Unit 1: Business in the Real World Flashcards
what does CELL stand for?
the economic resources
- Capital - tools, machinery, financial resources used in production
- Land - natural recourses and the physical space
- Labour - Human effort/skill applied to the production process
- Entrepreneurship - encompasses the innovation, organisation and ‘risk taking’ that drives the production process.
Primary sector
extracting raw materials
e.g.
* fishing
* mining
* agriculture
1% of uk economy
secondary sector
converting raw materials into goods - finished or unfinished
- car production
- t shirt production
- assembly plant - making components e.f steering wheel
19% of uk economy
tertiary sector
- providing the service
- financial services - banks
- leisure services - hotels
- transport services - taxis
- 80% of uk economy
business
Inputs - CELL
outputs - goods and services
percentage change
new number - old number / old number
= ANS x 100
what’s an Entrepreneur?
an individual who takes on Risk to hopefully gain a REWARD (mainly profit)
Reasons for Entrepreneurs starting a business?
- more profit
- wants independence - be your own boss
- need a job
- interest/passion
- flexible hours
- spotted a business opportunity
- help others
opportunity cost
The sacrifice when an alternate is chosen
risks/ challenges of an entrepreneur
- setting a new business
- expanding a business
- limited liability
- competing with competitors
- attracting/retaining customers
Profit distribution
- sole trader -
- partnership -
- private limited -
- public limited
- sole trader - 100% profit is yours
- partnership - shared to what deeds of partnership says. (60/40)
- private limited and public limited
= shareholders will reciever diverdends
Liability
- unlimited
- limited
- sole trader -
- partnership -
- private limited -
- public limited
- sole trader - Unlimited liablities
- partnership - Unlimited liablities
- private limited and public limited liablities
= shareholders personal possesstions not at risk
Management and control
- sole trader -
- partnership
- private limited -
- public limited
- sole trader - have full control but not support
- partnership - shared based on ‘deals of partnership’
- private limited -
- public limited -
Sources of finance available
partnership
private limited
public limited
- sole trader -
- partnership -
- private limited -
- public limited
- sole trader -
- partnership -
- private limited -
- public limited -
market size
the potential number of customers you could sell your products to
market share
The percentage of total sales in a market that is attributed to a specific business or product.
price skimming
why is it good or bad?
price penetration
why is it good or bad?
competitive pricing
why is it good or bad?
Good:
Attracts customers by matching or undercutting rivals.
Helps maintain market position in competitive industries.
Avoids overpricing or losing customers.
Bad:
Reduces profit margins if prices are too low.
Doesn’t highlight product quality or uniqueness.
Can trigger price wars with competitors
loss leader pricing
why is it good or bad?
Good:
Attracts customers to the business.
Encourages additional purchases of profitable items.
Increases market share and brand loyalty.
Bad:
Can lead to losses if customers only buy the discounted product.
May harm profitability if overused.
Risk of competitors matching prices, reducing effectiveness.
cost plus pricing
why is it good or bad?
A pricing strategy where a business sets the price by adding a fixed percentage (markup) to the total cost of producing a product.
Formula:
Selling Price = Cost of Production + Markup
Good:
Simple and easy to calculate.
Ensures costs are covered with a guaranteed profit.
Reduces pricing decision uncertainty.
Bad:
Ignores market demand and competition.
May result in overpriced or underpriced products.
Doesn’t consider customer value perception.
product life cycle in order
5
- research and development
- introduction
- growth
- maturity
- Decline
Benetfits of product differentiation
USP
- increases customer satisflication
- allows price skimming
- however high cost of new product
- will it be low in demand
product portfolio
The range of products a business offers
extension strategies
- improve packaging
- add new/more features
- new target markets
- advertising - billboard, ads, buy one get one free, magazines
- reduce process - has to make more than than the reduction
boston matrix
A tool to analyze a product portfolio based on market share and market growth. Categories:
- Stars: High growth, high share.
- Cash Cows: Low growth, high share.
- Question Marks: High growth, low share.
- Dogs: Low growth, low share.
why do promotion
- make customers aware of ur product
- Remind them of ur product
- Which will increase sale of product
- change preception about products
- therefore persude them to buy it
5 ways of advertisment
- Billboards
- magazine
- internet
- newspaper
- TV
B-MINT
types of sale promotion
- Points of sales
- Buy one get one free
- Free gifts
- Samples
- Coupons
types of promotion
- advertisment
*sale promotion - sponsorship
- social media
- PR - Public relations
promotion depends on the…
- money you haev
- what your rivals doing
- whats the nature of product
- what makes sense for the target market
e commerse defenition
Buying and selling goods or services online.
m commerse defenition
Buying and selling goods or services through mobile devices.
pros and cons of m commerce
M-commerce Pros:
Convenience and accessibility.
Faster transactions.
Location-based services.
M-commerce Cons:
Smaller screen size.
Dependence on internet and battery.
Security concerns
pros and cons of e commerce
E-commerce Pros:
Wide customer reach.
24/7 availability.
Lower operating costs.
E-commerce Cons:
Delivery delays.
Security risks.
Intense competition.
Net cash flow formula
Net Cash Flow = Total Cash Inflows - Total Cash Outflows
fixed cost
FC
do not change with output
Variable cost
VC
change with output
Average rate of return formula
(Average Annual Profit ÷ Initial Investment) × 100
variable cost
Costs that change with the level of output, e.g., raw materials.
average annual profit formula
(Total Profit over the Period) ÷ (Number of Years)
break even point
+ formula
The level of sales where total revenue equals total costs, resulting in no profit or loss.
Fixed Costs ÷ (Selling Price per Unit - Variable Cost per Unit)
break even cons and pros
Break-even Pros:
Helps determine the minimum sales needed to avoid losses.
Assists in pricing strategies and cost control.
Simple and easy to understand.
Break-even Cons:
Assumes fixed costs and prices remain constant.
Doesn’t consider market changes or competition.
Doesn’t show profitability beyond the break-even point.
what are the 3 financial statments
- cash flow forcast - how much cash in bank acc
- income statement - how much profit made
- statment of financial position - net worth of business
gross profit formula
Sales Revenue - Cost of Goods Sold (COGS)
Gross Profit margin formular
(Gross Profit ÷ Sales Revenue) × 100
Net Profit margin formular
(Net Profit ÷ Sales Revenue) × 100
advantages of a business plan
- Provides direction and focus.
- Helps secure funding from investors or banks.
- Identifies potential risks and opportunities.
- Assists in setting realistic goals.
- Aids in measuring business progress.
pros and cons of sole trader
Pros of Sole Trader:
Full control and decision-making power.
Simple and low-cost setup.
Keep all profits.
Flexibility in business operations.
Cons of Sole Trader:
Unlimited liability.
Limited access to capital.
High workload and responsibility.
Limited expertise and resources.
pros and cons of partnership
Pros of Partnership:
Shared responsibility and workload.
More capital and resources.
Diverse skills and expertise.
Shared risk and liability.
Cons of Partnership:
Unlimited liability for partners.
Potential for conflicts between partners.
Profit sharing.
Limited control for individual partners.
pros and cons of Private Limited Companies
Pros of Private Limited Companies:
Limited liability for shareholders.
Easier to raise capital.
Continuity of the business.
More control and privacy than public companies.
Cons of Private Limited Companies:
Limited number of shareholders.
More legal and regulatory requirements.
Profits must be shared among shareholders.
Higher setup and operational costs.
pros and cons of Public Limited Companies
Pros of Public Limited Companies:
Ability to raise capital by selling shares.
Limited liability for shareholders.
Enhanced public profile and credibility.
Easier to expand and grow.
Cons of Public Limited Companies:
High regulatory and reporting requirements.
Risk of loss of control due to shareholders.
Vulnerable to market fluctuations.
Expensive to set up and maintain.
market growth formula
((New Market Size - Old Market Size) ÷ Old Market Size) × 100
market share formula
(Company’s Sales ÷ Total Market Sales) × 100
benefits of market segmentation
- More targeted marketing strategies.
- Better customer satisfaction by meeting specific needs.
- Improved product development.
- Enhanced competition and differentiation.
- More efficient use of resources.
