Business Studies -Unit 1 (resit)

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Business studies unit 1

Entrepreneur

An individual who is shows initiative and willingness in order to create or start up a new business

Characteristic

A quality or trait an individual possesses

Entrepreneur characteristics

Hard Working
Resilient
Risk-taking
Creative
Initiative
Self-confident

Motive

A reason for doing something

Entrepreneur motives

Profit - To make cash (Total revenue - total costs)
Non Profit - want to be their own boss, bored of old job, prove yourself or someone else wrong, redundancy
Ethical stance - may have a passion about social issues or the environment and therefore may be willing to give something back through the creation of a business

Leader

An individual who has followers

Autocratic

Management style where the leader is responsible for all decision making, with no help from their employees - the employees are also closely monitored

Paternalistic

A management style where the leader makes the final decision in the decision making process, but consults with their worker like a 'father figure'

Democratic

A management style where the leader allows their workers to be part of the final decision - this can be achieved through teamwork

Lassiez- Faire

No formal structure of decision making - 'what will be will be' and the leader allows his workers to work with no/little interference

McGregors X and Y theories

Theory X - set of assumption that say workers are lazy, need motivating, don't enjoy their work/activity
Theory Y - set of assumptions that say workers are keen to work and very creative

Demand

The willingness and ability to purchase a product at a given price and a given rate

Supply

The willingness and ability to produce a product at a given price and a given rate

Subsidy

A sum of money given by the government to a business to encourage the production of goods

Tax

A set amount of money on a good/service

Market orientation

Meeting the needs of the consumer

Product orientation

Where firms look internally at what they wish to sell and then try and find a market for it

Revenue

Price x Qty

Market research

Gathering information about consumers wants and needs

Primary research

The collection of new data that does not already exist

Secondary research

The synthesis of data which already exists and has been produced

Qualitative research

In-depth research to find out what consumers want such as group discussion and in-depth interviews

Quantitative research

Pre-set questions which finds out consumer's opinions by statistics such as questionnaires and surveys

Random sampling

A sample methods where each member of the public has an equal chance of being selected

Quota sampling

A sampling method that involves selecting participants that correspond to the percentage you need. Eg, you have 200 people and you need 60% men and 40% women - you would choose 120 men and 80 women

Stratified sampling

A sampling method that involves only interview people with key characteristics

Market

A place where people meet in a mutually beneficial agreement to buy and sell

Market Size

This is the measurement of all sales, by all companies, within a particular market place

Market share

Sales of a company
------------------------- x100
Total sales in the market

Segmentation

Where you divide a market into identifiable sub-markets each with its own characteristic

Niche Market

A sub-section of a larger market

Adding Value

Increasing the worth/value of a product by modifying them

USP (Unique Selling Point)

An aspect of a product which is completely different to any other

Competitive Advantage

A feature or characteristic which gives an advantage over your competitors

Market Mapping

Looking at the market and identifying the gaps in the market

Product Trial

Testing the product to assess the likely demand for it

Opportunity cost

The satisfaction lost for the next best thing forgone

Stakeholder

An individual who has an impact on a firm/business in some way or shows a sign of interest in the firm/business

Shareholder

Owners or someone that has shares in a business

Skimming

Where a business sets high prices on their goods and then lowers them over time (eg Apple products)

Penetration

Low price at the beginning to establish the product in the market, then increase overtime

Fixed Costs

A payment which does not vary with output

Variable Costs

A payment which does vary with output

Total Costs

Variable costs + fixed costs

Contribution per unit

Selling price per unit - variable cost per unit

Breakeven analysis

When total revenue = total costs

Margin of safety

Current output - breakeven output
(the number of units currently being produced above the break-even output)

Breakeven output

Fixed Costs
--------------------------------------
SP - VC (contribution per unit)

Operating profit

Sales revenue - total costs

Internal sources of finance

Comes from owners of the business
Retained Profit
Personal funds

External sources of finance

Income that comes from outside of business
Loans
Overdraft
Debentures
Venture capital
Leasing

Retained Profit

Profit earned and not distributed to owners, but put back into business

Sales of assets

Where you sell anything for cash

Loan

Medium to long term loan from the bank - paid back by into business

+ No need to give the lender a share of profits

- Interest must be paid, so increase the costs of the business

Debentures

Long term business loan (eg mortgage) with a fixed interest rate

+ No need to give the lender a share of profit

- Interest must be paid, so increase the costs of the business

Overdraft

Money that you take from the bank when you reach zero

+ Very quick and easy

- The interest rate on this could be very high, sometimes it's hard to pay back if you waste it

Venture capital

Capital in return for part of the business

Ordinary share capital

Selling ownership of the business

Sole Trader

Private limited company, with 1 owner

Partnership

Public limited company, with usually around 2-20 owners

Limited liability

A type of liability that does not exceed the amount invested in a partnership or limited company - you only take the business asset

Limited liability

Only take business asset - only lose capital investment

Interest Rates

The cost of borrowing money from a bank, or the return for your investment

Unemployment

Individuals who our out of work but actively seeking a job

Exchange rates

The value of one currency against another

S.P.I.C.E.D

Strong pound imports cheaper - exports dearer

Goods are cheaper then variable costs will go down the then profit margins will go up

W.P.I.D.E.C

Weak pound imports dearer - exports cheaper

Monopoly

Where 1 firm/business has over 25% of the market share and dominates a market (eg oil)

Oligopoly

Where there are a few firms that dominate the market (supermarkets)

Perfect competition

Where many firms produce similar products and compete heavily on price

Monopolistic competition

Where many small sellers are involved and there are few barriers to entry (eg haidressing business)

Factors affecting demand

Price
Weather
Fashion/tastes
Economic situation
Competitors pricing
Advertising

Mass market

A market where businesses aim their products at most of the available market (eg supermarkets)

Business cycle

'Fluctuations in economic activity occurring over time'

Boom (economic)

Where there is exceptionally high levels of output

Recession (economic)

Decline in demand and output

Slump (economic)

Low demand, high unemployment, low output, increased business failures

Upswing (economic)

Rising demand, increased output, falling employment, business success

Inflation

A sustained rise in the generally level of prices

Demand-pull inflation

When demand for goods exceeds the amount of supply which causes prices to rise

Cost-push inflation

Firms increased wages, and cost of raw materials increase, which causes firms to put up their prices on goods

The balance of payments

The balance between the value of imports compared to exports

Sales revenue

Quantity x selling price per unit

Total contribution

Total sales revenue - total variable costs

Profit

Total revenue - total costs

How to construct a breakeven chart

-Draw and label the axes (vertical is costs and revenue, horizontal is output)
-Draw the fixed costs line (horizontal)
-Mark on the variable costs line
-Mark on the total costs line
-Mark on the total revenue line (starts at 0)
Where the total revenue and total costs lines cross, is where you mark the breakeven point

Gross profit

Sales revenue - variable costs

Operating profit margin percentage

Operating profit
-------------------- x100
Sales revenue

Business plan

A document setting out the business idea and showing how it is to be financed, marketed and then put into practice

Outline of the business plan

1.INTRODUCTION (involves a description of the business, type of ownership, and goals)
2.THE BUSINESS IDEA (the product or service is offered, a summary of the key selling points are then given
3.MANAGEMENT AND PERSONNEL (the role of the managers, the experience and skills of the workforce)
4.MARKETING PLAN (market analysis to show level of demand, who the customers are and what they want, the + and - of the competitors, the marketing mix including price,place,product and promotion)
5.PRODUCTION PLAN (method of production, equipment needed for storage, ways of ensuring quality)
6.THE FINANCIAL PLAN (sources of finance required to set up either internal or external, profit forecasting and break-even analysis, cash-flow forecasting

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