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Business Studies -Unit 1 (resit)

Business studies unit 1
STUDY
PLAY
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