theme 1 Flashcards
Why do new business ideas come about?
- Changes in technology
- Changes in trends
- Products and services becoming obselete
How do new business ideas come about?
- Adapting existing products / services / ideas
- Original ideas
Impact of risk on a business
- lack of security
- business failure
- financial loss
Impact of reward on a business
- business success
- profit
- independance
The role of business enterprise
- to produce goods or services
- to meet customer needs
- to add value: convenience, branding, quality, design, USP
The role of an entrepreneur
- organsis resources
- takes risks
- makes business decisions
What are customer needs?
- price
- quality
- convenience
- choice
Why are customer needs important?
- generating sales
- business survival
- brand image
What is the purpose of market research?
- identify and understand cutomer needs
- identify a gap in the market
- reduce risk
- inform business decisions
What are the methods of market research
- primary - getting it yourself
- secondary - someone elses
Examples of primary research
- survey
- questionaire
- focus group
- observation
Example of secondary research
- internet
- market reports
- government reports
Pros and cons of primary research
- Pro: up to date, questions can be tailed to answer specific question for that business, allows business to have direct contact with existing or potential customers
- Con: time consumer, some surveys get low responce rates, expensive, can be bias in small or incorrect sample groups
Pros and cons of secondary research
- Pro: is cheap, easily accessible
- Con: may be out of date, may not be relevent for the business
What is qualitive and quantative data?
- qualitive - subjective, personal opinions e.g. focus group
- quantative - to do with numbers and statistics e.g. poll
What are market segments?
- location
- age
- demographic
- income
- lifestyle
Why do we use market mapping?
- identify a gap in the market
- identify competitors
Understanding the competitive environment
- strengths and weaknesses of competitors based on: price, quality, location, product range and customer needs
- impact of competitors on business making decisions e.g. lower prices to remain competitive
Effects of the use of social media
· Fast to access a wide range of people.
· Relatively cheap compared to other forms of market research.
· Can be used for primary or secondary research.
· A number of social media sites with different audiences.
· Analytical tools are required.
· Takes time and money to establish, build and monitor a presence.
What are business aims and objectives
- aims - is the overall target / goal of the business
- objective - smaller targets / goals in order to reach the main aim
Why are business aims and objectives useful?
- helps strategise and visualize how to complete problems / ambitions
What types if aims and objectives are there?
- Financial - goals relating to money
- Non-financial - often personal goals or solving a social issue within society e.g. being more sustainable
Why do aims and objectives differ between businesses?
Every business is different and because of this, their aims and objectives differ vastly. Business have different desires and things they want to accomplish. Some may focus more on the financial aims of the business and others may focus on the non-financial aims. It depends on the business and what they stand for
revenue
sales price x units sold
fixed costs
total costs - variable costs
variable costs
total costs - fixed costs (or) cost per unit
total costs
variable costs + fixed costs
profit / loss
total revenue - total costs
interest
interest (on loans) in % - ([total repayment - amount borrowed] / amount borrowed) x 100
break even level of ouput
fixed costs / (sales price x variable costs)
break even point in costs
break even point in units x sales price
Margin of safety
actual sales - break even sales
gross profit
total revenue - variable costs
gross profit margin
gross profit / sales revenue x 100
net profit
total revenue - total costs (or) gross profit - fixed costs
net profit margin
net profit / sales revenue x 100
contribition per unit
sales price - variable costs
Net cash flow
cash inflow - cash outflow
Opening balance
closing balance of previous month
closing balance
opening balance + net cash flow
Average rate of return
average annual profit [total profit / number of years] / cost of investment x 100
break even diagram
cba to find it
Why is cash important
- to pay suppliers
- to prevent insolvency / business failure
trade credit - short term
- supliers give a period of credit before payment
- Pro - buy now pay later (free), potential discounts for early payments
- Con - may be charges for late payments, not available wth all suppliers
Overdraft- short term
- agreement with bank to go over
what is unlimited liabilty?
- responsible and liable for ALL debts that the business incurs
- It is simpler to set up these types of business
- Sole traders and partners may be less inclined to take risks as all their personal wealth is at risk
- Sole trader and partnerships
- same entity
What is limited liability?
- Private limited companies Ltd / Public limited company PLC
- seperate entities
- Risk is reduced as personal assests cannot be lost
*Only money invested by shareholders in the business can be lost
The business s more likely to have the confidence to take risks
As losses are limited to the amount invested, this makes it more attractive for investors
sole traders
- It is simply an extension of the legal personality of the owner
- It may have one or more employees
- The most common form of ownership in the UK
- Unincorporated
- Unlimited liability
- Examples include street vendors, buildings, electricians, equestrian instructors
factors effcting business location
market, labour, raw materials, competitors
difference between Ltd and PLC
- Ltd sell shares to family and friends to raise capital
- PlC sell shares on a stock exchange to members of the public and other institutions - run by directors
What is the marketing mix?
Price, place, product and promotion
Why make a business plan
- reduce risk
- obtain finance
What is in a business plan?
- business idea
- aims and objective
- target market (market research)
- forecast revenue / costs / profit
- cash flow forecast
- sources of fincance
- location
- marketing mix
effect of stake holders
- employees - if unhappy with work evironment, could strike
- suppliers - late deliveries and poor quality / wanting payment on time
- customers - will want best value for money, could go to competitors
- community - want a business to behave ethically
- owners - how much money they take out / reinvest / decisions
- Government - changing legislation
