Studied by 1 personWhat is the difference between a good and a service?
Goods are tangible (physical) like books and services are intangible (actions) like the barbers.
How do you calculate profit?
total revenue - total costs
What is the difference between a need and a want?
A need is something you cannot live without and a want is something you desire.;
Why do people come up with new business ideas?
Changes in technology (invention of tablets means apps can be created and used on devices).
Changes in what customers want (some people may be concerned about the environment so businesses can make their business environmentally friendly).
A good or service may no longer be used (obsolete), because it has become outdated and replaced.
Purposes of a business
Provide people with a good or service.
Meet customer needs.
Add value to existing product (improve it so customers willing to pay more).
Distribute goods (buy from manufacturer and sell them on to other businesses or individuals).
Benefit other people (not-for-profit organisations).
Fulfill a business opportunity.
What is an Entrepreneur?
A person who sets up a business or businesses, taking on financial risks in the hope of profit.
Reasons someone might decide to become an Entrepreneur
Financial reasons (earn more money than before if business is successful).
Identified a gap in the market.
Independence in being own boss meaning they can decide what they do each day and control how business works.
Follow an interest results in job satisfaction.
Dissatisfied with current job and starting a business might make them more motivated.
Benefit others, e.g. by starting a charity.
Characteristics of an Entrepreneur
Hardworking and determined.
Organised.
Innovative and creative.
A willingness to take a calculated risk.
Able to make business decisions.
Confident.
What are the sectors of the economy?
Primary, Secondary, Tertiary
What is the primary sector?
Produces raw materials which can be:
Extracted from the ground (mining provides coal, oil, gas, metals).
Grown (farming industry grows food).
Collected (fishing industry).
What is the secondary sector?
Manufactures goods. They turn raw materials into finished goods, e.g. a chocolate factory turns cocoa and milk into chocolate. Building and Constructing is also secondary.
What is the tertiary sector?
Provides services to consumers and the other sectors of industry.
What are the factors of production?
Land, Capital, Labour and Enterprise.
What is land?
Land includes Earth's natural resources:
Non-renewable (oil, coal) and renewable resources (wind, wood).
Materials extracted by mining.
Water.
Animals
What is capital?
The equipment, factories and schools that help to produce goods or services.
What is labour?
The work done by people who contribute to the production process.
What is enterprise?
Enterprise refer to people who take risks and create things from the other three factors.
What is opportunity cost?
The benefit that is given up in order to do something else.
What is a sole trader?
Sole trader businesses have one owner and most small businesses are sole traders.
What are the advantages of being a sole trader?
Set up is easy.
Be own boss.
Decide what happens to the profit.
What are the disadvantages of being a sole trader?
Might work long hours and not many holidays.
Unlimited liability, if business goes bust, you are liable for paying back all the debt which might mean selling what you own.
Unincorporated meaning the business doesn't have its own legal identity.
Can be hard to raise money. Bank sees sole traders as risky so may be hard to get loan meaning you have to rely on personal savings or family.
What is a partnership?
Partnerships have between 2-20 partners. Each partner has a say in business and can make decisions and equal share of profits unless they have agreement - deed of partnership.
What are the advantages of a partnership?
More ideas.
Large range of skills and ideas.
Work is shared.
More capital (money) can be put into business.
What are the disadvantages of a partnership?
Legally responsible for what other partners do.
Unlimited liability like sole trader.
More owners means more disagreements.
Profits shared between partners.
What are limited companies?
A limited company is incorporated - it has a separate legal identity from the owners.
Limited liability.
Owned by shareholders.
What is a private limited company?
Private means that shares can only be sold if all shareholders agree. The shareholders are often all members of the same family. Private limited companies have Ltd. after name.
What are the advantages of a private limited company?
Limited liability.
Being incorporated means the company can continue trading after a shareholder dies.
Easier to get a loan or mortgage than sole trader.
All shareholders have to agree if someone wants to buy shares. So the owners keep a lot of control over how business is managed.
What are the disadvantages of a private limited company?
They're more expensive to set up than partnerships because of legal paperwork.
Legally obliged to publish its accounts every year.
What is a public limited company?
Public means that company shares are traded on a stock exchange and can be bought and sold by anyone. Public limited companies have PLC after name.
What are the advantages of a public limited company?
More capital can be raised by a PLC than any other business.
Which helps the company to expand and diversify.
Like Ltds they also have the benefits of limited liability and being incorporated.
What are the disadvantages of a public limited company?
Can be hard to get lots of shareholders to agree on how business is run. Each shareholder has very little say.
It's easy for someone to buy enough shares to take over the company.
The accounts have to be made public so everyone can see business is struggling.
More shareholders means there's more people wanting a share of the profits.
What is a franchise?
Uses the name or products of another firm. They then give the firm they're franchising from a free or a percentage of profits.
What is the difference between a franchisor and a franchisee?
The product manufacturers are known as franchisors and the firms selling their products are franchisees.
What are the advantages of franchising?
Customers already recognise brand and more likely to buy from franchisee meaning less risk of failure.
Less risky than starting a business.
Franchisor might provide franchisee with training or help with management.
What are the disadvantages of franchising?
Franchisor might have strict rules about what the business can sell and how it operates.
Franchisee usually has to pay a lot of money to start the franchise and then make regular payments to the franchisor. These costs may mean they end up with less money.
How does franchising affect the franchisor?
Increases franchisor's income as it gets money from franchisee.
If franchisee has poor standards, the franchisor's brand could get a bad reputation.
What are aims and objectives?
Aim is the overall long-term target or goal whereas objectives are the short-term steps a business needs to take to meet overall aims.
What are financial aims/objectives
Survival - have enough money to stay open.
Maximise profit.
Growth - increasing the number of products sold/increasing income from sales.
Increase shareholder value - By increasing the value of the firm, e.g. making more profit or growing.
Increase Market share.
Maximise sales - increasing sales is a good way to grow its market share.
Achieve financial security - some businesses may depend on loans or personal savings when they start so a new business is likely to be achieving a point where it can depend on its own revenue.
What are non-financial aims?
Do what is right and ethical.
Achieve customer satisfaction.
Personal reasons - satisfaction of owning business/ independence/control.
Why are objectives important?
Objectives gets businesses to their aims by setting specific clear targets for firms to work towards.
What affects the objectives of a busienss?
The size of the business.
Level of competition the business faces.
Type of business.
How can aims and objectives change?
The company can change whether it aims to survive or grow, a new business may aim for survival but once the business is stable it might aim to grow and expand.
Change the size of its workforce, e.g. if a business is expanding the might aim to recruit more staff and it is has taken over a firm it might aim to reduce staff.
Enter or exit markets. Existing markets could be shrinking and need to find new places to sell.
Change the size of product range, e.g. if business has product that sells well, it might aim to bring more products in same range with different features.
How can the business environment affect company's objectives?
New legislation, e.g. increase in national living wage can mean companies' profits have been affected as they have to pay higher wages.
Changes in economy.
Changes in market conditions.
Changes in technology.
Environmental expectations - people have become more concerned about the impact a business has on environment.
Factors within a company that can affect its aims and objects
Performance.
Internal changes, e.g. management changes.
What is a stakeholder?
Anyone who is affected by the business.
Internal Stakeholders
are involved in the operation of business.
Owners are important because they make a profit.
Managers and employees.
External stakeholders
Groups outside the business.
Supplies are where a firm gets its raw materials.
Local community where the business is based.
Local people.
Government.
Customers.
Pressure groups - can influence what people think and influence decisions a firm makes by creating bad publicity.
What is revenue?
money/income obtained from goods or services.
How is revenue calculated?
revenue = price x quantity sold
What are fixed costs?
Fixed costs don't vary with output. They have to be paid even if the firm produces nothing, e.g. rent, insurance, fixed salaries for employees such as managers.
What are variable costs?
Costs that increase as the firm expands out, e.g. the cost of factory labour, raw materials, running machinery.
How do you work out total variable costs?
Total variable costs = sales x variable cost per unit
How do you calculate total costs?
Total Costs = Fixed Costs + Variable Costs
What is average unit cost?
How much each product costs to make.
How do you calculate average unit cost?
average unit cost = total cost / output
What is gross profit?
The profit a firm makes after the cost of making products is taken into account.
What is net profit?
The profit a firm makes when all expenses are taken into account meaning that net profit is lower than gross profit.
How do you calculate gross profit?
Gross profit = revenue - cost of sales
How do you calculate net profit?
Net profit = gross profit - (operating expenses + interest)
What is a business plan?
A business plan is an outline of what a business will do and how it aims to do it.
What are the benefits of a business plan?
A business plan forces the owner to think carefully about what the business will do, how it will be organised and what resources it needs. This helps the business to make decisions that will help it to succeed.
The plan can also be used to convince financial backers, e.g. banks.
Reduce risks.
What does a business plan include?
The business ideas - what the firm is about and how it has a USP.
Business aims and objectives.
Target market.
Marketing mix.
Location.
Finance - how much money is needed to start up and identify where the money will come from.
What are the drawbacks of a business plan?
Takes time and money.
Too optimistic when writing a plan and end up with problems later on.
Managers stick too tightly to the plan.
What might a business think about when choosing where to locate?
Location of market - is it near to people where it is easily accessed?
Cost - cost of labour (people) vary in different places, cost of rent and buying premises vary.
Location of raw materials - can lower transport costs if close.
Labour supply - locating to high unemployment may help to keep a firm's wages low, if in a built-up area, there may be colleges that can provide training for employees.
Competition - Being near competitors can be an advantage because it's easer to find skilled labour as there are already local suppliers.
Using internet - means locations of some firms is more flexible.
What is economies of scale?
When the average cost of producing a good or service falls as the quantity produced increases.
Why does economies of scale occur?
Purchasing economies of scale. These happen when a large firm buys its supplies in bulk and so gets them at a cheaper unit price than a small firm.
Technical economies of scale. These occur because a large firm can afford to buy and operate more advanced machinery than smaller firms. Also the law of increased dimensions means that, for example, a factory that's ten times as big will be less than ten times as expensive.
What is diseconomies of scale?
when a company or business grows so large that the costs per unit increase
What is internal expansion?
when a firm grows by reinvesting its profits to expand its own activities
Benefits of internal expansion
Inexpensive.
Expands by doing what it is already good at - making existing products.
Low risk.
Methods of internal expansion
Targeting new markets (business aim to sell its products to people who it hasn't tried to sell to before. Firms can use new technology to target new markets. Technology also means its cheaper so firm might lower prices).
Developing new products. Selling a brand new product will increase sales for business, allowing it to grow.
Opening new stores (Low risk but extra cost, e.g. rent etc.).
Outsourcing (a business could pay another firm to carry out tasks it could do itself. They may do it quickly, cheaply or a higher standard but means the business loses some control).
What is external expansion?
Expanding by working with other businesses.
Faster than internal expansion but can be difficult for all businesses involved.
What is a merger?
When two firms join together to form a new firm.
What is a takeover?
When an existing firm expands by buying more than half the shares in another firm.
What is vertical expansion?
Two firms at different points in the supply chain join together, e.g. firm join with a supplier - soft drinks company takes over fruit farm. This allows a firm to control the supply, cost, and quality of raw materials.
What is horizontal expansion?
Two competitors join together. This creates a firm with more economies of scale and a bigger market share.
What is diversification?
two businesses that provide different goods and services join together, reducing risk of failure by operating in more than one market, allowing profit to be gained from more than one market. this can also occur when business decides to trade in a new market, again reducing risk and increasing profits.
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