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Business > Theme 1 > Flashcards

Theme 1 Flashcards

1
Q

What is an entrepreneur?

A

A person who sets up a business, taking on financial risks with the hope of making a profit

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2
Q

Why do you consumer needs change?

A

Changes in fashions, the economy, national demographics, lifestyle, technology

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3
Q

Define obsolete

A

No longer produced/used; no longer needed

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4
Q

How is risk worked out?

A

By considering the probability of a negative outcome occurring and the impact of the negative outcome

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5
Q

What are some rewards of setting up a business?

A

Business success (personal or financial), profit, independence/freedom

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6
Q

What are some risks of setting up a business?

A

Business failure, Financial loss, lack of security e.g. no guaranteed income

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7
Q

How can risk be reduced?

A

By carrying out detailed market research, producing a business plan,
ensuring that the business is competitive,
raising sufficient start-up finance

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8
Q

What make some businesses riskier than others?

A

Seasonal demand,
a small market,
highly competitive market,
an owner who knows little about the product or market

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9
Q

How can a business add value?

A

Convenience, unique selling point, greater speed of service, branding, improved quality, better design

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10
Q

Why is adding value important?

A

The more value a business can add to its products, the more chance the business has of success, survival and long-term growth

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11
Q

What qualities do you entrepreneurs have?

A

Risk taker, initiative, determination, perseverance, willingness to undertake a new venture, confidence

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12
Q

How do you entrepreneurs benefit the economy?

A

By creating products and services to meet people’s needs
Creating jobs
Generating economic activity through consumer spending
Paying tax to the government
Exporting goods abroad

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13
Q

How can businesses meet customer needs?

A

Price
Choice
Convenience
Quality

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14
Q

What is market research?

A

Gathering information about customer needs and preferences

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15
Q

What is the purpose of market research?

A

Identify and understand customer needs
Identify gaps in the market/opportunities
Identify and understand competitors
Understand trends in the market
Reduce the risk associated with making business decisions
Understand customer opinions

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16
Q

What is primary research?

A

Research you collect yourself

aka field research

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17
Q

What are some examples of primary research?

A 
Surveys
Focus groups
Observations
Experiments
Social media
Questionnaires
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18
Q

What are the benefits of primary market research?

A

More accurate
Up-to-date
Specific to your business
Direct customer contact

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19
Q

What are some drawbacks of primary market research?

A

More time-consuming

More costly

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20
Q

What is secondary market research?

A

Information that already exists

aka desk research

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21
Q

What are some examples of secondary market research?

A 
Sales data
Internet sites
Local newspapers
Government reports
Market reports
Telephone directories
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22
Q

What are some benefits of secondary market research?

A

Less time-consuming
Less costly
General information (if that is what you want)

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23
Q

What are some drawbacks of secondary market research?

A

Less accurate
Might not be up-to-date
Might not be specific to the business

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24
Q

What is qualitative data?

A

Information about peoples opinions, judgements and attitudes

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25
Q

What is quantitative data?

A

Data that can be expressed as numbers and statistically analysed

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26
Q

How can businesses make market research more accurate?

A

Use a larger sample size

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27
Q

How can businesses make sure their data is reliable?

A

The data should come from a representative sample of people and the questions should enable people to give accurate and relevant answers

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28
Q

What is a market segment?

A

A group of buyers with similar characteristics and buying habits

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29
Q

What is the purpose of market segmentation?

A

Segmenting the market allows a business to understand its customer needs and to target its customers better

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30
Q

How can a market be segmented?

A 
Age
Gender
Income
Location
Lifestyle
Demographics
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31
Q

What are benefits of market segmentation?

A 
Allows a business to meet specific customer needs,
Differentiate its products,
Focus on a specific group of customers,
Target its marketing activity,
Develop a unique brand image,
Build close customer relationships
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32
Q

What are the limitations of market segmentation?

A

Can be costly
Focusing on one group of customers may cause a business to miss another opportunity
Customer characteristics change over time

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33
Q

What is a market map?

A

A diagram that can be used to position and compare products in a market

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34
Q

What are some benefits of market mapping?

A

Helps to identify potential gaps in the market

Helps businesses to identify their closest rivals

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35
Q

What are some limitations of market maps?

A

Based on opinions rather than accurate data
Compare to businesses based on only two variables – simplistic
Can be difficult to identify the most appropriate variables

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36
Q

How can businesses compete with their competition?

A 
Wider product range
Lower prices
Better design
Better customer service
Stronger brand image
More convenient location
Higher quality
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37
Q

What is a competitive market?

A

A market with a large number of businesses relative to the number of potential customers

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38
Q

What are some drawbacks of highly competitive markets?

A 
A business might have to:
Lower prices in order to complete
Accept lower profit margins
Cut back on expenditure
Be careful about how and when it expands
Monitor its competitors closely
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39
Q

How do customers benefit from competition?

A

Lower prices

Improved quality and customer service

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40
Q

What is the difference between aims and objectives?

A

Aims are the general goals that are business sets e.g. purpose for business’ existence
Objectives are more specific but contribute to the business achieve its aims

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41
Q

What are the financial objectives for a start-up?

A 
Survival
Sales and sales revenue
Profit
Market share
Financial security
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42
Q

What are the non-financial objectives for a start-up?

A 
Personal satisfaction
Independence and control
Challenge
Social benefits or goals
Customer satisfaction
Business awards and recognition
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43
Q

What is revenue?

A

Amount of income received from selling goods or services over a period of time
aka turnover, income

44
Q

How is revenue calculated?

A

Revenue = sales price x quantity

45
Q

What are fixed costs?

A

Costs that do not vary with output

46
Q

What are variable costs?

A

Costs that vary with the level of output

47
Q

How do you work out variable costs?

A

Variable costs = cost of one unit x quantity produced

48
Q

What are some examples of fixed costs?

A

Rent
Salaries
Utility bills
Interest on loans

49
Q

What are some examples of variable costs?

A

Raw materials

Wages

50
Q

What is profit?

A

The money leftover after taking costs away from the revenue

51
Q

How is profit calculated?

A

Profit = revenue - total costs

52
Q

How is interest on loans calculated?

A

Interest (on loans) % = (total repayment - borrowed amount) / borrowed amount x 100

53
Q

What is break-even?

A

The level of output at which a business’ revenue covers its total costs. At this point the business is making neither a loss nor a profit

54
Q

How is break-even calculated?

A

Break-even point in units = fixed costs / (sales price - variable costs)

55
Q

On a break-even graph, how do you find the break-even point?

A

The point where total costs and total revenue lines intersect

56
Q

On a break-even graph, how do you know is the business is making a profit?

A

When total costs exceed the break-even point

57
Q

On a break-even graph, how do you know if the business is marking a loss?

A

When total costs fall below the break even point

58
Q

On a break-even graph, what does the fixed costs line look like?

A

It is a horizontal line because fixed costs are do not change with output

59
Q

What is the margin of safety?

A

How much production could fall before the business starts to make a loss

60
Q

How is the margin of safety calculated?

A

Margin of safety = actual or budgeted sales - break even sales

61
Q

What is cash flow?

A

The money flowing in and out of a business on a daily basis

62
Q

What is a cash-flow forecast?

A

It predicts how much cash will flow through a business over time
It can be used to predict where a business could have a cash flow problem

63
Q

On a cash flow forecast, what are receipts also known as?

A

Inflows

64
Q

On a cash flow forecast, what are payments also known as?

A

Outflows

65
Q

How is net cash flow calculated?

A

Cash inflows - cash outflows in a given period

66
Q

What is the opening balance on a cash flow forecast? + how is it calculated?

A

The amount of money in a business at the start of a month

The previous month’s closing balance

67
Q

What is the closing balance on a cash flow forecast? + how is it calculated?

A

The amount of money in a business at the end of a month

Net cash flow + opening balance

68
Q

On a cash flow forecast, how are receipts calculated?

A

Net cash flow + total payments

69
Q

What impacts cash flow?

A 
Change in sales revenue / demand
Change in costs
Change in credit terms
Change in stock levels
Business expansion / contraction
Seasonality in sales
70
Q

What does the term ‘liability’ refer to?

A

The legal responsibility of a business towards its debts

71
Q

What is unlimited liability?

A

The owner of the business is legally responsible for any debts of the business - the owner could lose their personal belonging to pay of any debts
More risk
Accounts do not have to be made public

72
Q

What is limited liability?

A

The owners and the business are separate legal entities - shareholders + owners can only lease money up to the amount they invested, the personal belongings are not liable
Profits + control shared between shareholders
Less risk
Accounts made public

73
Q

What types of business ownership is there?

A

Sole trader
Partnership
Private limited company (Ltd)
Public limited company (PLC)

74
Q

What are some advantages of being a sole trader?

A

Quick and easy to set up
Sole trader keeps all the profits
Sole trader makes all the decisions
Financial info kept private

75
Q

What are some disadvantages of being a sole trader?

A

Unlimited liability
Harder to raise money to start/grow business
A lot of pressure on one person
No time off

76
Q

What are some advantages of being a partnership?

A

Owners can share ideas and knowledge
Owners share risk
Could be easier to raise finance to establish/grow business

77
Q

What are some disadvantages of being a partnership?

A

Decisions made by one partner can affect all partners
No longer exists if one partner leaves
Profits are shared
Partners may disagree

78
Q

What are some advantages of being a private limited company?

A

Owners have limited liability
Customers may trust an ltd more than other businesses
Continues to trade even if the shareholders argue
Could be easier to raise finance to establish/grow the business

79
Q

What are some disadvantages of being a private limited company?

A

More complex to set up than sole trader of partnership
Shareholders may disagree
Financial info is published and can be accessed by others
More info must be reported to the government

80
Q

What is a franchisor?

A

The business that gives franchisees the right to sell its product or service

81
Q

What is a franchisee?

A

A business that agrees to manufacture, distribute or provide a branded product under license from a franchisor

82
Q

What is a franchising?

A

The expansion of an established business by licensing the right for entrepreneurs to set go their own business using the name, equipment and products of the franchise. In return, the franchisee pays the franchisor a fee or share of the sales revenue.

83
Q

What does the franchisee get when they buy a franchise?

A

It’s like buying a ready-made business in a box

E.g they get an established brand name, ongoing support, access to goods and services

84
Q

What are the benefits of running a franchise?

A

Brand image and reputation already established
Expensive marketing costs are covered by the franchise
Access to tried-and-tested products
May have an established customer base
Higher chance fo survival
Specific support and training provided

85
Q

What are the drawbacks of running a franchise?

A

Cost of the initiator investment can be high
Owner has little freedom to make decisions
Franchisee will have to pay a fee or royalty (percentage of sales revenue) to the franchisor
Restrictions on where the franchise can be set up

86
Q

What are the 4 Ps in the marketing mix?

A

Product (has to meet needs of customers, product differentiation)
Place (way in which a product is distributed)
Promotion (communication between the business and customer that makes customer aware of business’ products)
Price (price must reflect value)

87
Q

What is a business plan?

A

A plan for the development of a business, giving forecasts of items such as sales, costs and cash flow

88
Q

What is the purpose of a business plan?

A

Convince a bank to loan the business money
Forecast financial projections
Identify the needs of customers
Formulate market research into important info (e.g about competitors)
Provide info (e.g about competitors)
Provide the owner with a ‘plan of action’ that will minimise risk

89
Q

What are the contents of a business plan?

A 
Business idea
Aims and objectives
Market research
Financial forecasts
Sources of finance
Location
Marketing mix
Production
90
Q

What is a stakeholder?

A

An individual/group that has an interest in and is affected by the activities of a business

91
Q

What groups of people are stakeholders in a business?

A 
Owners (shareholders)
Managers
Pressure groups
Employees
Local community
Government 
Suppliers
92
Q

What is the aim of the owners/shareholders of a business (stakeholders)?

A

Want profits and a return on their investment, dividends

93
Q

What is the aim of the managers of a business (stakeholders)?

A

Want bonuses and long-term success

94
Q

What is the aim of pressure groups (stakeholders)?

A

Want to influence business’ decisions and actions e.g making the business more environmentally friendly
Wants socially responsible and ethical businesses

95
Q

What is the aim of the employees in a business (stakeholders)?

A

Want good, regular pay and good working conditions, job security

96
Q

What is the aim of the customers of a business (stakeholders)?

A

Want good value for money

Good customer service

97
Q

What is the aim of the local community (stakeholders)?

A

Wants local investment, jobs for local people and limited pollution (noise and traffic)

98
Q

What is the aim of the government (stakeholders)?

A

Wants low unemployment and competitive markets

Wants taxes to be paid

99
Q

What is the aim of the suppliers of a business (stakeholders)?

A

Wants regular orders

100
Q

What 2 examples are there of possible stakeholder conflicts?

A

Shareholders want more profit / managers want to invest profit to grow
Workers want higher pay / customers want lower prices

101
Q

What are some types of technology that influence business activity?

A

E-commerce
Social media
Electronic payment systems
Digital communication (e.g email / QR codes)

102
Q

What are some examples of short-term finance?

A 
Bank overdraft
Trade credit (paying for stock or goods later)
103
Q

What is short-term finance?

A

Sources of finance that are repaid immediately or quite quickly (usually within a year) and are used for costs such as buying stock or paying a utility bill

104
Q

What is long-term finance sources?

A

Sources of finance that are usually repaid over a longer time period (even up to 25 years). Would be used to finance a new business or to expand a business

105
Q

What are some long-term sources of finance?

A 
Personal savings
Venture capital (capital from investors to fund new business idea)
Share capital (selling shares)
Loan
Retained profit
Crowd funding
106
Q

What is crowdfunding?

A

The process of raising small amounts of money from a large number of customers for a new product or start#up

Business (3 decks)

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