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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
Options for starting up a business
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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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Options for starting up a business
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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Options for starting up a business
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
Forecasting cash flows
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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Forecasting cash flows
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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Forecasting cash flows
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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Forecasting cash flows
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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Forecasting cash flows
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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Impact of changes in interest rates on
small businesses
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Impact of changes in interest rates on
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