Unit 1: Starting a Business Flashcards
Definition: Business
Organising recourses to achieve a reward.
What recourses are used in the running of a business?
- Utilities (electricity, water etc.).
- Advertising.
- Workers.
- Suppliers.
- Money.
- Raw materials.
- Property.
Why do people start businesses?
- Self-employed – own boss (make decisions) – work own hours – decide own wages.
- Choose own job.
- Follow ambition.
- Earn more money.
- They have a good idea.
Definition: Entrepreneur
Someone that starts a business.
What’s the Primary Sector?
Businesses that produce raw materials. For example, a coal miner or fisherman.
What’s the Secondary Sector?
Businesses that turn raw materials into products. For example, a builder, a dressmaker, or a factory.
What’s the Tertiary Sector?
Businesses that provide a service. For example, a grocery store, a cinema, or a car shop.
How do people come up with ideas for new businesses?
- Personal experience.
- Provide a solution for a problem.
- Improvement on an existing product.
- Gap in the market – no competition.
How does an entrepreneur come up with a completely new business idea?
- Completing market research.
- Solving a problem that they’ve noticed.
- Noticing a trend or fashion.
How does an entrepreneur use an existing idea but differentiate it?
- Selling an existing idea/product but cheaper.
- Selling an existing idea/product but with better customer service.
- Bringing an existing idea to a region or country that doesn’t yet have it.
Definition: Differentiation
Making a business stand out from rivals in some way.
Definition: Gap in the Market
A business opportunity that is either a completely new idea or adds something different to an existing product or service.
What’s a market map?
A market map is one way of identifying a gap in the market.
Definition: Niche Market
A small group of consumers that share a similar need. For example, left-handed people or lactose intolerant people.
Why might entrepreneurs be attracted to niche markets?
- Low competition – guaranteed customers – charge high prices.
- Products may be desirable due to rarity (e.g luxury cars).
Definition: Franchise
The legal right to use the name, logo and products of an existing business.
What’s the franchisor?
This is the business that is giving entrepreneurs permission to open a franchise of their company and use their business name, logo and sell their products.
What’s the franchisee?
This is the entrepreneur that is buying a franchise of somebody else’s business rather than opening their own independent business.
Why might an entrepreneur be attracted to franchising?
- Good investment.
- Higher profits.
- Don’t want to think of their own idea.
- New experience.
- No risk – business already successful – have a trusted supplier.
What does the franchisor do?
- Supplies franchisee with the products to sell.
- Provides franchisee with training to help them run the franchise.
- Available to offer support and advice to the franchisee.
- Advertises the business on the franchisee’s behalf.
What does the franchisee do?
- Agrees only to sell the products supplied by the franchisor.
- Pays a fee to buy the franchise.
- Pays a percentage of the sales revenue to the franchisor.
Advantages of franchising for the franchisee?
- Already successful business.
- Less risky option, already have a customer base.
- Training provided.
Advantages of franchising for the franchisor?
- Expand business quickly.
- Franchise does all of the work.
- Royalty fees from the franchisee.
Disadvantages of franchising for the franchisee?
- Can’t change the products.
- Other franchisee could ruin reputation.
- Pays royalty fees.
Disadvantages of franchising for the franchisor?
- Could lose control.
- Other franchisee could ruin reputation.
- The hire process could be risky.
What types of businesses make successful franchises and why?
Businesses in the tertiary sector. This allows for more stores to sell services/products and make more profits. Also, the startup cost in the tertiary sector is low.
Definition: Sole Trader
A business that is owned by just one person. The owner has unlimited liability.
Definition: Unlimited Liability
When the owners of a business are personally liable for its debts, the business and its owner are the same legal entity.
Advantages of being a sole trader?
- Don’t share profits with anyone.
- The owner has sole control over decisions.
- The owner can work hours that suit them.
Disadvantages of being a sole trader?
- The owner has unlimited liability.
- Might not have enough experience to run the business.
- There is only one person to invest finance into the business.
Definiton: Partnership
A business that has 2-20 owners. The owners still have unlimited liability.
Advantages of being a partnership?
- Multiple people to invest finance into the business.
- Shared workload.
- Shared expertise: people with different skills.
Disadvantages of being a partnership?
- The owners have unlimited liability.
- Profits shared between partners.
- Liable for actions of other partners.
Definition: Private Limited Company (ltd.)
A business owner by shareholders that have limited liability.
Definition: Limited Liability
When the shareholders can only lose the money they’ve invested in the business. Their personal wealth is protected. The shareholders and the business are separate legal entities.
Advantages of being a Private Limited Company?
- All shareholders are protected by limited liability.
- There is no limit to the amount of shareholders in an Ltd.
- New shareholders can be brought into the company, raising extra finance.
Disadvantages of being a Private Limited Company?
- Profits are split between more owners.
- There are more laws that affect Ltd’s.
- There is a potential for conflict and power struggles between shareholders.
Definition: Incorporation
The legal process of forming a limited company.
The requirements of a Private Limited Company?
- Ltd’s have to send annual financial records to the government.
- Ltd’s can only sell shares privately, they can’t sell them to the public on the stock exchange.
- All shareholders have a say in the running of an Ltd’s.
Definition: Business Objective
A target for the business to achieve by a set date.
Typical objectives for new businesses?
- Survive the first year of business.
- Increase the number of sales each month by a certain percentage.
- Achieve a target amount of profit by the end of the year.
- Increase market share.
- Develop a reputation for good customer service.
Definition: Market Share
The percentage of total sales in a market made by a business (e.g. Nissan sell 18% of all cars sold in the UK each year).
Why do entrepreneurs set business objectives?
- To keep track of business’s progress.
- Look for areas for growth (external).
- Look for weaknesses (internal).
- Motivation.
Characteristics of a ‘good’ business objective?
- Specific.
- Measurable.
- Achievable.
- Realistic.
- Timed.
Definition: Stakeholders
Groups of people who are affected by the actions of a business.
Internal stakeholders?
- Employees.
- Shareholders.
External stakeholders?
- Customers.
- Rivals.
- Nearby residents.
- Suppliers.
- Locals.
How can employees influence the objectives of a business?
- Might quit – work for rivals.
- Motivation – quality of service – amount of sales – profits.
- Leave job – less staff – time and money to replace.
How can customers influence the objectives of a business?
- Where they buy from.
- What they buy.
- Word of mouth (reputation).
- Complaints.
How can the local community influence the objectives of a business?
- Protests.
- Vandalism.
Definition: Social Enterprise
A business that is run to help society.
Why entrepreneur want to start social enterprise?
- Personal experience - want to give something back.
- Help the less fortunate.
Definition: Business Plan
A document outlining how an entrepreneur plans to achieve their objectives.
What’s included in a business plan?
- Mission.
- Business objectives.
- Market environment.
- Competition.
- Products/services.
- Funding.
- Forecasts.
Why the entrepreneur would look at the business plan?
Measure how their business is performing and help them to make decisions.
Why a bank would look at a business plan?
Look at it before lending money to the business so they can decide if they think the business will be able to repay the loan.
Why investors would look at a business plan?
See what risks they’re taking.
Why a business plan is important?
- Allows entrepreneur to make effective decisions.
- Important to gain investors.
- Allows entrepreneurs to spot the risks and dangers their business will face and devise a strategy to deal with them (contingency plan).
Definition: Logistics
The process of assembling all the raw materials a business needs, and delivering products to customers.
Factors that affect a business’s location?
- Wealth/local economy.
- Size of location.
- Planning permission.
- Good infrastructure.
- Close to large population.
- Cost.
- Close to customers.
- Avoid competition.
Definition: A Market
A place where buyers and sellers come together to exchange goods or services for money.
Definition: Mail Order
When goods are bought through catalogues or online and delivered directly to the customer.
Location, advantages of a town centre?
- High footfall.
- Popular area.
- Good infrastructure.
Location, disadvantages of a town centre?
- High rent.
- Near competition.
- Low access.
Location, advantages of a village?
- Regular local customers.
- Away from rivals.
Location, disadvantages of a village?
- Harder to expand.
- Not as many customers.
Location, advantages of an industrial estate?
- Lower rent.
- Catch customers as they leave work.
- Good infrastructure.
Location, disadvantages of an industrial estate?
- Low footfall.
- Space not suitable.
Location, advantages of a local market or fair?
- High footfall.
- Populated area.
- Low rent.
Location, disadvantages of a local market or fair?
- Low accessibility.
- Near rivals.
Location, advantages of the entrepreneurs home (mail order)?
- Work from home.
- Cheap; low rent.
- Business open 24/7.
Location, disadvantages of the entrepreneurs home (mail order)?
- Doesn’t have a professional space.
- Can’t sell face to face.
- Have to pick a suitable business.
What entrepreneurs risk by starting a business?
- Health (stress).
- Steady income.
- Loss in salary from quitting job.
- Finance invested.
- Personal wealth (if unlimited liability).
- Reputation.
- Relationships.
Why new business might encounter difficulties?
- Poor management, entrepreneur has little experience and skills.
- Too much competition, already reputable competitors nearby.
- Insufficient profits made, entrepreneur inexperienced or too confident.
- Business located in wrong place, entrepreneur has insufficient funds.
- Poor cash flow, not enough money to cover startup costs.
Reduce risk of being in business?
- Market research.
- Profesional help and advice.
- Save rather than loan.
- Business plan.
