Theme 1 Flashcards
(106 cards)
1
Q
What is an entrepreneur?
A
A person who sets up a business, taking on financial risks with the hope of making a profit
2
Q
Why do you consumer needs change?
A
Changes in fashions, the economy, national demographics, lifestyle, technology
3
Q
Define obsolete
A
No longer produced/used; no longer needed
4
Q
How is risk worked out?
A
By considering the probability of a negative outcome occurring and the impact of the negative outcome
5
Q
What are some rewards of setting up a business?
A
Business success (personal or financial), profit, independence/freedom
6
Q
What are some risks of setting up a business?
A
Business failure, Financial loss, lack of security e.g. no guaranteed income
7
Q
How can risk be reduced?
A
By carrying out detailed market research, producing a business plan,
ensuring that the business is competitive,
raising sufficient start-up finance
8
Q
What make some businesses riskier than others?
A
Seasonal demand,
a small market,
highly competitive market,
an owner who knows little about the product or market
9
Q
How can a business add value?
A
Convenience, unique selling point, greater speed of service, branding, improved quality, better design
10
Q
Why is adding value important?
A
The more value a business can add to its products, the more chance the business has of success, survival and long-term growth
11
Q
What qualities do you entrepreneurs have?
A
Risk taker, initiative, determination, perseverance, willingness to undertake a new venture, confidence
12
Q
How do you entrepreneurs benefit the economy?
A
By creating products and services to meet people’s needs
Creating jobs
Generating economic activity through consumer spending
Paying tax to the government
Exporting goods abroad
13
Q
How can businesses meet customer needs?
A
Price
Choice
Convenience
Quality
14
Q
What is market research?
A
Gathering information about customer needs and preferences
15
Q
What is the purpose of market research?
A
Identify and understand customer needs
Identify gaps in the market/opportunities
Identify and understand competitors
Understand trends in the market
Reduce the risk associated with making business decisions
Understand customer opinions
16
Q
What is primary research?
A
Research you collect yourself
aka field research
17
Q
What are some examples of primary research?
A
Surveys Focus groups Observations Experiments Social media Questionnaires
18
Q
What are the benefits of primary market research?
A
More accurate
Up-to-date
Specific to your business
Direct customer contact
19
Q
What are some drawbacks of primary market research?
A
More time-consuming
More costly
20
Q
What is secondary market research?
A
Information that already exists
aka desk research
21
Q
What are some examples of secondary market research?
A
Sales data Internet sites Local newspapers Government reports Market reports Telephone directories
22
Q
What are some benefits of secondary market research?
A
Less time-consuming
Less costly
General information (if that is what you want)
23
Q
What are some drawbacks of secondary market research?
A
Less accurate
Might not be up-to-date
Might not be specific to the business
24
Q
What is qualitative data?
A
Information about peoples opinions, judgements and attitudes
25
What is quantitative data?
Data that can be expressed as numbers and statistically analysed
26
How can businesses make market research more accurate?
Use a larger sample size
27
How can businesses make sure their data is reliable?
The data should come from a representative sample of people and the questions should enable people to give accurate and relevant answers
28
What is a market segment?
A group of buyers with similar characteristics and buying habits
29
What is the purpose of market segmentation?
Segmenting the market allows a business to understand its customer needs and to target its customers better
30
How can a market be segmented?
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Age
Gender
Income
Location
Lifestyle
Demographics
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31
What are benefits of market segmentation?
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Allows a business to meet specific customer needs,
Differentiate its products,
Focus on a specific group of customers,
Target its marketing activity,
Develop a unique brand image,
Build close customer relationships
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32
What are the limitations of market segmentation?
Can be costly
Focusing on one group of customers may cause a business to miss another opportunity
Customer characteristics change over time
33
What is a market map?
A diagram that can be used to position and compare products in a market
34
What are some benefits of market mapping?
Helps to identify potential gaps in the market
| Helps businesses to identify their closest rivals
35
What are some limitations of market maps?
Based on opinions rather than accurate data
Compare to businesses based on only two variables – simplistic
Can be difficult to identify the most appropriate variables
36
How can businesses compete with their competition?
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Wider product range
Lower prices
Better design
Better customer service
Stronger brand image
More convenient location
Higher quality
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37
What is a competitive market?
A market with a large number of businesses relative to the number of potential customers
38
What are some drawbacks of highly competitive markets?
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A business might have to:
Lower prices in order to complete
Accept lower profit margins
Cut back on expenditure
Be careful about how and when it expands
Monitor its competitors closely
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39
How do customers benefit from competition?
Lower prices
| Improved quality and customer service
40
What is the difference between aims and objectives?
Aims are the general goals that are business sets e.g. purpose for business’ existence
Objectives are more specific but contribute to the business achieve its aims
41
What are the financial objectives for a start-up?
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Survival
Sales and sales revenue
Profit
Market share
Financial security
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42
What are the non-financial objectives for a start-up?
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Personal satisfaction
Independence and control
Challenge
Social benefits or goals
Customer satisfaction
Business awards and recognition
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43
What is revenue?
Amount of income received from selling goods or services over a period of time
aka turnover, income
44
How is revenue calculated?
Revenue = sales price x quantity
45
What are fixed costs?
Costs that do not vary with output
46
What are variable costs?
Costs that vary with the level of output
47
How do you work out variable costs?
Variable costs = cost of one unit x quantity produced
48
What are some examples of fixed costs?
Rent
Salaries
Utility bills
Interest on loans
49
What are some examples of variable costs?
Raw materials
| Wages
50
What is profit?
The money leftover after taking costs away from the revenue
51
How is profit calculated?
Profit = revenue - total costs
52
How is interest on loans calculated?
Interest (on loans) % = (total repayment - borrowed amount) / borrowed amount x 100
53
What is break-even?
The level of output at which a business’ revenue covers its total costs. At this point the business is making neither a loss nor a profit
54
How is break-even calculated?
Break-even point in units = fixed costs / (sales price - variable costs)
55
On a break-even graph, how do you find the break-even point?
The point where total costs and total revenue lines intersect
56
On a break-even graph, how do you know is the business is making a profit?
When total costs exceed the break-even point
57
On a break-even graph, how do you know if the business is marking a loss?
When total costs fall below the break even point
58
On a break-even graph, what does the fixed costs line look like?
It is a horizontal line because fixed costs are do not change with output
59
What is the margin of safety?
How much production could fall before the business starts to make a loss
60
How is the margin of safety calculated?
Margin of safety = actual or budgeted sales - break even sales
61
What is cash flow?
The money flowing in and out of a business on a daily basis
62
What is a cash-flow forecast?
It predicts how much cash will flow through a business over time
It can be used to predict where a business could have a cash flow problem
63
On a cash flow forecast, what are receipts also known as?
Inflows
64
On a cash flow forecast, what are payments also known as?
Outflows
65
How is net cash flow calculated?
Cash inflows - cash outflows in a given period
66
What is the opening balance on a cash flow forecast? + how is it calculated?
The amount of money in a business at the start of a month
| The previous month’s closing balance
67
What is the closing balance on a cash flow forecast? + how is it calculated?
The amount of money in a business at the end of a month
| Net cash flow + opening balance
68
On a cash flow forecast, how are receipts calculated?
Net cash flow + total payments
69
What impacts cash flow?
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Change in sales revenue / demand
Change in costs
Change in credit terms
Change in stock levels
Business expansion / contraction
Seasonality in sales
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70
What does the term ‘liability’ refer to?
The legal responsibility of a business towards its debts
71
What is unlimited liability?
The owner of the business is legally responsible for any debts of the business - the owner could lose their personal belonging to pay of any debts
More risk
Accounts do not have to be made public
72
What is limited liability?
The owners and the business are separate legal entities - shareholders + owners can only lease money up to the amount they invested, the personal belongings are not liable
Profits + control shared between shareholders
Less risk
Accounts made public
73
What types of business ownership is there?
Sole trader
Partnership
Private limited company (Ltd)
Public limited company (PLC)
74
What are some advantages of being a sole trader?
Quick and easy to set up
Sole trader keeps all the profits
Sole trader makes all the decisions
Financial info kept private
75
What are some disadvantages of being a sole trader?
Unlimited liability
Harder to raise money to start/grow business
A lot of pressure on one person
No time off
76
What are some advantages of being a partnership?
Owners can share ideas and knowledge
Owners share risk
Could be easier to raise finance to establish/grow business
77
What are some disadvantages of being a partnership?
Decisions made by one partner can affect all partners
No longer exists if one partner leaves
Profits are shared
Partners may disagree
78
What are some advantages of being a private limited company?
Owners have limited liability
Customers may trust an ltd more than other businesses
Continues to trade even if the shareholders argue
Could be easier to raise finance to establish/grow the business
79
What are some disadvantages of being a private limited company?
More complex to set up than sole trader of partnership
Shareholders may disagree
Financial info is published and can be accessed by others
More info must be reported to the government
80
What is a franchisor?
The business that gives franchisees the right to sell its product or service
81
What is a franchisee?
A business that agrees to manufacture, distribute or provide a branded product under license from a franchisor
82
What is a franchising?
The expansion of an established business by licensing the right for entrepreneurs to set go their own business using the name, equipment and products of the franchise. In return, the franchisee pays the franchisor a fee or share of the sales revenue.
83
What does the franchisee get when they buy a franchise?
It’s like buying a ready-made business in a box
| E.g they get an established brand name, ongoing support, access to goods and services
84
What are the benefits of running a franchise?
Brand image and reputation already established
Expensive marketing costs are covered by the franchise
Access to tried-and-tested products
May have an established customer base
Higher chance fo survival
Specific support and training provided
85
What are the drawbacks of running a franchise?
Cost of the initiator investment can be high
Owner has little freedom to make decisions
Franchisee will have to pay a fee or royalty (percentage of sales revenue) to the franchisor
Restrictions on where the franchise can be set up
86
What are the 4 Ps in the marketing mix?
Product (has to meet needs of customers, product differentiation)
Place (way in which a product is distributed)
Promotion (communication between the business and customer that makes customer aware of business’ products)
Price (price must reflect value)
87
What is a business plan?
A plan for the development of a business, giving forecasts of items such as sales, costs and cash flow
88
What is the purpose of a business plan?
Convince a bank to loan the business money
Forecast financial projections
Identify the needs of customers
Formulate market research into important info (e.g about competitors)
Provide info (e.g about competitors)
Provide the owner with a ‘plan of action’ that will minimise risk
89
What are the contents of a business plan?
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Business idea
Aims and objectives
Market research
Financial forecasts
Sources of finance
Location
Marketing mix
Production
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90
What is a stakeholder?
An individual/group that has an interest in and is affected by the activities of a business
91
What groups of people are stakeholders in a business?
```
Owners (shareholders)
Managers
Pressure groups
Employees
Local community
Government
Suppliers
```
92
What is the aim of the owners/shareholders of a business (stakeholders)?
Want profits and a return on their investment, dividends
93
What is the aim of the managers of a business (stakeholders)?
Want bonuses and long-term success
94
What is the aim of pressure groups (stakeholders)?
Want to influence business’ decisions and actions e.g making the business more environmentally friendly
Wants socially responsible and ethical businesses
95
What is the aim of the employees in a business (stakeholders)?
Want good, regular pay and good working conditions, job security
96
What is the aim of the customers of a business (stakeholders)?
Want good value for money
| Good customer service
97
What is the aim of the local community (stakeholders)?
Wants local investment, jobs for local people and limited pollution (noise and traffic)
98
What is the aim of the government (stakeholders)?
Wants low unemployment and competitive markets
| Wants taxes to be paid
99
What is the aim of the suppliers of a business (stakeholders)?
Wants regular orders
100
What 2 examples are there of possible stakeholder conflicts?
Shareholders want more profit / managers want to invest profit to grow
Workers want higher pay / customers want lower prices
101
What are some types of technology that influence business activity?
E-commerce
Social media
Electronic payment systems
Digital communication (e.g email / QR codes)
102
What are some examples of short-term finance?
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Bank overdraft
Trade credit (paying for stock or goods later)
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103
What is short-term finance?
Sources of finance that are repaid immediately or quite quickly (usually within a year) and are used for costs such as buying stock or paying a utility bill
104
What is long-term finance sources?
Sources of finance that are usually repaid over a longer time period (even up to 25 years). Would be used to finance a new business or to expand a business
105
What are some long-term sources of finance?
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Personal savings
Venture capital (capital from investors to fund new business idea)
Share capital (selling shares)
Loan
Retained profit
Crowd funding
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106
What is crowdfunding?
The process of raising small amounts of money from a large number of customers for a new product or start#up
