COMPONENT 1 (Business opportunities) Flashcards
(155 cards)
1
Q
What is a an enterprise?
A
A formation of a new business or development of a new good or service to be introduced to the market
2
Q
What is the primary sector?
A
organisations that are at the first stage of production and use raw materials e.g. farms, oil extrapolation companies and fishing fleets
3
Q
What is the secondary sector?
A
Organisations that are at the second stage of the production process and using primary resources and turning these into products e.g. manufacturers and printers
4
Q
What is the tertiary sector?
A
Organisations that provide services such as estate agents and delivery services
5
Q
What are SMEs?
A
-Small or medium enterprises
-They can be sole traders, partnerships or LTDs
-Turnover of less than 50 million euros
-Small enterprises have less than 50 employees
-Medium enterprises have less than 250 employees
-make up 99.9% of the UKs population
-key driver of economic growth and sustainability
6
Q
What are the benefits of SMEs to the UK economy?
A
-SMEs create jobs
-Create demand for products which in turn creates more jobs and other businesses
-Pay tax to the tax government including business and corporation tax
-Introduce new technology and innovation to the market
-Help to create competition which is good for consumer growth
-Encourage exports and investments in the UK
-Stimulate the economy by instilling confidence in people
7
Q
What are the drawbacks of being an SME?
A
-Small scale and likely to fail in times of recession and hardship
-Find it harder to raise finance due to their size
-Less recognition as they are not well known and find it harder to complete with larger businesses
- Have smaller budgets so they do not have the funds to compete with larger organisations
- Do not obtain economies of a similar scale to that of a larger business
8
Q
How do entrepreneurs identify opportunities in the market?
A
-If they can satisfy needs and wants
-If there is a gap in the market and an SME can fill that gap then a successful SME can be established
-Does the enterprise offer a solution to the problem
9
Q
What does an entrepreneur do?
A
-Provides goods or services that customers want or need
- Creates and sets up a business which involves having a business idea and the financial capacity to make this a reality
10
Q
What is an entrepreneur?
A
- Someone who starts and runs a business
- Brings new ideas to the market (innovators)
- Brings the development of new technologies
11
Q
What are the roles of an entrepreneur?
A
- Setting up and leading the business
- Organisation/managing/planning of their business
- Creating employment
- Acting as innovator
- Securing finance
- Risk taking
- Decision making
- Formulate a business plan
- Undertaking market research
12
Q
What are the motives of starting a business?
A
- To earn a profit
-Turn a hobby into a business
-To create employment
-To be their own boss - To take an ethical stance
- Social entrepreneurship
13
Q
What are key characteristics of an entrepreneur?
A
- Being a risk taker
- Taking the initiative and being proactive
- Being an effective organiser
- Having creativity and being innovative
- Being hard working
- Being determined and having perseverance
14
Q
What is the importance of entrepreneurs to the economy?
A
- Bring new ideas to the market and drive the development of new technology
- Creating new jobs and by providing new products
- Government benefits from taxation
- Provide a better way of doing things
15
Q
What is a business plan?
A
A business plan is a document that sets out the nature of a business, information and its various functional areas. Its future objectives, and strategies for achieving its objectives.
16
Q
What is a marketing plan?
A
-Information about the target market and the competition
-Market research, marketing decisions regarding the marketing mix, marketing budget and marketing objectives
17
Q
What is an operations plan?
A
-Details of where the business will be located, production methods and any equipment required
-Information on the cost of production and where the business will buy supplies
18
Q
What is a human resources plan?
A
- Details of the owner and management team will be outlined along with their credentials
- Breakdown of the number of employees and their skills, experience and qualifications will also be outlined
19
Q
What is a financial plan?
A
- Various type of financial forecasting will be required, including a sales forecast, profit and loss balance, sheet forecasts and breakeven analysis
- Financial position and requirements of the business will be outlined, including any potential borrowing that is needed
20
Q
What should entrepreneurs consider when making a business plan?
A
- If sufficient research has been carried out to inform the plan
- Is the plan realistic
- Are the forecasts realistic
- Does the plan contain sufficient meaningful research and data to inform decisions
- Does the entrepreneur value the plan and will they take it seriously
21
Q
What are local markets?
A
Where buyers may be a shorter distance from the sellers
22
Q
What are national markets?
A
Where consumers are spread throughout the country or over a large area
23
Q
What are global markets?
A
Where goods and services of one country are traded to people of other countries
24
Q
What are consumer markets?
A
A market for products and services brought by individuals for personal or family use
25
What are trade markets?
Involves the sale of goods and services between countries
26
What are seasonal markets?
When businesses will experience seasonal variations in output and/ or sales
27
What is a mass market?
The largest part of the market where there are many similar products and consumers are less specific about their need
28
What is a niche market?
Smaller segment of a larger market where customers are more specific about their wants and needs
29
What is market size?
This is the information about the total amount of goods sold sold in a particular market or the amount of sales revenue that a particular market generates
30
What is market share?
This is the proportion of total sales in a market made by one business
31
What is market share %?
Number of products sold by the business/ total market sales * 100
32
What are market trends?
These are the changes and developments in the buying and selling of products and services in a market
33
Why is a high market share important?
-Helps a business to meet business objectives
-Increases a business' overall profitability
-Helps a business to benefit from economies of scale
-Can lead to a competitive advantage
-Can help attract new shareholders
34
What is market segmentation?
This is the process of splitting a large market into different sub groups on the basis of them having similar characteristics or traits
35
What are the benefits of market segmentation on a business?
-Enables businesses to understand and meet the needs of their customers more effectively
-Increased brand loyalty and repeat custom
-Reduces price sensitivity around the brand helping to improve revenue and profitability
36
What are the drawbacks of market segmentation on a business?
-Increased costs linked to research and product development
-Potential for the brand to lose its identity and less able to exploit economies of scale
-Additional marketing activities required as the business targets more sectors
37
What are the benefits of market segmentation on customers?
-Allows customers to access high quality goods and ensures that they are getting value for their money
-Customers will receive a product that is closer to their expectations
-Segmentation can fit better with a customers budget and lifestyle
-Can help customers to stick to their desired products
38
What are the drawbacks of market segmentation on customers?
-Some customers are often excluded
-Costs incurred by a business may increase when setting different ranges of products and trying to meet the needs of different market segments
39
What is perfect competition?
-Large number of businesses competing
-They are 'price takers' (no power to influence prices)
-The goods sold in this type of market are homogenous
-There are no barriers to exit or enter
-Customers have full market information
-Businesses have equal access to technology
40
What is monopolistic competition?
-Large number of relatively small businesses in competition with each other
-Few barriers to entry or exit
-Products are similar but differentiated from eachother
-Brand identity is relatively weak
-Not price takers
41
What is an oligopoly?
-Many businesses but only a few dominate the market
-Similar brand identity
-Brand loyalty
-Short price wars
-Some barriers to entry
42
What is a monopoly?
-A single producer within a market
-Barriers to entry to prevent new businesses from entering the market
-Significant influence on price (price makers)
-Benefit from economies of scale
-Profit maximisation is assumed
43
What is demand and supply?
Demand and supply examines how the interaction between buyers and sellers determines the price and the quantity of the product
44
What is the income effect of a price change?
-A fall in price increases the real purchasing power of consumers
-This allows people to buy more with a given budget
-For normal goods demand rises with an increase in real income
45
What is the substitution effect of a price change?
-A fall in the price of good x makes it relatively cheaper compared to substitutes
-Some consumers will switch to good x leading to higher demand
-Much depends whether products are close substitutes
46
What is market equilibrium?
Where the demand curve and the supply curve intersect. This means that at a given price, the demand for a product equalled the supply
47
How do interest rates cause a shift in the demand curve?
If increased the demand curve will shift to the left and if decreased the demand curve will shift to the right
48
How does income cause a shift in the demand curve?
If increased the demand curve will shift to the right and if decreased the demand curve will shift to the left
49
How does advertising cause a shift in the demand curve?
If increased the demand curve will shift to the right and if decreased the demand curve will shift to the left
50
How does fashion and taste cause a shift in the demand curve?
If goods become more fashionable the demand curve will shift to the right and if goods go out of fashion the demand curve will shift to the left
51
How do substitute goods cause a shift in the demand curve?
E.g. if the price of rail fares increases, customers may substitute this for buses so the demand for trains will shift to the left and the demand for buses will shift to the right
52
How do complements cause a shift in the demand curve?
If demand for holidays increase, the demand for sun lotion/ luggage will also increase, so the demand curve will shift right for these products. Vise versa
53
How does cost of production cause a shift in the supply curve?
If the price of raw materials increase or the cost of labour increases, supply will decrease so supply will shift to the left. Vise versa
54
How do exchange rates cause a shift in the supply curve?
A fall in exchange rates (weak pound) will cause an increase in the price of imported materials which will lead to a decrease in supply, so supply will shift to the left. Vise versa
55
How will the introduction of new technology cause a shift in the supply curve?
The development of new production technology is likely to lead to an increase in productivity so the supply curve will shift outwards
56
How will weather and climate cause a shift in the supply curve?
Good weather will result in a good harvest, so the supply curve which shift to the right. Vise versa
57
How will legislation cause a shift in the supply curve?
Businesses might find their costs are rising because they have to comply with new anti-pollution legislation which can cause the supply curve to shift to the left
58
How will the amount of competition cause a shift in the supply curve?
If the amount of competition increases, the supply will increase so the supply curve will shift to the right which may cause the price of goods to fall
59
What is price elasticity of demand?
Price elasticity of demand is the responsiveness of quantity demanded for a product to change its own price
60
What is price elastic?
A change in price will cause a more than proportional change in the quantity demanded e.g. if price increases by 5% demand will fall by 15%
61
What is price inelastic ?
A change in price causes a less than proportional change in the quantity demanded e.g. if price decreases by 5% demand will increase by 3%
62
When will a business have inelastic demand for goods and services?
-The levels of competition are too low
-There are few substitutes
-The goods are necessities
63
What can businesses use price elasticity of demand estimates to do?
-Predict the effect of a change in price on the total revenue and expenditure on a product
-Predict the effect of a change in an indirect tax on price and quantity demanded
-Be part of a policy of price discrimination (where businesses decide to charge different prices for the same product to different segments of the market
-Choose whether or not to enter a price war
64
What strategies may businesses use to make their goods and services more inelastic?
-Encourage customer loyalty
-Reducing or restricting competition in the market
-Increasing the strength of its brand name
65
What is income elasticity of demand?
Measures the relationship between a change in quantity demanded for a good and a change in real income. Shows how responsive the demand for a product is to a change in someones income
66
How will a business having knowledge of income elasticity of demand allow them to make decisions?
-Planning production capacity
-Planning stock levels
-workforce planning
-sales forecasting
67
What are normal goods?
-A good that experiences an increase in demand due to its rise in consumer income
-Has positive income elasticity
68
What are luxury goods?
-normal goods but more sensitive to changes in real income
-Positive income elasticity that is greater than 1
-Demand for luxury goods will grow at a faster rate than the increase in real income that created the change in demand
69
What are inferior goods?
-Cheap substitutes of products people prefer to buy when their income is reduced
70
Why do consumers need to be protected?
Safety- Businesses may be tempted to provide goods which are of an unsafe standard
Globalisation- Many goods may come from abroad from countries whose standard of safety is lower than ours
Internet- Consumers need protection from fraud
Fake goods- These goods will not have been tested for safety
Scientific advances-
Increase in technology-
Fitness for purpose- Some goods are not for purpose, are unsafe or poor quality
Misleading customers-
71
What is an incorporation?
A business that only exists in the eyes of the law
72
What is market research?
Process of collecting information and data about customers, the marketplace, and the activities of competitors within that marketplace
73
What will businesses use market research to do?
-Discover the needs of customers
-Understand the structure of the market
-make a sales forecast
-test customer response to new products or services
-assess the effectiveness of previous promotion campaigns
-establish at what stage the product is in relation to its life cycle
74
What are the benefits of quantitative data?
-Data relatively easy to analyse
-Numerical insights provide insights to relevant trends
-Can be compared with other data from other sources
75
What are the drawbacks of quantitative data?
-Focuses on data rather than explaining why thing happened
-Doesn't explain the reasons behind numerical trends
-May lack reliability if sample size and method is not valid
76
What are the benefits of qualitative data?
-Essential for important new product development and launches
-Focused on understanding customer needs, wants and expectations
-Can highlight issues that need addressing
-Effective way of testing elements of the marketing mix
77
What are the drawbacks of qualitative data?
-Expensive to collect and analyse (requires specialist research skills)
-Based around opinions so could be biased
78
What is a sample?
A sample is a group of respondents to a market research exercise who are selected to be representative of the views of the target market as a whole
79
What is random sampling?
A sample chosen randomly is meant to be an unbiased representation of the total population.
80
What is quota sampling?
A non-probability sampling method in which researchers create a convenience sample involving individuals that represent a population
81
What are public goods?
Goods that are non excludability and non rivalry
82
What are merit goods?
-Useful and beneficial (education and healthcare)
-Often under consumed
-Positive externalities
83
What are public sector aims and objectives?
-Provide public services to all
-Provide merit and public goods
-Provide employment for many people
-Aim to provide good customer service
-Help to fund new businesses which boost the economy
-Raise societies SOL
-Provide some goods that are difficult to charge for
84
What are private sector aims and objectives?
-Exist to make a profit
-To increase shareholder value
-To gain market share
-Encourage investment from the UK abroad
-Cut costs and provide an efficient service
-Bring new and innovative products
-To survive
-Improve ethics
85
Advantages of being a sole trader?
1- quick and easy to set up
2-owner has greater control
3-owner gets to keep all the profits
4-the owner has flexibility over their own working hours
5-relatively easy to run
86
Disadvantages of being a sole trader?
1-having unlimited liability
2-long working hours
3-problems in raising capital
4-lack of specialisation
5-impact of illness
87
What does the deed of partnership contain?
1-The amounts of capital invested
2-the share of profits each partner is to receive
3-roles and responsibilities of each partner
4-Voting shares of the partners
5-What is to happen on the death of a partner
6-The rules for dissolution of the partnership
88
What are the advantages of a partnerships?
1-easy to set up
2-Shared responsibility for debt
3-shared responsibility for workload and decision making
4-Increased contribution of capital
5-increase in expertise and skills
89
What are the disadvantages of a partnership?
1-unlimited liability
2-disagreement over the direction of the business
3-profits have to be shared
4-workload distribution
5-deed of partnership is needed
6- dissolved on the death of a partner
90
What are the advantages of an LTD?
1-limited liability
2-control cannot be lost to outsiders
3-the business does not end if 1 partner dies
4-can attract extra shareholders to invest
5-tax advantages if owners are paying higher rate of income tax
91
What are the disadvantages of an LTD?
1-profits have to be shared with other shareholders
2-decision making is slower
3-legal procedure in setting up takes time and takes money
4-financial information can be looked at by the public or competition
92
What are the advantages of a PLC?
1-all shareholders maintain limited liability
2-enjoy more market power
3-economies of scale may be enjoyed
4-greater presence/dominance in the market
5-huge amounts of money can be made from selling shares
6-easier to gain much needed finance
93
What are the disadvantages of a PLC?
1-it can be expensive
2-outside interests could take control as shares are on sale to the public
3-may become inflexible if they grow too big
4-accounts can be inspected by the public or competitors
5-greater divorce of ownership and control
6-publish more information than private companies
7-slower decision making because of larger size
8-time consuming to gain listing
94
What are the key elements of a charity?
-Aim is to collect money from individuals and spend it on a cause
-Not established to make a profit but can earn a surplus
-Often have narrow focus in what they are trying to achieve
-Raise finances through voluntary donations
-Often rely on donated goods
-Rent is cheap and costs are low
95
What are they key elements of a cooperative?
-Organisation owned by its members
-Very flat structure and no hierarchy
-Some pay all the staff equally no matter what role
-Often take the form of producer cooperatives where people work together to produce a good or service
96
What are the key elements of a social enterprise?
-Seek to survive, make a profit and wish to grow
-Are distinctive because their social and environmental purpose is absolutely central to what they do
-Profits are reinvested to achieve social objectives
-Make profits from selling goods and services
97
What is a stakeholder?
A stakeholder is a person, group or organisation that is affected by and/or has an interest in the operations and objectives of a business
98
What do shareholders look for?
-high profits
-high dividend
-long term growth
-prospect of capital gain
-a say in the business
-a positive corporate gain
-preferential treatment as customers
99
What do employees look for?
-high pay
-job security
-good working conditions
-fair treatment
-fringe benefits
-health and safety
-promotion prospects
-training opportunities
100
What do customers look for?
-an efficient service and quality provider
-feel needed and respected
-low prices
-value for money
-high quality products
-good service
-innovation
-certain and regular supply
-choice of goods
-clear and accurate information
101
What do suppliers look for?
-Financial stability
-Good communication and relationship
-quality standards
-ethical and sustainable practices
-Timely payments
-Long term commitment
102
What are the factors that can affect where a business decides to locate?
1.Cost
2.Accessibility to customers
3.Transport links / infrastructure
4.Population density
5.Business rates
6.Planning permission
7.Sufficient space for future growth
8.Proximity to competition
9.Government grants
10.Image and prestige
11.Land – availability, cost, raw materials
12.Proximity to suppliers
13.Labour skills, cost and availability
14.Other businesses – shared resources
15.Footfall
103
What is footloose?
Businesses that decides to move from location to location basing themselves wherever best suits their needs at a particular point in time
104
What is economies of concentration or agglomeration?
When a number of businesses in the same or related industries decide to locate closely together?
105
What is transfer costing?
Businesses are able to inflate their profits in countries where taxation levels are relatively low and decrease there profits where taxation levels are relatively high
106
What is infrastructure?
Roads, rail and shipping or electronic communication systems, training agencies and financial services
107
What is retained profit?
Retained profit is the profit made from the business being put back into the business
108
What are advantages of retained profit?
-Cheapest from of finance as you do not have to pay interest on own money
-Immediately available
-This will provide a liquidity buffer and potential fund for growth
109
What are the disadvantages of retained profit?
-Money is tied up in business so not earning interest
-cannot use for other purposes
-short term pressure to pay profits to owners can however restrict the availability of this form of finance
110
What is working capital?
This is the money needed to finance the day to day running of the business and allows stock to be bought and wages and bills to be paid
111
What are the advantages of working capital?
-By reducing their trade credit period and collecting debts more efficiently a business may receive money from customers quickly
-Reducing stock holdings is another way to release finance
112
What are the disadvantages of working capital?
-A sudden urge in demand could result in lost sales if the business is unable to meet delivery dates
-Likely to drive customers away and may have the opposite affect of making finance available
113
What are sales of assets?
selling assets
114
What are the advantages of sale of assets?
Established businesses are able to sell of assets that are no longer required such as buildings and machinery
115
What are the disadvantages of sale of assets?
Smaller businesses are unlikely to have such unwanted assets and if growth is an objective they are much more likely to want to acquire assets as opposed to losing them
116
What is a bank loan?
Borrowing a fixed amount for a fixed period of time e.g. 3-5 years
117
What is an advantage of a bank loan?
-if successful money becomes available immediately
-Payments made of interest and capital are made monthly which can help with cash flow planning
-Offering security against a loan can make it much easier to get funding and reduces interest rates charged
118
What is a disadvantage of a bank loan?
-Interest has to be paid on the loan so businesses have to pay back more than what they borrowed
-Very difficult to obtain for small businesses
-Some form of collateral may be required to secure the loan
119
What is an overdraft?
The ability to withdraw more from an account that is in the bank account, resulting in a negative balance
120
What is an advantage of an overdraft?
-Very useful for overcoming short term liquidity problems
-Useful for day to day transactions, easing cash flow needs and emerging requirements
-Only pay interest when account is overdrawn i.e. do not have to pay off regular sums
121
What are the disadvantages of an overdraft?
-Interest change can be very high indeed
-Overdraft limit tends to be fairly low for small businesses
-May be arrangement fee
-Can be called in immediately and is repayable on demand
122
What is trade credit?
Buying items and materials and paying for them at a later date
123
What are the advantages of trade credit?
The 30-90 days offered by suppliers can be viewed as interest free way of raising finance
124
What are the disadvantages of trade credit?
-Late payment can also lead to a business gaining a bad reputation with suppliers
-Suppliers often offer discounts for cash or early payments meaning the cost of goods is higher if full credit period is used
125
What is factoring?
Turning invoices into cash
126
What is an advantage of factoring?
-This flexible form of finance keeps pace with business growth as the funding id directly linked to the turnover of the company
-Undertake all credit management and collections work
127
What is a disadvantage of factoring?
Only offered to businesses with a good trading record and reliable customers
128
What is leasing?
When a company gains use of a productive asset without ever owning it
129
What is an advantage of leasing?
-Businesses get to acquire the use of resources without the need of a large sum of money
-The maintenance and repair bills are met by the leasing company
-Easier to obtain than loans
-Equipment can be updated regularly
130
What is a disadvantage of leasing?
-It can be very expensive over a long period of time and is well in excess of the purchase price
-The business never gets to own the items leased
131
What is hire purchase?
Gaining the use of capital goods whilst paying a monthly fee
132
What is an advantage of hire purchase?
-Useful for purchasing machinery that can be obtained quickly
-Finance houses may also be less selective than banks
-At the end of the hire purchase period, the business will own the asset
133
What is a disadvantage of hire purchase?
-Interest rates are usually very high
-Property is not owned by the business until the last payment has been made and items can legally be repossessed if the business falls behind with repayment
-Add servicing charges for paying in instalments
134
What are commercial mortgages?
Medium to long term loans that can be used to fund the purchase of a business premises or to buy an existing business
135
What is an advantage of a commercial mortgage?
-Interest rates will be lower than an unsecured loan
-Might run for 10-15 years so generally have predictable costs which can be helpful with budgeting and predicting cash flow
136
What is a disadvantage of a commercial mortgage?
Failure to make repayments may lead to the property being repossessed by the lender
137
What is a sale and leaseback?
Selling assets to a finance company and then leasing the asset back
138
What are the advantages of a sale and leaseback?
-The capital that is produced can be reinvested into the growing business
-Carries potential tax benefits as the leasing costs are offset as an operating expense
-An asset owned by the business can be turned into capital
139
What are the disadvantages of a sale and leaseback?
Once the item has been sold, it is no longer an asset of the business thus it is a one time option
140
What is share capital?
Selling shares to provide funds
141
What is an advantage of share capital?
-Does not have to be repaid
-Owners of shares have a say in how the business is run, but the amount of influence they have depends upon the percentage shareholding they own
142
What is a disadvantage of share capital?
-Loss of control
-New shareholder investing may be looking for a exit strategy within a few years
143
What are business angels/venture capitalist?
Professional investors who can invests large amounts of capital into small and medium sized businesses
144
What are the advantages of venture capitalist?
-Large sums of money can be obtained quickly
-Advice may also be given
145
What are the disadvantages of venture capiatilist?
Will not only take a shareholding but also expect to be fairly involved in running the business
146
What are government grants?
Local and central governments may offer finance to businesses start up schemes
147
What are the advantage of government grants?
-Usually given to small businesses in regions where unemployment is high
-Often they are grants that do not have to be repaid
148
What are the disadvantages of government grants?
-Small amounts are given which will only last for a relatively shirt amount of time
-Tend to come in certain conditions which must be met
-Forms to be completed that meet what can be a strict criteria
149
What does to break even mean?
When there is no profit and no loss
150
What are fixed costs?
Fixed costs are costs that do not vary with output
151
What are variable costs?
Costs that vary in direct proportion to output
152
What are direct costs?
Costs that arise specifically from the production of a product or the provision of a service
153
What are semi variable costs?
Costs that contain both a fixed cost component and a variable cost component
154
What are overheads?
Costs not directly related to production
155
What is the margin of safety?
The difference between output level and break even output
