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Business revisionBusiness revision


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Definitions-

Entrepreneur- is someone who takes on the risk

of a new business venture

Business venture- is a start-up enterprise that isformed with the expectation and plan that a

financial gain will result. Many refer to a

business venture as a small business

Sole trader- owned & controlled by one person

Partnerships- owned by 2-20 partners


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Unit 1- introduction to small business

Topics:

1.

Understanding customer needs/satisfaction

Market mapping

Analysing competitors (strengths and weaknesses)

Adding value

Options for starting up a business

2.

Start-ups and franchises

Natureof enterprise; taking calculated risks, thinking creatively, innovating, planning ahead3.

Businessobjectives

Costs, revenue, profit

Forecasting cash flows

Start-up finance

4.

Customer focus

Marketingmix

Limited liability

Keeping records, paying tax

Recruiting staff5.

Economic context: supply and demand, impact of interest rates, exchange rates and business cycle

Effect of business decisions on stakeholders

Bold = done

NOT bold = not

done


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Topic 1Topic 1Understanding customer needs/satisfactionMarket mapping

Analysing competitors (strengths and weaknesses)

Adding value



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Understanding customer

needs/satisfaction

Finding out what customers want is called

MARKET RESEARCH

Primary (first hand) research- observe, listen,fieldwork, questionnaire, interview, focus

group

Secondary (desk research)- already exists

Google; research reports; government

statistics


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Market mapping

Market mapping grid measuring two-four

key features, e.g. Quality, size, shape, design

Purpose- identifying market segments/ GAP/opportunity


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Methods of segmentation

Geographical/regional, e.g. Oatcakes

Age, e.g. 8 year old vs. 18 year old

Gender, e.g. Perfume vs. aftershave Socio-Economic Groups, e.g. the occupation a

person has

Lifestyle, e.g. Retired vs. professional


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Analysing competitors (strengths and

weaknesses)

By comparing the competitors business and

your own you can analyse the differences,

such as the facilities, customer service, value

for money, location, brand, etc.


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Adding value

Value added- the increase in the benefits of a good or servicewhich are created at each stage of production

An example would be by making a product more appealing tocustomers.

Methods of adding value are: Changing raw materials

Having packaging that makes products different- uniqueaftershave bottles (shape/sizes)

Branding

Quality

Design

Unique selling point


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Adding value

Value added = value of output value of input

The business should charge more for a product

than it cost them to make it- this allows thebusiness to make profit


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A franchise is where a large company ( .e.g.

McDonalds) allows smaller businesses to use

their name.

An agreement between a franchisor and

franchisee

Franchisor= the company

Franchisee= the person (small business)


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Sole trader- owned & controlled by one person

Partnerships- owned by 2-20 partners

Public sector organisations- owned and controlled bythe government. Financed by taxes as well as by sellinggoods and services

Co-operatives- run by people with a shared businessinterest, to benefit all involved. Each participant has anequal say

Companies- private limited companies (Ltds) andpublic limited companies (PLCs). The limited refers tolimited liability. Shareholders are the owner, have a sayin running the company and share in its profits.


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T

OPI

C 2T

OPI

C 2 Start-ups and franchises Nature of enterprise; taking calculated risks,

thinking creatively, innovating, planningahead


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What is enterprise

Enterprise= a willingness to take risks and

show initiative in order to establish new

business ventures


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Enterprise skills

Show initiative (ability to plan/task)

Creativity

Willingness

Do it!

Spotting an opportunity

Take calculated risks


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Other important enterprise skills

Thinking ahead

Make connections

Show initiative

Make decisions

Show leadership

Mind maps are a useful tool to develop these enterprisingskills

Creating a mind map includes:

1. Brainstorm-come up with ideas2. Categorise-organise the ideas in a logical way

3. Link-recognise the link between the categories and ideas


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Thinking creatively

Thinking creatively- a mental process involving thegeneration of new ideas or concepts, or newassociations between existing ideas or concepts. Itusually has both originality and appropriateness

Thinking creatively can include:

Innovation

New product ideas

Improving existing products Solving problems

Obtaining a competitive advantage


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Thinking creatively

DELIBERATE CREATIVITY- being taught to think

creatively

How: By getting people to concentrate upon what

they know

T

hen asking how it could be changed


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Thinking creatively

The 6 thinking hats:

White hat- what facts do we know?

Red hat- what does intuition tell us?What areour feelings?

Green hat- how can the problems be solved?

Black hat- what are the potential problems?

Yellow hat- what are the benefits?

Blue hat- what decisions have been made?


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Invention & Innovation

Invention- to develop a completely new

product

Innovation- the ability to develop new ideasthat build upon those that already exists

Copyright- protect writing, drawing and music,

this prevents unauthorised coping of their

work

Patent- legally protect idea for 20 yrs


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Taking a calculated risk

What drives people to take risks in business:

To become wealthy- successful businesses

have made millions For the buzz- some people thrive on the risk of

running a business

Being your own boss- being able to make yourown decisions or have control


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TOPIC 3TOPIC 3

Business objectives

Costs, revenue, profit


Start-up finance


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Business objectives

Business objectives are split into two categories-

Financial objectives:

Profit or income

Wealth

Survival

Increase revenues

Non-financial objectives:

Personal satisfaction

Be your own boss

Challenge

Independence

Help others- charity, fair trade, ethical trading


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Qualities shown by entrepreneurs

Entrepreneur- is someone who takes on the risk of a newbusiness venture

Entrepreneur- someone who has a flair for business ideasand has the confidence to take the risks involved in

setting up a businessSome qualities are:

Determination and initiative

Willingness to take risks/make decisions

Ability to plan & persuadeShow leadership

Luck!


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Start-up finance

Reasons why finance may be needed:

Start a new business

Expand a business

Buy new equipment Buy premises

Buy stock

Pay bills

Cover a fall in demand

Pay workers


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Types of finance

There are two types of finance-

Internal- money that is

obtained within the business,e.g. Last years profit

External- money obtained

from outside the business,e.g. A bank loan


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Sources of finance

Internal:

Owners funds

Retained profit

Sales of assets

Changing stock levels

Changing credit terms

External:Long term:

Share capital

Venture capital

Mortgage

Government grants

Short term:

Bank overdraft

Bank loan

Hire purchase

Leasing

Trade credit


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Finance and time

Short term- this refers to finance that is only

required for a MAXIMUM of 12 months

Medium term- this refers to finance that isonly required for more than 1 year, but less

than 5 years

Long term- this refers to finance that is only

required for more than 5 years


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Estimating revenues, costs and profits

Any money received by a business is REVENUE

Any money spent by a business is a COST


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Revenue

Revenue- selling goods/selling services

Revenue can also be called:

Sales revenue

Total revenue

A business must FORCAST its sales revenue by:

Estimating how many units it will sell based on their marketresearch

Deciding on what price they will charge for each unit sold

Total revenue = selling price X (multiply) number of sold units

(TR) (per unit)


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Cost

Fixed cost- costs that dont chance with output. Fixedfor a specific time period and/or level of output.

Examples are: salaries, rent, marketing, machinery andequipment, insurance, lighting and heating, accountant

fees Variable cost- costs that change with output

Examples are: raw materials/bought-in components,energy, piece-rate labour

Total costs = total fixed costs + (add) total variable costs

(TC) (FC) (VC)


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Profit

Profit = sales revenue (subtract) total cost

Revenue > costs = profitRevenue < costs = loss


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A business will estimate:

How much it will sell

How much and it will cost to make what is sold

How much fixed costs will be

This is done using a cash flow forecast

A cash flow forecast is a way of predicting cash in

and cash out over a fixed period. Cash flow islike a bath- the bath should never be allowed torun empty


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Inflows- are money received from customers

and other sources

4 main places money will come from are: Sales revenue- received from customers

Grants- received from government

Capital- from the sale of assets, e.g.machinery

Loans- received from banks and other lenders


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Outflows- are money paid to suppliers

7 main ways money will be spent:

Wages and salaries- to pay staff

Raw materials- to make products Utilities- (gas, electricity, water and telephone)

needed to run the business

Rent and business rates- to pay for premises

Interest- on money thats been borrowed Tax- on profits (corporation) and spending (VAT)

Equipment- used to make products


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What are the uses

of cash flow?


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Cast flow

CASH FLOW IS IMPORTANT BECAUSE YOU

NEED TO HAVE A STEADY FLOWOF MONEY

COMING INTOYOUR BUSINESS TO ENABLE

YOUTO PAYYOUR SUPPLIERS THENYOUR

EXPENCES, I.E. YOUR EMPLOYEES/WOKERS

AND GENERAL RUNNING EXPENSES, E.G.

RATES, UTILITIES.


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TOPIC 4TOPIC 4

Customer focus

Marketing mix

Limited liability Keeping records, paying tax

Recruiting staff


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Marketing mix

These four elements make the marketing mix:

PRODUCT- sell the products what the

customer wants

PRICE- charge a price they are willing to pay

PLACE- make them available in the right place

PROMO

TION- make them aware by using

promotion, e.g. Advertising the product on

the internet/television


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Marketing mix

PRICE-

PLACE-


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Marketing mixPROMOTION-


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Effective on-time delivery and

customer satisfaction Offering a delivery service is an example ofPROVIDINGWHATTHE CUSTOMER WANTS!

TO FULFIL CUSTOMER ORDERSITSIMPORTANTTO:

Keep accurate records

Deliver on the agreed date Between the stated times

Publish any costs involved

By doing this the business:

Will get a reputation for the reliability

This may provide free/invaluable word of mouthpromotion

Customers may be willing to pay a little more for reliability


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Companies

Companies : private limited companies (Ltds)

and public limited companies (PLCs). The

limited refers to limited liability.

Shareholders are the owners, have a say in

running the company and share in its profits


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Liability


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Start up legal issues

Four main legal areas to be aware of when

starting up a business.


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TaxesIncome tax- is a tax paid on income, it is paid by ANYONE who has an income, e.g.Employees, self employed people and retirement pension/ occupational pension

Corporation tax- this is a tax on your companies (Ltd & Plc) profits. You dont have to

pay corporation tax if youre self employed (sole trader and partnership)

VAT- VALUE ADDED TAX. Your VAT payments should be made each QUARTER (every

third month) to H M Customs & Excise.


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Keeping records

The records MUST be HONEST and ACCURATE-

evidence must be kept for up to 9 years.

Records include:

VAT

Corporation tax

Income tax

National insurance


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Recruiting, training and motivating

staff

A business may need to employ more workers

because:

Increased sales

Some staff may leave

Staff get promoted

Staff have temporary absences


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Recruiting, training and motivating

staffStages of how firms get workers


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TOPIC 5TOPIC 5

Economic context: supply and demand,

impact of interest rates, exchange rates and

business cycle

Effect of business decisions on stakeholders


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Commodity

A commodity is a product that is sold on the

basis of price rather than brand qualities. In

other words there is almost no difference in

the product irrespective of where you buy it

from.


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Demand & Supply

Demand- how many people want to buysomething, e.g. If 10 people go to that store tobuy one of those toy cars, everyone will get

one Supply- how much of an item there is, e.g. A

store has 10 toy cars to sell; there supply is 10

Equilibrium Point is where the supply anddemand line cross (on a graph)


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Impact of changes in Exchange rates

T

he exchange rate- the price of one currencyexpressed in terms of another currency

A currencys value depends upon:

Demand and supplyThe effect upon a business depends upon

whether the business buys and sells abroad.


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Impact of changes in interest rates on

small businesses

The rate of interest is THE PRICE OF

BORROWING MONEY traditionally the

government controlled the interest rate,

however now it is set by the BANK OF

ENGLAND.


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small businesses


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small businesses


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How do business cycles affect small

businesses

The economic stages that the UK goes through

can be referred to as either the BUSINESS

CYCLE, or sometimes the TRADE CYCLE.


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Stages of the business cycle


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Effects of the cycle (products/services)


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Stakeholders

Stakeholders are people or groups who have

an interest or stake in the activities of a

business

E.g. -


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Stakeholders

Some Stakeholders of a large business:

Shareholders

Managers

Workers

Suppliers

Government

Financiers

Local community

Pressure groups

Some Stakeholders of a small business will include:

Workers

Owners

Suppliers

Government

Financiers

Local community


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Internal/External Shareholders

Internal shareholders people who work for the

business. This means that they are INSIDE the

business and involved daily

External shareholders people who dont work

for the business, and are NOT involved in the

day-to-day running of the business. Therefore

they are OUTSIDE the business.


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Primary/Secondary Stakeholders

Primary stakeholders people who can help the business tosucceed. They usually include the INTERNAL stakeholders:

1. Owners/shareholders

2. Employees

3. CustomersSecondary stakeholders people who see themselves as

stakeholders even if the business doesnt. They are usuallyEXTERNAL stakeholders:

1. Local residents

2. Local government3. Pressure groups

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