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business (tina) > Unit 3 (3.3, 3.7, 4.2) > Flashcards

Unit 3 (3.3, 3.7, 4.2) Flashcards

1
Q

Revenue

A
  • The income received from the sale of a good and service
  • Total revenue = price x quantity sold (or P x Q)

E.g. Johnson Java sells coffee for €3 a cup aand sell 600 cups a week
Revenue = 3 x 600 = €1,800 a week

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2
Q

Revenues Streams

A
  • The income a business gets from different business activities

Pros and Cons Revenue Streams:

  • Allow the business to generate extra revenue and profit
  • Don’t have to rely on one source of revenue as much
  • May distract the business from its core purpose
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3
Q

Fixed Costs

A

Costs that do not vary with output in the short run

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4
Q

Variable costs

A

Costs that increase as output increases

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5
Q

Total Costs and Profit Calculations

A

Total Costs = Fixed Costs + Variable Costs
Profit = Revenue - Total Costs
Profit = Revenue - Fixed Costs - Variable Costs

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6
Q

Cashflow Forecast

A

A statement that shows the expected cash a business expects to receive and pay out over a period of time

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7
Q

Examples of Cash Inflows

A
  • Sales revenue
  • Owner’s capital
  • Loans
  • Sale of Fixed Assets
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8
Q

Example of Outflows

A
  • Rent
  • Wages
  • Purchase of inputs and materials
  • Utility payments (water, electrical bills…)
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9
Q

Cashflow Forecast Structure

A

A. Opening Balance
B. Cash inflows
C. Cash outflows
D. Net monthly cash flow (B - C)
E. Closing balance (A + D)

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10
Q

Difference between profit and cash flow

A

Profit = Revenue - Total Costs
Cash Flow = Cash Inflows - Cash Outflows

The main difference between profit and cashflow is timing

Cash might be collected from customers at the end

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11
Q

Direct Costs

A
  • Costs that can be clearly identified with production of each unit of production or a project
  • Costs of meat in hamburgers
  • Costs of Business teacher in Business education
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12
Q

Indirect/Overheads

A

Costs that don’t contribute to production but keep the company going

  • Promotional expenditure in a supermarket
  • Cost of cleaning a school or business
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13
Q

Capital Expenditure

A

Spending to purchase fixed assets:

  • Factories
  • Machinery
  • Vehicles - e.g delivery trucks
  • Furniture

Usually, will last more than 1 year
The main purpose is to drive growth in the business

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14
Q

Revenue Expenditure

A

Spending on the day-to-day costs of running the business:

  • Utility bills, e.g. electricity and water
  • Employee salaries
  • Office supplies
  • Rent
  • Insurance

Paid daily, weekly or monthly
Not being to pay these is bankruptcy

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15
Q

Working capital

A

Funds/money available for the day - to - day running of the business

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16
Q

Liquidity

A

How quickly assets can be turned into cash

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17
Q

Working capital cycle

A
  • There is a period of time from buying inputs to receiving cash from sale
  • The longer this time period is, the longer it takes it collect cash from selling goods/services
18
Q

Examples of Business Investment

A

E.g. Spending on fixed assets (capital expenditure)
E.g. new factory, Research and development

19
Q

The relationship between investment, profit and cash flow

A

Investment:

  • Large amount needed - buying assets, advertising, production

Profit:

  • Investment should lead to higher future profits

Cash:

  • Large outflow at the beginning to pay for investments
  • Followed by regular small cash inflows as profits increase
  • Business needs to manage cash flow in the short run
20
Q

Strategies for dealing with cash flow problems

A

Improving cash inflows:

  • Sell assets (e.g. machinery, patents)
  • Short term promotion (e.g. discount)
  • Improve credit terms - e.g. reduce trade credit to customers from 60 days to 30 days - collect cash from sales quicker
  • Any Sources of Finance - e.g. bank loan, share capital, crowdfunding

Reduce cash outflows:

  • Finding cheaper suppliers
  • Delay payments to creditors - e.g. ask to increase trade credit ot suppliers from 30 to 60 days
  • Delay spending on capital equipment (or lease)
  • Cut unnecessary overheads
  • Reduce stock (inventory of inputs and finished goods)
21
Q

Marketing Planning

A

The process of identifying the marketing goals of a business and what strategies they will use to achieve those goals

22
Q

Marketing Plan

A

Marketing Objectives
- E.g. increase market share

Marketing Strategies
- E.g. target new customers

Target Market
- Might be expanded

Market Research
- Are we going to do market research ourselves?
- E.g. main competitors, customers needs

Marketing Budget

23
Q

Mass Marketing

A
  • When a business aims to sell a product to all consumers in the market

An undifferentiated strategy - i.e. does not target anyone in particular
- Education market - targets all students, appeal to everyone

24
Q

Niche Marketing

A
  • When a business focuses on a specific and well-defined target market or part of the market

A differentiated strategy - i.e. is aimed at certain consumers
- Produce pencil for art students or architecture students

25
Q

Product Differentiation

A

Ways in which your business’s product are different to the competitors

26
Q

USP

A

Any aspect of the business that makes it appear different to the competitors in the mind of the consumers

  • The best/cheapest
  • Well-known slogan/advert
  • Only business in the area
  • The first/original
  • The shopping experience (IKEA)
  • Home delivery
27
Q

Market Segmentation

A

Breaking a market into different parts (segment), where consumers in each segment have similar characteristics

28
Q

Demographic Segmentation

A
  • Age
  • Gender
  • Race
  • Religion
  • Martial Status
  • Education
  • Income
  • Language
29
Q

Geographic Segmentation

A
  • Local tastes
  • Local culture
  • Climate
  • Urban/rural
  • Population density
30
Q

Psychographic Segmentation

A
  • Lifestyle
  • Hobbies and interests
  • Values
  • Motivations
31
Q

Product Position Maxtrix (PPM)

A
  • Shows customer perceptions of product or brand compared to competitors

Identify 2 key characteristics important to consumers

  • Often price and quality
  • But could be anything that makes sense
32
Q

Reasons to do PPM

A

Gain information on the market

Finding gaps in the market
- Discovering a gap in the market
- Less competition when we enter the market segment

Repositioning
- When a business try to change the perception that customers have of their product
- From Premium to Luxury: An Evaluation of the Repositioning of Rimowa

Creating a product portfolio
- Have a range of products that target different segments of the market
- Then your products don’t compete for the same customer

33
Q

Pros of Product Differentiation

A
  • Better brand image
  • Increased brand loyalty
  • Can charge higher prices
  • More resistant to changes in the market
34
Q

Cons of Product Differentiation

A
  • Higher marketing costs
  • Can be copied by competitors
  • Might limit the potential audience
35
Q

Pros of Mass Marketing

A
  • More potential customers and higher sales
  • Higher brand recognition
  • Lower costs as higher production leads to economies of scale
36
Q

Pros of Niche Marketing

A
  • Product is design for its customers so brand loyalty
  • Less competition so can charge higher prices for specialized products
  • Can specialize and focus on your target customers
  • In general, small/new firms will use niche marketing
  • With success they may move more into the mass market
37
Q

Causes of cash flow problems

A
  • Unprofitable business
  • Giving too much trade credit to customers
  • Expanding too quickly
  • Spending too much on expansion
  • Having too much stock
  • Cash is tied up in stock and it takes time to sell
  • Seasonal demand problems
38
Q

Economy products (PPM)

A

Low price, Low quality

39
Q

Bargain products (PPM)

A

Low price, High quality

40
Q

Cowboy Products (PPM)

A

High price, Low quality

41
Q

Premium Products (PPM)

A

High price, High quality

business (tina) (8 decks)

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