Notesale: Turn your study into money

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Business Studies (Unit 1)
Entrepreneurs
Entrepreneurs are people who bring new businesses and products/services into the market
...
They often receive Government
grants to help and encourage them set up a business
...

A franchise enables you to run your own business whilst using a successful formula created by the franchisor
...

This is usually because the idea for the business was not viable or because stronger competitors emerged
...
It can
be expensive to buy into with bad support

Protecting Ideas
An idea cannot be fully protected, but patents and copyrights are methods of preventing others from copying
and distributing an invention or creative piece of work
...

A Patent provides a certain amount of time for which an invention or product cannot be copied by anybody
else
...
Owners of
patents can only claim damages through the civil courts
...
These can be…
- Logos and Pictures
- Smells
- Sounds
A Copyright applies to written work (for example: books and song lyrics)
...


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Adding Value
The process of adding value involves doing something to a product to higher its price
...
Products that are protected by patents can be used to
add value
...
g
...
g
...
It is likely to be
essential in getting funding from a bank because they will need to see how well a business idea is thought
through and how financially viable it is
...
It is a good guide, but is only a plan
...
For example: sales may be lower than
predicted
If the plan is too rigid some problems may arise
...
It also has an effect on the taxation levels that the business and owners need to pay
...
There are two types of businesses that have unlimited
liability…
- Sole traders
- Partnership
A Sole Trader is someone who owns and operates their own business
...


Advantages of Sole Traders
They make all the decisions and keep all the
profit

Disadvantages of Sole Traders
The owner is the only one responsible if it fails

There are no administrative costs to pay

There are long hours of work involved

They are confidential as accounts aren’t
published

Becoming ill causes problems running the
business

A Partnership is where 2-20 people start their own business with the goal of making profit
...


Advantages of Partnerships

Disadvantages of Partnerships

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There is additional skills and a shared workload

There is UL even when it is your partners fault

There is more capital available to invest into

There is a loss of control and profits are shared

There are no administrative costs to pay

There may be business disagreements

With Limited Liability, debts incurred by the business must stay within the business
...

A business must go through a legal process to gain limited liability
...

A small business can be started up as a sole trader, partnership or Private Limited Company (LTD)
...

Shares cannot be floated on the Stock Market – this allows the owner to have full control over the business
...

Advantages of Limited liability
Disadvantages of Limited liability
It gives confidence to shareholders to invest
More annual costs (eg:e
...
: audited accounts)
There is wider access to finance opportunities
Businesses must publish financial information
An LTD can become a Public Limited Company (PLC) when it has £50,000+ in share capital
...
This provides finance for the business to
expand
...

There may also be some other problems with PLCs…
- It is hard to have any objectives other than profit
- A small group of control can be unlikely due to the availability of shares on the market
- There may be a lack of concern for the future of the business if the only goal is profit
Some other forms of businesses include non-profit organisations which focus on the interests of the members
and not shareholders, and Co-operatives which are worker-owned
...
A target market is the chunk of the
whole market that the product or service is aimed at
...
It can be numerical (how
many people buy the Daily Mail?) or qualitative (why do these people buy the Daily Mail?)
Secondary Research is data that already exists
...

Advantages
Disadvantages
It is easy to access
It may not be to the specific needs of your business
It is usually cheap or even free
It may not be accurate
It saves a lot of time
The reliability and quality may be questioned
Primary Research is the process of gathering information directly from people within your target market
...
For example, ‘which
pack do you prefer?’ or ‘how many newspapers did you buy last week?’ However it can be hard to find valid
data when using quantitative methods in small-scale research
...
It does not produce
statistics like ‘53% liked the chocolate’ but asks why they liked it instead
...
However, it is hard to collect qualitative research in small-scale samples and bias may creep in
...
Achieving a truly
random sample requires careful thought because people may often be missing
...

For example: if the total amount of people at college was 1,000 with 40% males and 60% females, the male
number would be 400 and the female number would be 600
...

This method allows interviewers to interview anybody as long as they achieve the correct quota in the end
...

A Stratified sample is when you interview people with specific characteristics (eg:e
...
: 30-45 year olds)
...

There are many factors which can potentially influence the choice of sampling methods
- Cost
- Time

Sample Size
After deciding which method to use the next consideration is how many interviews should be conducted
...
This can be heavily argued
...

However, it can be extremely expensive to conduct large amounts of research and sampling 1,000 people can
cost £30,000
...

When answering a question on market research or quantitative figures I MUST question the following…
- Who produced the information?
- How was it produced?
- What was the sample size?
- What is the confidence level of the research?

Types of Markets
A market can be anything from the amount of people that buy a specific product, the amount of products in a
category or how much is spent on one specific thing
...
g
...
)
- Market share (ege
...
: the food market can be divided into breakfast cereals and Kellogg’s are the
leader)
Local markets are small firms which don’t really care about the size of the national market
...
g
...

However, some small businesses may still be focused on the national market (eg:e
...
: selling their products
through large supermarkets or by operating on the internet)
National markets cater for the nation but are also concerned about local competition (eg:e
...
: H&M, New
Look)
...


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Electronic markets are markets that used to be physical
...

Electronic markets often have key characteristics…
- They are very price competitive so the costs are kept down
- They can operate from anywhere
- The market is cheap to enter so new competitors can arrive anytime

Market Size, Growth and Share
Market Size is the amount of goods purchased or the amount spent on those goods
...
The formula for
calculating market growth is below…
New figure – old figure = Market Change
Market Change / the old figure * 100 = % in Market Change
Market share is the proportion of the total market that is owned by one company
...
The formula for calculating market share is below…
Company revenue / whole market revenue * 100 = % of Market Share
There are many advantages of being a market leader…
- High distribution without much effort
- Able to charge higher prices
- Able to get new products onto shelves as their name is widely recognised

Market Segmentation
Markets can be subdivided into several different ways
...
Businesses must know their target markets’ needs and wants
...
g
...
It is also known as effective demand
...
The demand for most products and services grows with the economy
...
g
...
As we get wealthier we prefer to buy branded
products instead of home-brand ones
Of course, if the economy is struggling luxury goods quickly vanish and inferior goods become more popular
...
For example, the demand for a Ryanair flight to
Dublin doesn’t just depend on the price of the flight or customers incomes but the prices of rival flights too
...

Seasonal factors are the biggest influence on demand for some businesses
...


Location
One of the most important factors influencing the success of a business is its location
...

Factors affecting the choice of location…
- The cost of land
a business who’s products are price sensitive need to keep costs down so a cheap location may help
- Space
is there room for expansion? This should be a consideration in case the business does well
- Government grants
financial incentives that are offered by the government may influence the decision on location
- Accessibility to the market
businesses that operate on the internet may not need to worry about this factor but hairdressers and
such will benefit from being close to their target market
- Accessibility of suppliers
businesses that use JIT will benefit from being close to suppliers due to shorter deliveries
- Cost of labour in the location
locating in a high area of unemployment may help to keep costs down, but will the workforce have the
required skills?
- Infrastructure
the provisions available in a certain area, for example transport links and telecommunications
...


Sources of Finance
A source of finance is the term used to describe where a business gets its money from
...
)
Businesses will also need to be able to raise money for other reasons such as expansion of premises,
machinery and employees, to buy more produce for large orders, or for more external reasons such as a dip in
the economy
...
A limited company will be able to raise share capital in addition to being able to borrow
...
A distinction
between short, medium and long-term objectives should be made and the appropriate type of funding used
...

Internal finance
Stretching existing capital further (eg:e
...
: cutting
stock)
Retained profits (not suitable for start-ups)
Selling some of the businesses assets (eg:e
...
:
buildings)

External finance
Bank loans and overdrafts
Trade credit (extending time to pay suppliers)
Share capital and Venture capital

Description
Retained Profit
Sale of assets

Advantages

Disadvantages

Keeping previous profits to
invest in the future
Selling off items with value
(eg:e
...
: buildings and shares)

It is free because it is
an internal source!
It can reduce or
eliminate debt
May not have to pay
interest if the financer
is family or friends
Interest is usually lower
than bank loans
It can be very
successful (Dragons
Den)
You can make money
to invest
They are usually easy to
access
It is yours to use
whenever you want it
It can be easier to pay
for things

Not available to start-up
businesses

Loans

Borrowing money (usually
from a bank) with interest

Debentures

A loan or share paid back with
interest

Venture capital

When someone invests in a
high-risk business

Share capital
Overdrafts
Leasing
Trade credit

Selling shares on the stock
market (PLC only!)
Agreement with the bank to
have a negative balance
Renting something you cannot
afford to buy
You don’t have to pay for
something immediately

You may have to pay TAX
You may have to pay
large interest fees
You still have to pay
interest
It is very risky with a high
failure rate
Giving away ownership of
the business
Interests are usually
higher than loans
You do not own it and it
isn’t an asset
Money may not be
available when due

Employees
An employee is somebody who works for an organisation; usually under a contract of employment in return
for a salary or a wage
...
However, as the business expands they may need help
...
Although the workers carry
out work in your business, they are paid by the agency
...

The main benefit to using an employment agency is that all recruitment/administration is done by the agency
...
These individuals provide
services such as accountancy, business strategy, IT, etc
...

Advantages of advisors/consultants
Disadvantages of advisors/consultants
Able to stand back and ask questions staff can’t see
Their ideas may not be trusted
They bring ideas from outside the business
They may not be ideal for the needs of the business
They can raise sensitive issues that staff may ignore
They can often cost a lot of money to hire

Budgets
A budget is a detailed plan of the income and expenses expected over a certain period of time
...

Advantages of budgets…
- They can help ensure that a business does not spend more than expected
- They can help measure manager’s performance
- They can motivate all the staff in the section (delegating budget-power can be motivating)
An Income budget is the expected Revenue over a certain period of time
...

In a Profit budget is the expected difference between Revenue and Expenses (Income & Expenditure Budgets)
Setting budgets is not an easy job
...
Here’s how start-ups do it…
- They produce an estimate of sales in the first few months based on secondary and primary market
research conducted for their business plan
- The entrepreneur relies on their own instinct and experience in the industry
Most established firms will use last year’s figures as a guide to the next years with an adjustment for any
known changes or objectives
...
This starts each budget at zero
instead of last year’s figures
...

However, there may be some problems with this type of budgeting because managers may lack the experience
of knowing what things really cost
...
Cash flow forecasting is
estimating the flow of money in and out of the business
...
Without the cash to pay
bills, all businesses will fall
...
Cash flow forecasts are vital in business
start-ups because they help get finance and will also show the finance provider when they will be paid back
...
This will help enable them to take action if cash becomes short
...
These flows are then set in a grid showing the cash movements each month
...
It is much easier for an established business
to create a forecast but all companies must build their forecast in contingencies
...
By creating a worst-case
forecast, companies will be able to arrange financial cover for these events before they happen
...
When a business starts up they should
expect low revenues because…
- Their company or product is unknown
- They are unable to buy large amounts of stock to supply big orders
- It’s difficult to charge premium prices as they aren’t yet established
Entrepreneurs start their financial planning by assessing what revenue they might receive in their first financial
year
...

The Cost of Production is important for a manager to know because it will…
- Assess whether it is possible to trade
- Find out how actual costs and predicted costs match
- Makes judgements on cost efficiency
Fixed Costs are those that do not vary with the level of output (eg:e
...
: salaries, rent, utilities, interest
charges)
...
g
...

The formula for calculating Total Costs is:
Fixed costs + Variable costs = Total costs
Profit is the difference between revenue and expenditure and is main motive for many businesses
...
Profit can be calculated by using the
following formula:
Total revenue – Total costs = Profit
(Remember that revenue does not always mean profit!!)
Managers usually refer to Net/Operating Profit as the amount left once all fixed and variable costs have been
deducted from revenue
...

After working out the total profit after TAX, it can be used to…
- Pay shareholders
- Reinvest in the company (retained profits)
Profits are important for most businesses because…
- They provide a measure for business success

- They are the best source of new finance for a business (retained profits)
Forecasting costs and revenues can be difficult new businesses as they don’t have any past figures give them
ideas
...

A business will want to compare its profitability over time
...
This is usually shown on a graph called a breakeven chart
...
It pays for a business’s fixed costs and
the remaining money is then counted as profit
...
Lowering fixed costs can
then also produce more profit as they are paid for by
contribution
...
Contribution
should rise as output increases, covering fixed costs
and then increasing profits
...
This is
the amount of sales a business can lose before it starts
to lose profits (the difference in units between the
breakeven point and the quantity of units sold)
You can work out the Margin of Safety using this formula…
Number of units sold – Breakeven point = MOS
You can also work out the Margin of Safety in £ by:
MOS in units * Selling price per unit = MOS in £

Term
Adding Value
Advisor/consultant
Bank Loan
Bank Overdraft
Breakeven Point
Budget
Business Angel
Business Plan
Business Objective
Cash Flow
Cash Flow Forecast
Contribution
Contribution Per Unit
Costs
Demand
Demographic
Elasticity of Demand
Electronic Market
Enterprise
Entrepreneur
Expenditure Budget
Fixed Costs
Franchisor
Full-time Employee
Income Budget
Input
Limited Liability
Location
Margin of Safety
Market
Market Growth
Market Research
Market Segmentation
Market Share
Market Size
Niche Market
Opportunity Cost
Patent
Permanent Employee
Primary Research
Profit
Qualitative Research
Quantitative Research
Returns
Revenue
Risk
Sample
Share Capital
Social Enterprise
Sole Trader
Supplier
Total Costs
Trade Credit
Trademark
Unlimited Liability
USP
Variable Costs
Venture Capital
Working Capital

Definition
Doing something to a product in order to increase its price
Somebody who provides businesses with help and advice
Borrowing a fixed amount from a bank with interest
An agreement with a bank to go into a negative balance – high interest
The point at where a business’s revenue covers its total costs
A plan of income and expenses expected over a period of time
Someone who invests in a high-risk business and provides help/support
Sets out how a business idea will be financed, marketed and put into practice
A goal that a business wishes to achieve
The incomings and outgoings of a business
A forecast predicting the incomings and outgoings of a business
The difference between total revenue and total variable costs
The difference between the selling price per unit and variable costs per unit
Amounts incurred by a business during trading operations
The amount or price of a product that customers are willing to pay
Defining a market in terms of segmentation (e
...
: age, income)
The responsiveness of demand to a change in price or customers incomes
A market where sellers and customers do not meet (e
...
: Play, Amazon)
Where new businesses are formed to offer products or services
Somebody who takes calculated risks to start up a business
The budget that sets out the total costs (usually split into categories)
Costs that do not change with output (e
...
: rent, salaries, utilities)
Someone/a business who rents their business to other people/businesses
Somebody who works 30+ hours a week under a contract
The budget which sets out estimates of revenue
The resources that go into producing goods and services
Business owners/shareholders that are not fully responsible for a business fail
The place where a company is located or does business
The difference between the output sold and the breakeven point
The place where buyers and sellers come together to do business
The percentage of growth of a market over a time-period
The process of collecting and analysing data to help make marketing decisions
Segmenting a market into difference sections (e
...
: age, gender)
The percentage of an market that particular business or product owns
The total demand or value in a specific market
A small part of a large market where customers have specific needs
The cost of missing out on the next-best alternative
The right to be the only producer of a specific product or service
Someone who works for a business with no set-out ending period
Research which is carried out by a company for its own needs
The difference between total sales and total costs
Detailed research like beliefs, values and opinions
Non-detailed numerical research like sales figures
The rewards to a business (e
...
: profit, customer satisfaction)
The income of sales (selling price per unit * total units sold)
The probability or change that wanted outcomes will not occur
A subset of a population usually chosen for market research
Finance invested into a business by shareholders
A business that has objectives other than making profits (e
...
: charities)
A one-person business with unlimited liability
A business that provides goods or services to other firms
A businesses total variable and fixed costs added together
When a business does not have to pay for something immediately
A sign that can distinguish the goods or services from one trader to another
Owners of a company that are completely liable if a business fails
A unique selling point of a product or service that makes it stand out
Costs that change with the level of output
Someone who invests in a new start-up business
The amount of money that a business has available for day-to-day activities



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