Studied by 1 person
main internal sources of finance for a start up business
founder finance
retained profits
main external sources of finance for a start up business
bank loan
bank overdraft
business angels
loans + grants
friends and family
external sources of finance
banks
family and friends
crowd funding
peer to peer funding
other businesses
share capital
internal sources of finance
retained profits
owners capital
sale of assets
advantages of share capital
brings in large amounts of finance
increases value of company
large pool of potential investors
no debt repayment
disadvantages of share capital
loss of profits in the future
loss of control
costly and time consuming
features of trade credit
buy from a supplier
pay for product 30-90 days later
allows money to earn interest
allows flexibility
features of peer to peer funding
from one business to another
often unsecured
a way of avoiding using banks
online platforms
features of crowd funding
large number of individuals make small contributions in return for something e.g. free products or a small share of ownership
unlimited liability business (unincorporated)
the owner is the business, no legal difference
owner has unlimited liability for business actions
tend to be sole traders
benefits of being a sole trader
cheaper initially
saves time to set up
no corporation tax
full control + profit
simple to fun
easy to close/ shut down
drawbacks of sole trader
fully liable (otherwise only liable for money invested)
corporation tax < income tax
harder to raise funds
business is owner (illness stops profits)
how to increase revenue
increase price
increase quality
adding features that consumers value
advertising
decrease price (if price elastic)
product innovation
special offers
are wages variable or fixed
variable
is a salary variable or fixed
fixed
how to reduce cost
cheaper supplier
offshoring
reduce labour costs
specialise
division of labour
economies of scale
capital expenditure
spending on items that will be used over and over again. e.g. a machine
revenue expenditure
payments for goods or services that have either already been consumed or will be in the near future e.g. raw materials
advantages of retained profits
cheap
no charges
disadvantages of retained profits
opportunity cost is high
share holders receive less dividends
advantages of sale of assets
can lease it back
instant cash is generated
no repair costs for machines
disadvantages of sale of assets
can be expensive to lease back
advantages of loans
large amounts of money generated
disadvantages of loans
can be costly depending on interest rates
advantages of overdraft
instant money
can spend more than you have
disadvantages of overdraft
bank can call in the money at any time
costly
advantages of trade credit
interest free way of raising finance
profitable during inflation
disadvantages of trade credit
costs are higher if not payed early
disadvantages of peer to peer funding
may have to pay additional fees
advantages of business angels
can provide useful and specific help
disadvantages of business angels
difficult to come across
time pressure
loss of control
if PED is less than one
price inelastic
if PED is more than one
price elastic
growth rate of markets equation
change/original
example of a dynamic market
film industry
taxi services
camera market
two types of innovation
product innovation
process innovation
benefits of innovation
higher prices/profitability
added value
opportunity to build early loyalty
enhanced reputation as innovative
public relation → news coverage
increased market share
benefits of process innovation
reduced costs
improved quality
great flexibility
higher profits
risk
the possibility that things will go wrong
uncertainty
unpredictable + uncontrollable events that affect businesses
tools of market orientation
market research
market testing
customer focus
tools of product orientation
product research
product testing
product focus
advantages of market orientation
more market information
stronger position to meet the challenges of a new entrant in the market
more confident in the success of a new product launch
what will the nature of the product be if the industry is at the edge of innovation
product orientated
if policy is set on quality or safety will the product be market or product orientated
product orientated
how does the views of those in control affect the orientation for the business
accountant → flow and profit forecasts
product engineer → quality control and research
in a competitive market will it be product or market orientated
market
advantages of field research
reliable
up to date
can be kept private
directly relevant
disadvantages of field research
expensive
time consuming
needs large sample size
advantages of desk research
free
easy
can find difficult to access info
disadvantages of desk research
not always relevant
not specific
may be out of date
no competitive advantage
advantages of qualitative reseach
essential for new product development
focuses on the needs, wants and experience of consumers
highlights issues with product
advantages of quantitative research
easy to analyse
numerical data provides insights to relevant trends
can be compared to other data
advantages of market maps
helps spot gaps in the market
useful for analysing competitors
encourages use of market research
disadvantages of market maps
not very reliable
just because there is a gap, doesn’t mean it needs filling
no garantee of success
requirements for effective product differation
delivers things that are important to customers
distinctive
communicated, visible difference to customers
not easily copied by competitors
affordable by the target customers
profitable
YED > 1
income elastic demand
YED < 1
Income inelastic demand
factors influencing YED
necessities (inelastic)
luxuries (elastic)
price of product relative to income (cheap, inelastic)
methods of field research
postal surveys
telephone interviews
personal interviews
focus groups
observation
test marketing
Note 
Flashcard (63)