Why start a Business? Flashcards
Why start a business?
5 marks
Greater financial success, independence, flexibility, challenge, survival.
Enterprise
2 marks
The skill involved in wanting to start and run a business.
Entrepreneur
1 mark
The individual who sets up their own business.
Number of reasons why entrepreneurs are willing to take a calculated risk and set up a business.
(1 mark)
7 reasons
Possible motives for entrepreneurs (taking a calculated risk and) starting a business include:
(4 marks)
- Making a profit
- The satisfaction that comes with being successfully independent
- Being able to make a difference
Motivation for starting a business - Making a profit:
4 marks
A business does this by selling items at a price that more than covers the costs of production.
Owners keep the profit as a reward for risk-taking and enterprise.
Motivation for starting a business - Satisfaction:
2 marks
Comes from setting up a successful business and being independent.
Motivation for starting a business - Making a difference:
1 mark
By offering a service to the community such as a charity shop or hospice.
A new business needs
2 marks
Its own name and a product.
Challenge of starting a business
4 marks
Making goods and services that satisfy customers - are competitive and sell at a price that more than covers costs.
A new business starts out with
2 marks
Few, if any, customers and is likely to face competition from existing firms.
To succeed a new business needs to
2 mark
Plan its launch carefully and work out how to create a competitive advantage over its rivals.
How does a new business gain an advantage over its rivals?
1 mark
It needs to offer a product which customers prefer to a rival’s product.
Setting up a business involves
3 marks
Risks and reward:
- Profit is the reward for risk-taking
- Losses are the penalty of business failure.
Profit is
1 mark
the reward for risk-taking
Losses are
1 mark
the penalty of business failure.
An owner may decide to close a business if
4 marks
Losses are being made or if the level of profit is not enough to make trading risks or hours worked worthwhile.
Disadvantages of starting a new business
3 marks
- Most small businesses have very limited resources.
- Research is costly and can seem like a poor use of time.
Risks and mistakes taken by some entrepreneurs starting a new business
(6 marks)
- Ignoring planning and analysis
- Relying on their gut instinct.
- Launching products they believe customers want and competitors cannot match.
- Poor planning (a major cause of business failure)
A business plan
5 marks
A report by a new or existing business that contains all of its research findings and explains why the firm hopes to succeed.
- It includes the results of market research and competitor analysis.
A new business’ alternative to ‘winging it’
1 mark
A business plan
Drawing up a business plan
5 marks
Forces owners to think about their aims, the competition they will face, their financial needs and their likely profits.
They help to reduce risk and reassure stakeholders, such as banks.
In order to attract and satisfy customers
3 marks
Businesses need to be competitive and make products that are superior to their rivals.
This is not easy because businesses operate in a dynamic and challenging market place.
Business rivals are likely to
2 marks
Be at work creating new products or improving operations to reduce costs and drive down prices.
Businesses may need to adapt their products because
2 marks
Ever-changing fashion trends mean that customer requirements evolve over time.
Success today is no guarantee of future profits.
A competitive market will have
1 mark
Many businesses trying to win the same customers.
A monopoly is either
2 marks
The only supplier in a market, or a large business with more than 25% of the market.
Competition can make markets work better by improving these factors:
(3 marks)
Price, product range and customer service.
Competition can make markets work better by improving the - Price
(6 marks)
- If there is only one retailer, products may not be competitively priced.
- If there are several retailers, each retailer will lower their prices in an attempt to win customers.
- It’s illegal for retailers to agree between themselves to fix a price - they must compete for business.
Competition can make markets work better by improving the - Product range
(2 marks)
In order to attract customers away from rivals, businesses launch new varieties of products they believe to be superior to their competitors.
Competition can make markets work better by improving - Customer service
(2 marks)
Retailers that provide a helpful and friendly service will win customer loyalty.
If there is only one retailer
1 mark
Products may not be competitively priced.
Businesses operate in competition with
1 mark
Each other.
If the market is large enough to support many firms
2 marks
A new business can open which imitates an existing idea.
Eg - ‘Me too’ products can sometimes be successful.
If there are several retailers
2 marks
Each retailer will lower their prices in an attempt to win customers.
Methods of creating product differentiation include:
3 marks
- a strong brand image
- unique selling point
- competitive factors
It’s illegal for retailers to agree between themselves to fix a price
(1 mark)
They must compete for business.
Businesses become more competitive by
3 marks
Making products that stand out from the competition in terms of price, quality or service (Product Differentiation)
