Business and Entrepreneurship Overview

This set of flashcards covers key vocabulary and concepts related to the risks, rewards, techniques, and financial principles in starting and running a business.

Risks of starting a business

Business failure, financial loss, lack of security

Rewards of starting a business

Business success, profit, independence

Ways to reduce business risk

Carry out detailed market research, make a business plan, ensure competitiveness, raise sufficient start-up finance

Characteristics of riskier businesses

Seasonal demand, small market, highly competitive market, lack of owner's knowledge about product/market

Definition of a business/enterprise

A person or organization that produces goods and services to meet customer needs.

Methods to add value

More convenience, unique selling proposition (USP), better design, improved quality, branding, greater speed/service

Benefits of adding value

Helps pay off fixed costs quickly, enables faster profit realization, enhances chance of success/survival.

Entrepreneurial skills

Risk-taking, initiative, and willingness to undertake new ventures.

How entrepreneurs benefit the economy

Creating products/services, generating jobs, increasing economic activity, paying taxes, exporting goods.

Four customer needs

Quality, convenience, price, and choice.

Different types of customer needs

Family, financial, emotional, and personal preference.

Purposes of market research

Identify market gaps, understand competitors, market trends, reduce decision-making risk, assess business performance, understand customer needs.

Primary research

Collecting information that did not previously exist.

Secondary research

Gathering existing information.

Pros of primary research

More accurate, up to date, specific to needs, effective for qualitative data, direct customer contact.

Pros and cons of secondary research

Less time-consuming and effective for quantitative data, but more general.

Difference between qualitative and quantitative data

Qualitative data involves opinions and attitudes, while quantitative data can be expressed in numbers and statistically analyzed.

Market segmentation definition

A group of buyers with similar characteristics and buying habits.

Different segments of the market

Age, gender, income, lifestyle, demographics.

Pros of segmentation

Meet specific needs, product differentiation, focus on specific customers, targeted marketing, unique brand image, build customer relationships.

Cons of segmentation

Costly targeting different customers, missed opportunities by focusing too narrowly, changing customer characteristics over time.

Function of a market map

Helps businesses position their products by identifying market gaps.

Pros of market mapping

Identifies market gaps, identifies closest rivals, supports market segmentation, aids marketing and brand positioning decisions.

Cons of market mapping

Based on opinion, compares businesses on only two variables, difficult to identify appropriate variables.

Conditions for businesses to succeed in competition

Sufficient market demand and ability to meet customer needs better than competitors.

Seven competitive strategies

Better customer service, stronger brand image, convenient location, higher quality, better design, lower prices, wider product range.

Benefits of product differentiation

Helps position products and target different market segments; provides competitive advantage.

Competitive market definition

A market with many businesses relative to the number of potential customers.

Decisions in a highly competitive market

Improving efficiency, enhancing competitiveness, product differentiation, lowering prices, offering special deals, cost management.

Drawbacks of a highly competitive market

Price cutting, lower profit margins, reduced expenditure, cautious expansion, need for close competitor monitoring.

Financial objectives for startups

Survival, sales revenue, profit, market share, financial security.

Non-financial objectives for startups

Personal satisfaction, independence/control, challenge, social goals, customer satisfaction, business awards/recognition.

Formula to calculate revenue

Revenue = Price x Quantity.

Fixed costs definition and example

Costs that do not vary with output; example: rent.

Variable costs definition and example

Costs that change directly with production volume; example: raw materials.

Profit calculation

Profit = Sales Revenue - Cost of Sales.

Loan interest calculation formula

Interest (%) = (Total repayment - Borrowed amount) x 100 / Borrowed amount.

Uses of profit for a business

Survival, reinvestment for expansion, providing security/savings, rewarding employees, generating wealth for owners.

Break-even point definition

Point at which total revenue equals total costs, resulting in neither profit nor loss.

Break-even point calculation in units

Break-even point in units = Fixed costs / (Sales price - Variable cost).

Break-even point calculation in revenue

Break-even point in revenue = Break-even point in units x Sales price.

Margin of safety calculation

Margin of safety = Actual or budgeted sales - Break-even sales.

Net cash flow calculation

Net cash flow = Cash inflows - Cash outflows.

How to calculate the closing balance

Net cash flow + opening balance

How to calculate receipts

Receipts = Net cash flow + total payments

How to calculate payments

Payments = Total payments - add up the rest of payments

How to calculate cash flow

Cash flow = (receipts- payments = net cash flow) + opening balance = closing balance

What impacts on cash flow. 5

Change in costs, seasonality in sales, change in demand, change in stock levels

Reasons for finance

Paying for expenses, expanding the business,

investing in new products and services, starting a new business, paying for any unforeseen costs

Short term finance vs long term finance

Short term = sources of finance are repaid immediately

long term = sources of finance are usually repaid over a longer time period

What are 2 short term sources of finance

Bank overdraft, trade credit

What are the 6 types of long term sources of finance

• Personal savings

• venture capital

• share capital

• loan

• retained profit

• crowd funding

What is crowdfunding

The process of raising small amount is of money from a large number of customers for customers for a new project/ start up

What are 2 examples of limited liability

Private limited company, unlicensed limited companies

What are 2 examples of unlimited liability

Sole traders, partnerships

What is a franchise

The right given by one business to other businesses to sell goods or services using its name

6 benefits of running a franchise

• Brand image+ reputation is already established

• expensive marketing costs are covered by the franchise

• access to tried and tested products

• may have an established customer base

• higher chance of survival

• specific support + training required

4 disadvantages of running a franchise

Cost of initial investment can be high, owner has little freedom, has to pay a royalty, restrictions where it can be set up

Product

Has to meet the needs of the needs of the customers and have the correct attributes+ features they want

Place

The way a product is distributed from producer to consumer

Promotion

Communication between the producer and consumer

Price

Must reflect the value customers place on the product that makes customers ware about the product

How can a business adapt its marketing mix?

Change the features of a product, adjust the price in response to competitors, launch a new advertising

What is a business plan?

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

What is a stakeholder?

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

What are the 8 types of stakeholders?

Managers, pressure groups, employees, customers, local community, owners (shareholders), suppliers, government

4 types of technology that influences business activity

E-commerce, social media, electronic payment systems, digital communication

What is consumer law?

A law that governs all aspects of how a business interacts with its customers

6 principles of consumer law

• Consumers have the right to return/reject goods

• Good should be delivered + installed safely

• Terms of conditions should be fair

• Services should be provided with reasonable care

• Products sold to consumers should be of a good standard + quality

• Businesses should disclose full information about products/services

5 drawbacks of consumer law for businesses

• Laws can restrict businesses form operating as they wish

• Businesses must know the law and keep up to date

• Changing products + practices to comply with laws can be costly

• Bad publicity can result if businesses don’t comply with laws

• Consumers can use law to take legal action against the business

4 benefits of consumer law for businesses

• compliant businesses are less likely to be sued

• compliant businesses may be considered professional and caring + benefit from increased customer loyalty

• Improved relationship with stakeholders

• Good publicity if followed

Three benefits of employment law

• A compliant business may be considered a good employer

• Fewer employees will be tempted to leave the business so reducing recruitment costs

• Employees may be happier + more motivated, leading to high productivity + better customer service

3 drawbacks of employment law

• meeting health + cost regulations can be costly for businesses

• Paying the national living wage will increase businesses costs

• Failing to comply may lead to unhappy employees, low productivity and legal action