business theme 1.1-1.4.2

Why do business ideas come about?

• Changes in technology in business

• Changes in what customers want

• Products and services becoming obsolete

How do business ideas come about?

• Original ideas

• Adapting existing ideas

What are the risks of business activity?

Business failure

Financial loss

Lack of security

What are the impacts of risks of business activity?

Business failure- a business not being successful may lead to it not being able to pay their debts and therefore must stop operating.

Financial loss- an entrepreneur can lose cash they’ve invested. Ideas may not work out or products may not sell, therefore losing the owner cash.

Lack of security- not knowing when customers are going to buy can leave business owners unsure of being able to pay for essentials in life.

What are the rewards of business activity?

Business success

Independence

Profit and wealth

What are the impacts of rewards of business activity?

Business success- a company can pay debts and break even. This generates repeat customers along with a positive brand image.

Independence- being alone and free to do what the entrepreneur wants to do with their business.

Profit and wealth- getting more cash out of a business than the owner put in. Generating cash which the owner can choose what to do with.

What are the roles of business enterprise and purpose of business activity?

To produce goods/services

To meet customer needs

To add value: convenience, branding, quality, design, USPs

What are the methods of adding value?

Features

Quality

Convenience to buy

Volume/size of product

Design

Advertising

USP

Branding

What is the role of entrepreneurship?

An entrepreneur: organises resources, makes business decisions, takes risks.

What are the 4 customer needs?

Convenience

Choice

Price

Quality

Why is it important for a business to identify and understand customer and their needs?

To ensure business survival and generate sales

What is market research?

The process of investigating the key information about a market for products and services.

What is the purpose of market research?

To identify and understand customer needs

To identify gaps in the market

To reduce risk

To inform business decisions

What are the methods of market research?

Primary research: surveys, questionnaires, focus group, observation.

Secondary research: internet, market reports, government reports

Give an advantage and disadvantage of primary research.

Advantage - fits the needs of the business as conducted by them

Disadvantage - time consuming to gather or create

Give an advantage and disadvantage of secondary research.

Advantage - quick to gather

Disadvantage - can be unreliable as not created by the business or controlled by them

Give an advantage and disadvantage of a survey/ questionnaire?

Advantage - cheap to complete

Disadvantage - some customers will not want to spend the time answering

Give an advantage and disadvantage of a focus group.

Advantage - detailed and in-depth responses

Disadvantage - expensive to run and organise

Give an advantage and disadvantage of an observation.

Advantage - easy to record what interests’ customers in stores

Disadvantage - time consuming and expensive for staff to conduct a long process

Give an advantage and disadvantage of the internet during research.

Advantage - free to access

Disadvantage - unknown sources can make it unreliable

Give an advantage and disadvantage of market reports.

Advantage - created by professionals meaning it will be more reliable

Disadvantage - can be expensive to buy

Give an advantage and disadvantage of government reports.

Advantage - free to access

Disadvantage - may not be specific to a business’s needs

What is qualitative data?

Data which is expressed through words. This describes qualities, characteristics or attributes, such as opinions, feelings and experiences.

State an advantage and disadvantage of qualitative data?

Advantage- rich in detail

Disadvantage- difficult to analyse

What is quantitative data?

Information that can be measured, counted, and expressed using numerical values. Can be yes or no answers.

State an advantage and disadvantage of quantitative data?

Advantage- easier to analyse

Disadvantage- limited depth

What is market segmentation?

The process of dividing up a market into groups to target certain customers with similar characteristics.

How do business segment the market?

Location, demographics, lifestyle, income, age.

What are demographics?

A way a business segments the market through personal characteristics: disability, gender, age, ethnicity, race, allergies.

What factors can a business use to identify its competitors weaknesses and strengths?

Price

Quality

Location

Product range

Customer service

What are the factors affecting a business’s choice of location?

Proximity to: market, labour, materials, competitors.

Price

Convenience/ accessibility

How does the internet affect a business’s decision of location?

E-commerce- businesses can locate further from their market and closer to raw materials

Fixed premises- some businesses don’t need shops or offices due to e-commerce/ working from home

What is limited liability?

When a business and business owner have a separate legal identity. Limits responsibility for flaw for the owner. Protects personal assets

What is unlimited liability?

An owner/s are responsible for the business’s debts. Personal assets are not protected.

State a feature, advantage and disadvantage of a sole trader.

Feature- one owner → work alone

Advantage- get to choose and make decisions in their opinion → limits disagreements

Disadvantage- unlimited liability → have to take full responsibility due to the business and owner having the same legal identity

State a feature, advantage and disadvantage of a partnership

Feature- 2 or more owners

Advantage- multiple skill sets → more experience

Disadvantage- unlimited liability

State a feature, advantage and disadvantage of a private limited company

Feature- registered at companies house

Advantage- limited liability

Disadvantage- accounts published → can be downloaded and viewed

What are the advantages of franchising?

Brand recognition → helps sales

Can be easier to get loans → seen as less risky

Franchiser might help franchisee → training, management

Quick way to expand → through franchisees

What are the disadvantages of franchising?

Less freedom → limited by franchisors rules

Extra costs from payments to franchisor

Profits have to be shared

What is revenue? How do you calculate it?

Total amount of income a business makes from selling a certain quantity of goods/services at a given price. Revenue=number of units sold x price of unit

What is a fixed cost?

A cost for business that stays consistent regardless of the level of goods or services produced.

What is a variable cost?

A business expense that changes in direct proportion to the volume of goods or services produced.

Give examples of fixed costs.

Rent, salaries, insurance, interest on loan payments.

Give examples of variable costs.

Raw materials, direct labor, packaging, commissions, shipping costs.

How do you calculate fixed costs?

Fixed cost= total costs- (variable cost per unit x number of units produced)

How to calculate variable costs?

Variable costs= cost per unit x total number of units produced

What is profit and how do you calculate it?

The financial gain a business makes when the amount earned from an activity is greater than the total costs associated with it. Profit= revenue - total costs

How do you calculate percentage change?

change/original x 100

What is the marketing mix?

The elements a business needs to consider when launching a new product in order to promote and advertise to its customers.

List the 4 factors of the marketing mix?

Price

Product

Promotion

Place

Why must a product/service be priced correctly?

To give a correct image of quality, affordable for customer, all whilst allowing profit to be made. Too low price → image of low quality. Too high price → not worth a customers money.

Why must the product be right for customers?

Needs to meet customers wants and needs. This attracts customers as it suits their preferences.

Why must the place be right for customers?

Needs to allow them to access the product and provide the right image for the business/ brand.

Why must the promotion be right for customers?

It must inform customers of product / service and build a brand image.

What is a business plan?

A document used by a business to organise and plan resources in order to best exploit an idea. This could be for a new start-up business or a new idea for an existing business.

What should business plans contain?

Business name

Brief description of plan

Forecast : revenue, costs profit.

Location

Marketing

Cash flow forecast

Budgets

Target market/ customers

Aims and objectives

List financial aims and objectives of a business

Survival, profit, sales, market share, financial security

List non-financial aims and objectives of a business

Social objectives, personal satisfaction, challenge, independence and control