Intro To Business Flashcards
(144 cards)
1
Q
What is profit maximising?
A
making as much profit as possible
2
Q
What is profit satisficing?
A
making enough profit to maintain your interest in the business
3
Q
Why might entrepreneurs set up their own business?
A
-ethical reasons
-independence
-to work from home
-financial motives
4
Q
What are the roles of an entrepreneur?
A
-creating and setting up a business
-running and expanding/developing a business
-business innovation (improving products through R+D or enhancing customer service)
5
Q
Describe the skills of an entrepreneur
A
-communication
-teamwork
–problem solving
-organisation
-numeracy
-information technology
6
Q
Describe the characteristics of an entrepreneur
A
-creativity
-hard working
-resilience
-initiative
-self confidence
-risk taking
7
Q
Write a LOA for why expanding a business is the most important role of an entrepreneur (7)
A
-expanding the business is the most important role of an entrepreneur
-(example- Nike opening more stores)
-entrepreneur can increase the capacity
-increase output
-increased sales volume
-increased sales revenue
-increased gross profit
8
Q
Write a LOA for why creativity is the most important characteristic of an entrepreneur (9)
A
-creativity is one of the most important characteristics of an entrepreneur
-this will help them innovate and come up with unique product ideas
-differentiate them from competitors
-build a strong brand
-more loyal customers
-increase prices without a significant fall in demand
-increase in revenue
-increase in gross profit
-increase in retained profit to reinvest/use for dividends
9
Q
What is intrapreneurship?
A
Once the business is up and running, entrepreneurs can encourage workers to be innovative and come up with unique product ideas. This is called intrapreneurship
10
Q
Why might some businesses fail?
A
-being risk averse
-fear of failure
-legal barriers
-lack of entrepreneurial capacity
11
Q
What is the equation for sales revenue?
A
units sold x selling price
12
Q
What is the variable cost/cost of sales?
A
Costs that change when sales volume or output changes
13
Q
Give some examples of variable costs
A
-cost of stock
-cost of raw materials
-cost of packaging
–work in progress
-finished/completed goods
14
Q
What is the equation for total variable costs?
A
variable cost for one unit x number of units
15
Q
What is a fixed cost/expense?
A
A cost that can change with time but doesn’t change with output
16
Q
Give some examples of expenses/fixed costs
A
-salaries
-rent
-electricity for the lights
-insurance
17
Q
What is the equation for calculating gross profit?
A
sales revenue- cost of sales
18
Q
What is the equation for calculating operating profit?
A
gross profit - expenses
19
Q
Describe the income statement headings (8)
A
Sales Revenue
Cost Of Sales
Gross Profit
Expenses
Operating Profit
Exceptional Items
Tax/Expenses
Net Profit
20
Q
What can retained profit be used for?
A
Reinvesting profit back into the business for growth or to distribute to shareholders as dividends
21
Q
Write a LOA about how an increase in sales can help a company grow (9)
A
-an increase in sales
-increase in sales revenue
-increased gross profit
-increased operating profit
-increased net profit
-potential increase in dividend payments
-increased incentive to the business
-attract more investment
-increased capital for growth
22
Q
Define the term ‘Market Research’
A
Gathering information on how consumer’s purchase goods and services. Finding out what their wants and needs are and if they are currently satisfied by other organisations.
23
Q
Give some examples of how market research can be conducted
A
-focus groups
-questionnaires
-observations
-company reports
-test marketing
24
Q
What is market research used for?
A
-identify and anticipate customer wants and needs
-quantify demand (how much)
gain an insight into customer behaviour
25
What are the stages in the market research process?
-set your objectives
-find out what already exists
-choose your methods
26
What is Primary Market Research?
Market Research that does not already exist so you need to carry out/hire someone to carry out in order to find out new information.
27
What is Secondary Market Research?
Secondary Research is when research already exists so you can analyse the existing research to meet your goals.
28
Give some examples of Primary Research Methods
-focus groups
-surveys
-test marketing
-observations
29
Give some examples of Secondary Research Methods
-records of past advertising
-sales statistics
-loyalty card reports
-company reports
30
What is quantitative data?
data that is collected in statistical form, usually less detailed
31
What is qualitative data?
data that results in discussion/word form, usually more detailed
32
What is a focus group?
Groups of potential customers that are brought together to discuss their feelings about a product or market. Focus groups are a good way of getting detailed information about customer tastes and preferences, such as design.
33
What is test marketing?
selling a new product in a small section of the market in order to assess customers reactions.
34
What are questionnaires in market research?
consists of a list of questions, can be done by specialist researchers or done independently, on paper or online
35
What are observations in market research?
Watching how consumers behave to provide insights into what products consumers tend to select.
36
What is sampling?
Gathering an appropriate sample size to be representatives of the test market, usually a minmum of 100 (estimated cost-£10,000)and on average 1000 (estimated cost-£30,000) people.
37
Where may a business find bias within market research?
The researchers existing opinions (designing the research to favour one outcome)
OR
The participants/sample (the participants may not give their true opinions to:
-be accepted or liked
-may have pre existing opinions on the brand already- really like them or dislike them)
38
Give a LOA about primary research that links to the income statement (10)
-Primary market research involves collecting new data
-which is up to date and specific to the business
-e.g questionnaires and focus groups
--allows the business to effectively identify customer wants and needs
-develop a product that meets these wants and needs
-increased sales volume
-increased revenue
-increased gross profit
-increased operating profit
-increased retained profit
39
Give a LOA for the drawback of primary market research that links to the income statement (8)
-however, primary market research can be expensive
-may need to hire specialist researchers to conduct research
-e.g questionnaires and focus groups using a larger sample size
-in order to find out customer wants and needs
-increased expenses
-increased fixed cost wages
-lower operating profit
-less retained profit to reinvest
40
Give a LOA to describe the benefit of secondary market research that links to the income statement (10)
-the research presented in report format for example
-has already been completed
-therefore researchers do not need to be recruited
-as there will not be a requirement to do focus groups for example
-this lowers/reduces fixed costs
-can lower prices in your business
-increased demand
-increased sales volume
-increased revenue
-increased gross profit
41
Give a LOA for the drawback of secondary market research that links to the income statement (9)
-seondary research has already been collected
-e.g from the government or other businesses
-may not be specific to the business or may be out of date information
-business may not effectively identify customer wants and needs
-business may not adapt a product correctly so it is less likely to meet customer wants and needs
-reduces customer loyalty
-decrease in sales volume and revenue
-decrease in gross and operating profit
-less retained profit to reinvest
42
Give a LOA for the benefit of quantitative data (11)
-data is collected in statistical form
-using closed questions
-these can be completed independently
-and easily analysed
-therefore specialist researchers are unlikely to be needed
-reducing the cost of wages for conducting the research
-cash can instead be invested into using a larger sample size
-leading to more reliable data collected
-more likely to produce a product that meets customer needs
-increased revenue
-increased gross and operating profit
43
Give the LOA for the drawback of quantitaive data (6)
-data is presented in statistical form
-resulting in limited depth
-respondents cant explain why they made certain choices
-making it difficult to develop new ideas
-limiting innovation
-less likely to develop unique and competitive products
44
Give the LOA for the benefit of qualitative data (8)
-it invited participants to give a more detailed response
-this can lead to a deeper understanding of customer wants and needs
-resulting in the business being able to produce a product that more effectively meets their needs
-increasing customer loyalty
-able to increase prices without a significant fall in demand
-increased revenue
-increased profit margins
-more retained profit to reinvest
45
Give a LOA for the key drawback of qualitative data (5)
-gathering a large volume of detailed responses will require a significant number of researchers
-this will significantly increase fixed costs
-this may mean that a lower volume of data is collected as a business may not have the cash to pay for researchers
-resulting in unreliable results as less people are asked
-resulting in the wrong product being produced or the wrong price being charged
46
What is product orientation?
doing research and devlopment to improve a product or create a unique one.
47
What is market orientation?
doing market research to find out customer wants and needs within the target market
48
Give the LOA for the benefit of product orientation (10)
-product orientation involves focusing on developing the product
-lots of investment into R&D of the function of the product
-improved innovation by having unique features
-differentiate from competitors
-customers willing to pay higher prices
-increase prices without a significant fall in demand
-increased revenue
-higher gross profit margins
-increased retained profit
-able to invest in further R&D to continue innovating
49
Give a LOA for the drawback of product orientation (9)
-however product orientation can be expensive
-lots of investment is needed into R&D to innovate
-increased fixed costs
-e.g paying high wages to engineers or scientists
-leading to lower operating profit margins
-reducing retained profit
-less capital to reinvest into R&D
-may be unable to effectively differentiate
-lower sales in the long term
50
give a LOA for the benefit of market orientation (9)
-market orientation involves focusing on customer wants and needs
-this allows a business to create a product based on customer trends
-and use market research to quantify demand
-allowing them to produce products which are likely to have high sales volume
-increasing sales revenue
-increasing gross profit
-increasing operating profit
-increasing retained profit
--able to reinvest into conducting further market research
51
Give a LOA for the drawback of market orientation (10)
-however, market research is needed to find out customer wants and needs
-high amount of investment needed into market research
-e.g questionnaires and focus groups using a larger sample size
-in order to find out customer wants and needs
-leads to increased cash outflows on wages for specialist researchers
-lower net cash flow
-reduced cash reserves
-may be unable to pay day to day bills
-forced to sell non current assets in order to cover payments
-business is unable to operate
52
What is product differentation?
making the product or service different from competitors
53
What are the 5 examples of differentation and give a brand that links with each?
-distinctive design (iphone)
-branding (nike)
-performance (mercedes)
-exceptional customer service
-ethical product/service
54
What is a market map?
a visual illustration of how current businesses are perceived in the market from a customers point of view
55
What can a market map help to do?
can help spot a gap in the market that could lead to differentiation if exploited properly or can help them identify where their competitors are
56
What is a problem with using a market map?
it is based entirely on opinions from customers so it may not be fully accurate
57
Give the LOA for the benefit of using a market map (7)
-market maps can help businesses identify gaps in the market
-once identified businesses can conduct R&D
-and design a product that matches its characteristics
--the product is likely to be unique
-lack of direct competition
-businesses can increase selling price without experiencing a significant fall in demand
-increased sales revenue and gross profit
58
Give the LOA for the drawback of using a market map (8)
-market maps are based on consumer opinions
-to ensure decisions based on opinions are valid
-businesses need to collect data from a large sample
-this may require a large number of researchers
-to collect and analyse data and display it in a market map
-if businesses recruit researchers it will significantly increase cash outflows
-if cash outflows are greater than cash inflows
-it may lead to a negative cash flow
59
What are the 4p's that must be developed in line with the target market?
-product
-price
-promotion
-place
60
What is market segmentation?
the process of splitting up the target market based on similar characteristics in order to create a product that is specifically aimed at them
61
What are the 4 types of market segmentation?
geographic, demographic, psychographic and behavioural
62
What is included in geographic segmentation?
-countries
-nations
-states
-regions
-cities
-neighbourhoods
63
What is included in demographic segmentation?
-age
-gender
-sex
-family
-education
-income
64
What is included in psychographic segmentation?
-hobbies
-beliefs
-attitudes
65
What is included in behavioural segmentation?
-user status
-usage rate
-benefits
-occasions
-loyalty
-attitude
66
Give the LOA for the benefit of market segmentation (7)
-through segmentation a business can target market research at a specific group
-rather than trying to create products for all
-this can help a business understand their customer needs more effectively
-meaning they can adapt their design mix to better meet their needs
-ensuring the business product is more differentiated
-so they can increase their prices without a significant fall in demand
-increasing their sales revenue
67
Give the LOA for the drawback of market segmentation (9)
-need to create multiple products
-to meet the needs of different segments
-for example using geographical segmentation to create different products for customers in different countries
-therefore unable to benefit from marketing economies of scale
- at a smaller group of customers
-this means that the fixed costs of R&D to produce the product
-spread over less units
-leading to higher unit fixed costs
-lower operating profit margins
68
What is a prototype?
an initial model or version of a product created to test and validate design concepts before full scale production
69
What are the 3 parts of a design mix?
-aesthetics (the 5 senses)
-function (does it do what it is supposed to)
-economic manufacture ( making the product as cheap as possible)
70
Give some examples of products that prioritise aesthetics in their design mix
-designer handbags
-high end perfumes (chanel)
-ben & jerrys ice cream
-coca cola
-mercedes
71
Give some examples of products that prioritise function in their design mix
-rain coat
-bus pass
-office supplies
-cookware
-chairs
72
Give some examples of products that prioritise economic manufacture in their design mix
-IKEA Furniture
-supermarket own brand food
73
Describe economic manufacture as part of a design mix
-cheaper raw materials
-simple design with less features
-lower skilled workers
-simplify processes
74
What are the 3 stages of research and development
-create a prototype
-test the prototype
-adapt the prototype
75
Give a LOA for the importance of the design mix in terms of aesthetics/function (6)
-if a business improves aesthetics/function of products design mix
-through R&D into improved functionality or market research to identify consumer trends
-product is likely to become differentiated compared to rivals
-gain a competitive advantage
-can increase selling price without a significant fall in demand
-increase sales revenue and gross profit margins
76
Give a LOA for the drawback of prioritising aesthetics/function in the design mix (8)
-to improve aesthetics or function it will require significant investment into R&D or market research
-increasing cash outflows
-if cash outflows exceed cash inflows
-results in a negative net cash flow
-places a strain on a businesses cash reserve
-business will have difficulty making payments to suppliers
-may have to sell non current assets
-disruption in business operations
77
Give a LOA for the benefit of prioritising economic manufacture (8)
-if a business designs a product with economic manufacture as a priority
-e.g through using less robust raw materials
-reduces their cost of sales
-can pursue cost leadership according to Porter
-gain competitive advantage
-can reduce selling price
-increase in demand
-increasing sales
78
Give a LOA for the drawback of prioritising economic manufacture (8)
-if a business designs a product with economic manufacture as a priority
-e.g through using less robust raw materials
-it may mean that the product they design becomes less robust
-damages the businesses reputation (now associated with being less robust)
-consumers may switch to alternatives
-decrease demand
-decrease in sales and gross profit
-less profit to retain and reinvest
79
Give a LOA for the benefit of changing the elements in the design mix to reflect social trends (6)
-changing design mix to reflect social trends
-products now aligned with social trends
-better meets customer needs
-consumers more loyal to business
-can increase selling price without a significant fall in demand
-increase sales revenue and gross profit margins
80
Give a LOA for the drawback of changing elements in the design mix to reflect social trends (7)
-to identify relevant social trends
-requires significant investment into market research
-to ensure data is valid,must be collected from a large sample
-businesses need to recruit specialist research to analyse and collect data
-increasing cash outflows
-placing strain on cash reserves
-less cash to pay for day to day operations
81
Give a LOA for the benefit of a business adapting their design mix by changing to more sustainable materials, e.g wood (8)
-Business may ( adapt to whatever business it is) e.g stop using rare wood when making a product
-swap to more sustainable wood
-changing aesthetic of product due to concern over resource depletion
-aligning with customer values
-better meeting consumer needs
-product becomes more differentiated
-can increase selling price without a significant fall in demand
-increased revenue
82
Give a LOA for the drawback of a business adapting their design mix to be more sustainable (8)
-adapting design due to concern over resource depletion (be specific to the business)
-meaning the business needs to find an alternative supplier for raw materials
-charge higher price for new material
-increasing cost of sales
-reducing gross profit margins
-reducing operating profit margins
-less profit to retain
-less profit to reinvest (be specific to the business)
83
Define the term 'business plan' (3)
a document that illustrates the thought process of the start up business or the future planning of an established business
it will show what the business is expecting to sell and to who
it is usually designed to be persuasive to attract investments but also makes claims about how much profit the business expects to make
84
Give a LOA for the benefit of a business plan (7)
-business plan involves carrying out market research
-such as a questionnaire
-which if based on a large sample size
-improves the validity of the results
-develops reliable sales predictions
-create a cash flow forecast
-convince the bank that they can make loan repayments
85
Give a LOA for the drawback of a business plan (7)
-a business plan can quickly become out of date
-for example, there may be an unexpected change in social trends (relate to the case)
-causing an unexpected change in demand (of... relate to the case)
-making the market research in the plan invalid
-resulting in unreliable sales forecasts
-inaccurate cash flow forecasts
-therefore, any financial projections will be unreliable making the loan or the investment application unreliable
86
Describe the parts of the business plan and what is included in each part (8)
1. executive summary- a one page nutshell of your vision
2. target market- who are your products intended for
3. competitors- define your competitors, their strengths and weaknesses
4. human resources-will you need additional staff to run your business
5.vendors/suppliers- will you require outsid resources to operate
6. marketing plan- how will you get the products in front of your clients
7. operations- how are you going to run your business
8. financial projections- how much money do you need to run the business
87
What is a sales forecast?
an estimate of the likely number of products that will be sold by the business or market over a future period
88
What factors can affect sales forecasts?
-consumer trends
-economic trends
-actions of competitors
-
89
What are the methods of sales forecasting?
1. correlation
2.extrapolation
90
What is PESTLE?
links to extrapolation (finish creating this flashcard later)
91
What does PESTLE stand for?
-Political
-Economic
-Social
-Technological
-Environmental
-Legal
92
Give a LOA for the benefit of sales forecasting (7)
-accurate forecasts will appropriately predict sales volume
-this will ensure the business can order the correct amount of stock
-this will reduce waste as the business will avoid over ordering
-reduced waste will decrease outflows
-this will improve net cash flow
-ensures the business can pay suppliers OR invest in R&D (choose one)
-(explain the impact)
93
Give a LOA for the drawback of sales forecasting (8)
-accurately compiling a sales forecast requires significant investment into market research
-to accurately quantify demand for products
-to ensure data is valid, must be collected from a large sample size
-may require recruiting specialist researchers to collect and analyse data
-their wages will increase the businesses cash outflows
-placing a strain on their cash reserves
-less cash available to pay current liabilities
-may be pressured to sell non current assets
94
Define the term cash
refers to the money that a business has available to spend here and now
95
What happens if a business runs out of cash?
-they can no longer pay bills/suppliers
-they may be forced to sell assets
-the value of what they sell will be used to pay off their debt however eventually they may be unable to operate
96
What does a cash flow forecast do?
estimates the amount of money that a business expects to flow in and out of their bank in a specific period and if it will be a sufficient amount to sustain their business
97
How do you calculate net cash flow?
total inflows - total outflows (for a month)
98
How can you calculate closing balance for a month?
opening balance + net cash flow
99
What is a cash sale?
when a customer pays the business immediately as they receive the good or service
100
What is a credit sale?
-the business makes the product
-the customer receives the product
-the customer pays within a given time e.g 30 days
101
What is the difference between cash and profit?
-cash is how much money a business currently has
-profit is how much a business makes
-businesses can survive without profit
-businesses cant survive without cash
-cash should be used to pay fixed costs (workers) i thinki
102
Give a LOA for the benefit of a cash flow forecast (6)
-the business may experience fluctuations in sales (why-relate to the case)
-this means that they may experience a reduction in cash inflows at a certain time
-so if they can accurately forecast cash flow, the business may be able to plan accurately
-such as reducing their staff numbers if they forecast lower cash inflows during these periods
-allowing them to reduce their wages and subsequent cash outflows
-improving net cash flow during off peak seasons and ensuring they have sufficient levels of cash to keep up with essential payments such as wages
103
Give a LOA for the drawback of a cash flow forecast (7)
-a cash flow forecas can quickly become out of date
-for example, there may be an unexpected change in social trends
-causing an unexpected change in demand
-making the market research in the plan invalid
-resulting in unreliable sales forecasts
-inaccurate cash flow forecasts
-this could result in the business being over/ under staffed or over/under stocked
104
What is break even ?
The number of units a business needs to sell so the revenue matches the costs and there’s no profit or loss.
105
How do you work out total costs?
Fixed costs + variable costs
106
What is the equation for margin of safety?
Amount sold or expected to sell - break even amount
107
What is the formula for calculating break even
108
What is the equation for contribution per unit?
Selling price -variable costs (per unit)
109
How can a business predict whether they’ll be a loss or breakeven or profit within a certain time frame?
Compare sales forecasts and breakeven analysis
110
On a graph, where does break even occur?
Where the total revenue and total costs lines meat
111
Give a LOA for the benefit of breakeven (8)
112
Give a LOA for the drawback of using breakeven (7)
113
Name the sectors and describe what each one does
- primary sector- producer ( fishing)
-secondary sector- manufacture
-tertiary sector- providing a service
114
Do smaller scale business or larger scale businesses have unlimited liability?
Smaller scale
115
What type of liability do larger scale businesses have?
Limited liability
116
Which types of business ownerships have unlimited liability?
- sole traders
-paternships
(Unlimited liability)
117
Which business ownerships have limited liability?
-LTDs
-PLCs
(Limited liability)
118
What is a sole trader?
-A business with only one owner
-they are entirely responsible for the business & control profits
119
What type of liability do sole traders have?
Unlimited liability
120
Give the LOA for the benefit of sole traders (9)
121
Give a LOA for the drawback of being a sole trader (8)
122
What is a partnership?
-when there is 2-20 owners of a business
-all individuals share ownership, responsibilities & profits
123
Give a LOA for the benefit of a partnership (8)
124
Give a LOA for the benefit of a partnership (8)
125
Give a LOA for the drawback of a partnership (8)
126
What is unlimited liability?
-there is no limit to your liability as an owner
( your assets can be taken to cover costs)
127
What is limited liability?
-personal protection from business debts (won’t have to sell assets)
128
Compare when it is suitable for a business to become a sole trader or a LTD
129
Create a flowchart for whether a business should be a sole trader or a LTD
130
What is the process of a LTD becoming a PLC called?
Stock market floatation
131
What is stock market flotation?
The process of a LTD becoming a PLC
132
Give a LOA for the benefit of being a LTD (6)
133
What is a LTD?
-Private Limited company
-1 or more shareholders with limited liability
-all financial accounts must be published
-shares cannot be advertised publicly, only transferred privately
134
Give a LOA for the drawback of being a LTD (6)
135
Give a LOA for the benefit of being a PLC (4)
136
Give a LOA for the drawback of being a PLC (6)
137
Give a LOA for the benefit of limited liability (9)
138
Give a LOA for the drawback of being a limited liability business (8)
139
What is a franchisor?
-A business which allows franchisees to operate under their name so long as they pay royalties to the franchisor
-the franchisor usually provides training, advertising, a menu with pricing and legal support
140
What is a franchisee?
-An individual or company that enters into an agreement with the franchisor to use the franchisors name brand and business model to operate their business
-the franchisee must pay an initial fee and ongoing royalties to the franchisor
141
Give a LOA for the benefit of being a franchisor (6)
142
Give a LOA for the drawback of being a franchisor (8)
143
Give a LOA for the benefit of being a franchisee (6)
144
Give a LOA for the drawback of being a franchisee (8)
