A-Level Business Studies

Land incorporates all natural resources used for production.

Labour describes both physical and mental effect.

Capital is goods that are made in order to produce other goods and services, for example machinery.

Enterprise is the act of bringing the other factors of production together to create goods and services.

LAND + LABOUR + CAPITAL + ENTERPRISE = OUTPUT.

Primary Industry - Those organisations involved in extracting RAW MATERIALS for example farming, fishing and mining.

Secondary Industry - Those organisations involved in processing or refining the raw materials into a finished or semi-finished product, for example MANUFACTURING.

Tertiary Industry - Those organisations involved in providing SERVICES to customers and to other businesses, for example hairdressers and banks.

Enterprise: A business is a person or group that provides a product or service.

Types of business include - Schools, franchises, sole-trader, partnerships, public, private.

Enterprise is the willingness to undertake new ventures and show initiative with a view to gaining rewards.

Enterprise is the starting point to any business activity.

An entreprenuer is a person with enterprise who can combine the factors of production to make a product or service. An entrepreneur is also a person who spots an opportunity and shows willingness to take risks in order to benefit from the potential rewards.

A franchise is a large company that allows people to use their name and brand for a price.

Every franchise will sign up to an agreement and it will cover:

• The area.
• The length of the agreement.
• To extend the contract-Optional.
• Royalty fee's and initial start up cost.
• Restrictions to the products/service your allowed to sell.
• The franchise provides training that you have to do.

Benefits of buying into a franchise:

• Guaranteed customers.
• Well known brand.
• Already have a product/service.
• Charge higher prices.
• Advertising done for you by professionals.

Disadvantages to the franchisee:

• Prices, promotions and product restricted.
• Contract - restrictions.
• Takes a long time to set-up.
• Royalty fees.
• Can't change the target market.
• Your reputation depends on the franchise.

Benefits to franchisor:

• Little work.
• Income from royalty fees.
• Brand grows.
• Limited risk.

Disadvantages to franchisor:

• Your not receiving the full profits from the franchise.
• Reputation of the business depends on the franchisee.
• If the business is closed down, they lose out on the royalty fees.

Setting up as a franchise will not guarantee success but it will reduce the risk of failure.

Is what we sacrifice (or forego) when we decide to take one course of action over another. Opportunity cost is the value of the benefits of the next best alternative course of action forgone, when making a choice between alternative courses of action.

Risk is the possibility of an event or condition that will have a negative or harmful impact on something perceived to be of value. Reward is the expected return which is either financial or other based on the risk taken.

The opportunity cost of your first choice is the second best choice that you missed out on.

A government encourages entrepreneurs because they bring ideas, developments, jobs and competition to an economy. Therefore enterprise is central to the governments approach to economic policy.

The government helps businesses by:

• Grants.
• Advice, support - health and safety and other regulations.
• Loans.
• Laws and regulations.

Is the process of increasing the worth of resources by modyfying them.

Sales revenue - Cost of budget in materials, components and services.

Ways of adding value are:

• Production.
• Distribution.
• Unique selling point.
• Brand name.
• Modifications.
• Packaging.
• Service.

Market size is the total sales (in value or volume) achieved by all firms in a particular market.

Market growth is the percentage change in the sales (in value or volume) over a period of time.

Factors influencing growth:

• Economic growth.
• Nature of product.
• Changes in taste.
• Social changes.
• Fashion.
• Technological changes.
• Demographic changes.

Market share is the percentage or proportion of the total sales of a product or service achieved by a firm or a specific brand of product.

Sales of a business divided by total sales in the market times 100.

Share capital is where a business sells shares in order to raise money. The business gets cash the shareholder gets ownership and dividends.

Advantages of share capital are:

• Money does not have to be repaid.
• Can raise substantial amounts of money.

Disadvantage of share capital are:

• Dilutes ownership.
• Less control over decisions.
• Shareholders must be paid a percentage of the profits.

Banks will give out loans that will cover a fixed period of time and fixed repayments and interests.

Advantages of loan capital are:

• They are easy to arrange.
• Repayments are fixed.
• No ownership is lost.

Disadvantages of loan capital are:

• Money has to be paid back with interest.
• The bank may ask for security.
• Often not available for a risky business.

A venture capitalist will invest money in more risky businesses in return for a share of the ownership. They will generrally expect to be involved in the running of the business.

Advantages of venture capitalists are:

• Help and expertise provided.

Disadvantages of venture capitalists are:

• You will lose part of your business.

An overdraft allows you to take more money out of your bank account than you have in it.

Advantages of an overdraft are:

• It gives you short-term extra money.
• It is easy to do.

Disadvantages of an overdraft are:

• It has interest,

Revenue is the total inflows, the money coming into the business, money from sales.

Revenue = price times units sold.

Fixed costs are those costs that do not change in direct relation to production.

Variable costs are those costs that change in direct relation to production.

A market is a place where a buyer and seller come together.

Local markets are smaller, local businesses. Some advantages are that it is cheaper, local gap in the market, less competition, conveniant.

National markets are where a business operates all over the nation, for example Tesco. Some advantages are that you can get more profit, gap in the market, more customers, potential to grow.

Physical markets are where buyers and sellers physically meet, for example shops, restaurants. Some advantages are personal service, neccessary in some markets, customers see what their buying, less returns, upselling (introducing a customer to a more expensive product.)

Non-physical (electronic) markets are where buyers and sellers meet over electronics, for example online. Some advantages of this are that it is cheaper, market size increase share, open 24 hours, save money on costs.

Demand is the amount of procucts that people are willing and able to buy.

Factors that influence demand are:

• Marketing and advertising.
• Demographic factors.
• Price of other goods.
• Seasonal factors.
• Tastes and fashion.
• Income and wealth of customers.
• Government action.
• Competitors actions.
• Price.

Breakeven is where a businesses costs are equal to their profit and so they are therefore not making a profit or loss.

The formula for breakeven is:

Fixed costs divided by price take away variable costs.

Break even must be treated with caution. It is based of assumptions that costs and revenues will be stable. Businesses are often advised to consider the variables that might change and so may look at a number of scenarios.

Advantages of break even are that it allows entrepreneurs to calculate the minimum number of sales needed before starting to make a profit.

• Can forsee the level of profit or loss at different levels.
• Can predict the outcome of changing variables.
• Provides a target.

A main disadvantage of breakeven is that it is only based off assumptions and so does not factor in any variable changes, for example the economic state.

Revenue = Price times units sold.

Revenue = Price times units sold.

Total costs = fixed + variable costs.

Total costs = fixed + variable costs.

Profit and/or loss = revenue take away total costs.

Profit and/or loss = revenue take away total costs.

Contribution = price take away variable costs.

Breakeven = fixed costs divided price take away variable costs.

Breakeven = fixed costs divided price take away variable costs.

Forecasting cash flow involves making predictions about cash inflows and estimating cash out flows in order to forecast cash held (usually withing the bank at a given period of time.)

Cash flows in from:

• Cash sales.
• Payments from debtors.
• Owners capital invested.
• Sale of assets.
• Bank loans.

Cash flows out from:

• Purchasing stock.
• Paying wages.
• Paying debts - bank loans.
• Creditors.

Cash-flow is the movement of money into and out of a business.

Cash inflows: cash coming in.

Cash outflows: cash going out.

Creditors are people you owe money to.

Debtors are people who owe you money to.

Assets are something that you own with value.