Business Definitions

An employee is someone who works for an organisation; usually under a contract of employment in return for a salary or a wage.

Types of employees include:

• Temporary and permanent part-time (less than 30 hours per week)
• Temporary and permanent full-time

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

Three types of budgets are:

• An income budget
• An expenditure budget
• A profit budget

A cash flow is the flow of money in and out of a business over a given period of time.

Cash flow forecasting is estimating the flow of money in and out of the business.

Quanitity of goods sold x Selling price = Sales Revenue

Fixed costs + Variable costs = Total costs

Net Profit x 100 / Total Revenue = Net profit margin

Breakeven analysis compares a company's total revenue with its total costs to find out the minimum level of sales required to cover its costs.

The formula...

Fixed Costs / Contribution per unit = Breakeven Output

(C.P.U = Selling price per unit - Variable cost per unit)
(Contibution = Total Revenue - Total variable costs)

The margin of saftey is the difference between the output sold and the breakeven point.

The formula...

Number of units sold - Breakeven point = MOS

(Margin of saftey in £:

MOS in units x Selling price per unit = MOS in £)

A frachisee is a person or company who has paid to become part of an established frachise like McDonalds.

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

A Patent provides a certain amount of time for which an invention of product cannot be copied by anybody else.

A Trademark is a sign that can distinguish one product, service or brand from another. These can be; logos and pictures, smells or sounds.

A Copyright applies to written work e.g. books and song lyrics. Unlike patents, a copyright occurs automatically and there is no need to pay for it.

In Unlimited Liability the owners of a business are fully responsibility for any debts incurred, even if this requires them to sell their personal assets or possessions.

There are two types of businesses that have unlimited liability- sole traders and partnerships.

A sole trader is someone who owns and operates their own business. A sole trader can have employees, but they must take all the final decisions about running the business.

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

With Limited Liablity, debts incurred by the business must stay within the business. The owner doesn't have any personal liability and doesn't need to sell personal possessions if the business fails.

A business must go through a legal process to gain limited liability. This process is called incorporation.

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

A LTD can become a PLC when it has £50,000+ in share capital. The business may then be floated on the stock market where the public can buy shares. This provides finance for the business to expand.

Market Research gathers information about consumers and compitiors. It aims to identify consumers buying habits and attitudes to products and services.

Secondary Research is data that already exists, found through the internet, newspapers and governmnet produced data.

Primary Research is the process of gathering information directly from people within your target market. This can be expensive when carried out by specalist market research companies and there must be a lot of care taken to eliminate bias from your reearch.

A random sample is where everybody in the population has an equal chance of being chosen.

A quota sample is where interviewees are selected in proportion to the consumer profile of the target market.

A stratified sample is when you interview people with specific characteristics (e.g. 30-45 year olds).

Local markets are small firms which don't really care about the size of the national market (e.g. local hairdressers & plumbers).

National markets cater for the nation but are also concerned about local competition (e.g. H&M, New Look).

Electronic markets are markets that used to be physical but now allow customers to browse and buy from the comfort of their own home (e.g. eBay).

A monopoly is a market which has only one organisation providing a product or service (e.g. Train companies).

An oligopoly is when there are a few dominant businesses in the market (e.g. 4 major supermarket chains dominate UK groceries market).

1. Development- market research, research and development & costs are high
2. Introduction- product launched, business promotes product heavily, price may be high to cover costs or low to encourage sales.
3. Growth- sales grow fast, unit costs go down, product often improved or developed.
4. Maturity- sales reach a peak, at saturation sales begin to drop, competition may rise.
5. Decline- product doesn't appeal anymore, if sales continue to fall product can be withdrawn or sold too another business.

Ad:

• easy to do
• it's quick which helps to take quick actions to achieve margin of safety
• use to persuade bank to give them a loan

Dis:

• the analysis assumes that variable costs always rise
• simple for a single product but can get more complicated with multiple products
• if the data is wrong the results will also be wrong, assumes business will sell all products without wastage

Ad:

• business leaders tend of have plenty of experience
• managers get an overview of the whole business
• senior managers understand central budgeting restrictions and can make decisions to save the whole business money

Dis:

• not many people are expert enough in all aspects of the business
• excluding employees from decision-making can be demotivating
• decisions can take a long time. The organisation reacts slowly to change, can end up a couple steps behind its competitors

Expenditure that remains the same irrispective of output level or sales revenue.