Flashcards in Why set up a business? Deck (17):
Whats an enterprise?
The skill involved in wanting to start and run a business is called enterprise.
Whats an entrepreneur?
The individual who sets up their own business is called an entrepreneur.
What are reasons an entrepreneur may want to set up a business?
Making a profit. A business does this by selling items at a price that more than covers the costs of production. Owners keep the profit as a reward for risk-taking and enterprise.
The satisfaction that comes from setting up a successful business and being independent.
Being able to make a difference by offering a service to the community such as a charity shop or hospice.
What is a new businesses aim?
The aim is to make goods and services that satisfy customers, are competitive and sell at a price that more than covers costs.
How can a business get a competitive advantage over their rivals?
To gain this advantage, it needs to offer a product which customers prefer to a rival's product.
Business risk and reward?
Profit is the reward for risk-taking. Losses are the penalty of business failure.
Why may an owner close a business?
An owner may decide to close a business if losses are being made, or if the level of profit is not enough to make trading risks or hours worked worthwhile.
Whats a business plan?
A business plan is a report by a new or existing business that contains all of its research findings and explains why the firm hopes to succeed. A business plan includes the results of market research and competitor analysis.
Analysis is when a business interprets information.
What are benefits of a business plan?
Drawing up a business plan forces owners to think about their aims, the competition they will face, their financial needs and their likely profits. Business plans help to reduce risk and reassure stakeholders, such as banks.
How do businesses attract and satisfy customers?
In order to attract and satisfy customers, businesses need to be competitive and make products that are superior to their rivals.
Why is it challenging to attract and satisfy customers?
This is not easy because businesses operate in a dynamic and challenging market place. Business rivals are likely to be at work creating new products or improving operations to reduce costs and drive down prices. Businesses may need to adapt their products because ever-changing fashion trends mean that customer requirements evolve over time. Success today is no guarantee of future profits.
What will a competitive market have?
A competitive market will have many businesses trying to win the same customers.
Whats a monopoly?
A monopoly is either the only supplier in a market, or a large business with more than 25% of the market.
Competition can make markets work better by improving these factors:
Price: if there is only one retailer, products may not be competitively priced. If there are several retailers, each retailer will lower their prices in an attempt to win customers. It is illegal for retailers to agree between themselves to fix a price - they must compete for business.
Product range: in order to attract customers away from rivals, businesses launch new varieties of products they believe to be superior to their competitors.
Customer service: retailers that provide a helpful and friendly service will win customer loyalty.
What is product differentiation?
Businesses operate in competition with each other. If the market is large enough to support many firms, a new business can open which imitates an existing idea. ‘Me too’ products can sometimes be successful.
However, businesses become more competitive by making products that stand out from the competition in terms of price, quality or service. This is called product differentiation.