raw materials
- fixed costs remain the same no matter your production rate e.g. rent
How do you work out variable cost?
Cost per unit x sales volume
What are financial rewards for a start-up?
- survival
- profit
- wealth
- income
- financial security
What are non-financial rewards for a start-up?
- personal satisfaction
- challenge
- independence
- control
- helping others
What is a stakeholder?
Someone with interest in the business
What are the 3 purposes of business enterprise?
- meet customer needs
- add value
- provide goods and services
How can a business add value?
- convenience
- quality
- branding
- design
- USP
What are the roles of an entrepreneur?
- organise resources
- make business decisions
- take risks
4 main customer needs
- choice: different customers have different tastes and needs
- quality: customer assess quality as a products sustainability and their opinion will depend on expectations
- price: customers influenced by price, low
- convenience: how easy it is to purchase desired products
Why is it crucial for businesses to meet customer needs?
Generate sales:
- customers will continue to buy products
- repeat customers ensures business will grow
Business survival:
- as reputation grows, increased likelihood of customers buying your products
- increased profits, more likely for business to continue to operate
What are the reasons for market research?
- identify and understand customer needs
- identify gap in the market
- reduce risk
- inform business decisions
What is primary research and how many businesses do this?
Market research carried out for first time
- survey/ questionnaire
- focus group
- interviews
- observations
What is secondary research and how many businesses carry this out?
Market research where information is already gathered:
- internet
- government statistics
- company reports
- newspaper
- trade associations
- books
Difference between quantitative and qualitative data?
Quantitative is measurable numbers and statistics, qualitative is non-measurable opinions and judgements
Why is social media crucial to market research?
- cheap way
- understanding market
- improve products and marketing
- saves time
Why is validity and reliability of research data important?
All business decisions are based off it. Invalid and unreliable information will lead to making harmful mistakes which limits profit and growth.
What are market segments?
- location
- demographic
- age
- income
- lifestyle
What is a market map and its use?
4 quadrant map based on 2 features of a product, allows business to identity a gap in the market.
What features of competitors products may businesses monitor?
- price
- product range
- quality
- customer service
- location
What might a business conduct to analyse its competitors and how it affects their decisions?
SWOT analysis
- strengths
- weaknesses
- opportunities
- threats
What are financial objectives and examples?
Financial targets
- survival
- profit
- wealth
- income
- financial security
- market share
Non-financial objectives and examples?
Targets that don’t involve money
- personal satisfaction
- challenge
- independence
- control
- helping others
What is the formula for profit?
Sales revenue - total cost
What is the formula for sales revenue?
Selling price x sales volume
What is the formula for total costs
Fixed cost + variable costs
What is the formula for variable cost?
Cost per unit x sales volume
How do you calculate interest?
(Total repayment - borrowed amount) / (borrowed amount) x 100
What is the break-even point and how do you calculate it?
Level of output where total revenue = total costs, neither a profit or loss is being made.
Fixed costs/ (sales price - variable cost per unit)
What is the margin of safety?
Amount of output between the actual level of output where profit is being made and the break even level of output.
What happens to the break even point if costs go up?
Becomes larger, further along a chart
What happens to the break even point if your sale price goes up?
Becomes smaller, closer on a chart
What is cash flow?
- movement of money into and out of the business
- used to pay day-to-day expenses of a business
Why is cash flow important to a business?
- pay its expenses ( suppliers overheads employees)
- prevent business failure (insolvency)
How is net cash flow calculated?
Total cash flow in - total cash flow out
What is the difference between long and short- term sources of finance?
LT is money for businesses that are borrowed or invested for over a year. ST needs to be paid back immediately or fairly quickly (like an overdraft)
What is overdraft facility?
- borrowing money from a bank by drawing more money thats in your account
- interest charged on the amount overdrawn
What is trade credit?
- negotiating with suppliers before goods and services have been purchased to be paid for
- usually 30 days credit
What is factoring?
- factor (financial company) buys a debt from a business and pays the business normally 90% of the debts value
- business gets paid immediately
- factor charges a fee for this
Long term sources of finance?
- personal savings
- venture capital
- share capital
- loans
- retained profit
- crowdfunding
- leasing (renting out)
What is venture and share capital?
VC is an individual or company that buys shares in hope of a fast growing company with long-term view of selling shares at a profit. SC is monetary value of a company which belongs to shareholders.
What is crowdfunding?
Obtaining external finance from individual, small investment, usually through web-based appeal.
Difference between limited and unlimited liability?
LL: business and shareholders which own it are distinct, any debts can only be taken from business.
UL: no distinction between business and owner, any debts business owes is payed off by owners assets.
What is a sole trader and a partnership, pros and cons?
ST: only owner, unlimited liability. Accounts don’t need to be publicly published.
P: 2 or more individuals run a continuing business for profit
ST has more privacy control and profit, P can share responsibility and risk
What it means for a business if owned by shareholder?
Will be PLC/LTD, limited liability and have to publish accounts publicly
Pros:
- limited liability
- less risk
- more capital
- better stats, more likely to be approved for loans
Cons:
- limited decisions as its owned by multiple people
- profit may be only goal
- other people can buy more shares and take over
What is franchising?
Right given by business to another to sell goods or services using its name.
What is a franchisor, pros and cons?
Business that gives franchisees the right to sell its products in return for a fixed sum of money Pros: - growth - profit - customer awareness - long term income Cons: - changing demands - brand image - poor performance
What is a franchisee, pros and cons?
Person licensed to do business under franchisors trademark, franchisee purchases a franchise from franchisor Pros: - training - equipment/materials - back up services - brand name - exclusive area Cons: - royalty fee - franchise fee - lack of flexibility
4 factors that affect business location?
- target market & demographics: sufficient people interested in your business
- labour: workers able commute and won’t lose out on your workforce
- materials: product needs to be easily manufacturable
- competitors: want to be close as a similar target market will nearby or far away so they can’t steal customers
Why might the nature of a business’ activity effect its location?
Tertiary sector: required to be in city centres as their services are required to be in locations easily accessible.
Primary sector: location may be in a rural area as land is cheap, don’t need to be near customers.
Benefits and limitations of e-commerce over fixed premises?
Pros:
- reach a larger market of customers
- less overhead fees (electricity rents)
- less workers to pay
Cons:
- customers may be wary of paying online
- technological failures can limit businesses
- technology may not always be user friendly
What marketing mix consist?
- product
- price
- place
- promotion
How technology affects marketing mix?
- e-commerce: able to use internet to sell items
- digital communication: promoting product to potential customers
What’s a business plan?
Development of a business
- business idea
- aims/objectives
- market research
- forecast revenue
- costs & profits
- cash flow forecast
- sources of finance
- marketing mix
Purposes of a business plan?
- think about all aspects of the business
- reduce risk of failure
- interest potential investors and bank loans
What’s a business stakeholder, examples
Person that has interest in a business, how it operates and whether it is successful
- owner
- managers
- employees
- suppliers
- pressure groups
- the government
- customers/ consumers
- shareholders
3 main internal stakeholders and their interests
- owners: making profit
- employees: job security and promotions
- managers: extra manager promotion
6 main external stakeholders and their interests
- suppliers: receive payment from the business
- customers: product to be cheap and available
- shareholders: receive dividends from their shares
- local community: no pollution from the business
- the government: receive taxes from the business
- pressure groups: business to be ethical
Why there’s conflict between suppliers and owners of a business?
- different interests
- owner wants high profits, requires low cost
- supplier wants more money, wants to charge more
4 main ways business uses technology
- e-commerce: selling online
- digital commutation: attract potential customers
- social media: social accounts online
- payment systems: guarantee security for customer, PayPal
How technology affects costs and sales of a business?
Costs:
- may be higher during legislation, usage of technology in place of employees will reduce
- payment systems take a small % of sales price as a fee for business
Sales:
- increase as social media means more promotion
- payment systems means customer have more trust
- digital communication means better reputation
- e-commerce allows more potential customers
3 principles of consumer law, legislation
- as described: good supplies must match descriptions / samples shown at time of purchase
- fit for purpose: fit for specific purpose you made known to the retailer at time of purchase
- of satisfactory quality: shouldn’t be faulty or damaged, durable
Pros and cons of e-commerce
Pros:
- reach more customers
- traffic data for market research
Cons:
- costs to produce websites
- Customers can compare prices, could pick another business
3 principles of employment law, legislation
- recruitment: no discrimination against age/race/gender/religion
- National minimal wage: minimum amount required to be payed (£7.20/h)
- health and safety: right to work in places where risks to their health and safety are controlled properly and employers who are responsible
Costs business faces due to legislation
- training staff
- protection equipment for staff e.g. goggles
- paying NMW, high amounts which reduces profit
Consequences a business can face for not meeting regulation
- fines
- imprisonment
- disqualification
How a change in unemployment affects a business
- less disposable money for general public
- business has to provide more cheap products to meet customer needs
- wider range of people to recruit
- luxury good retailers will suffer
How a change in consumer income affects a business
Lower consumer income means less purchases of luxury products. Businesses have to adapt to provide products that meet lower costs, could reduce quality and lower one is demanded.
How a change in inflation rate affects a business
If inflation goes up, consumers will feel poorer and reduce spending which reduces their revenue. Around 2% in the UK.
How a change in exchange rates affect a business?
- weaker pound means a business pays more for suppliers from foreign countries (high exports and low imports)
- pound being stronger means it has more worth.
How a change in government taxation affects a business
If a business earns more than £83,00 a year they have to register for tax. Higher costs for a business which reduces profits.
How a change in interest rates affects a business?
Cost of borrowing will rise, cost of supplies will be higher, customer spending will be lower. Business will lose out on profit.
Difference between being proactive and reactive, what businesses should aim to be
- reactive is responding to a situation
- proactive is being prepared for situations
- should aim to be proactive
