Business & Economics

Supplier - a business which sells(or supplies) products to another business

Customer - a person/organisation which buys/is supplied with a product by a business

Consumer - the person who uses or consumes a product

Markets - where buyers and sellers meet to exchange goods and services

A business buys from the supplier, and sells it's products to the customers. The purpose of a business is to offer a good or service. They do this by buying resources such as raw materials, labour and machines.

When setting up a business you need to think about: is there a business opportunity? do you have the money to set it up and will you make money? what would you need to buy to run the business?

Customer Needs - the wants and desires of the customers of a business

Market Research - gaining information about customers, competitors and market trends through collecting primary and secondary data

Primary(or field) Research - new information which hasn't been collected before

Survey - research involving asking questions of people or organisations

Respondents - those who provide data for a survey usually by answering questions

Questionnaire - a list of questions answered by respondents to gather information about consumers tastes.

Focus Group - in market research a group of people who discuss a product or brand

Secondary Research - getting information that already exists e.g. newspapers

Qualitative Data - information about opinions judgements and attitudes

Quantitative Data - data that can be shown as numbers and can be analysed

Market Segment - part of a market that has buyers with similar buying habits(age)

Price Sensitive - when price is very important in the decision whether to buy or not

Market Map - diagram to show the range of positions for 2 features of a product such as low to high price and low to high quantity

Gap in the Market - when no business is serving the needs of a customer for a product

When analysing a customer you need to know: who the potential customer may be? what sort of product would they like to buy? what prices are they prepared to pay for the product? when would they want to use the services of the company? should you identify any buying habits in the potential customers?

Product Range - a group of similar products made by a business like a number of different soap powders 

Brand - named product which customers see as being different from other products and which they can identify or associate with

Brand Image - idea/impression/image that customers have in their minds about the brand

Take shoes as the market. There are many stores that only sell women's shoes, however very few selling only men's. In shops that sell both, the women's section is bigger.  Different stores offer different quality products. In more expensive stores shoes may be made of high quality materials such as leather. In cheaper stores shoes are made of plastic or imitation leather, and therefore scuff easily. More expensive shoes have a more elaborate design, and are often more comfortable to wear. The after sales service can be important when competing in the market. If a store offers the person buying to return them if they get home and dont like them, they have an advantage. The brand image is important too. A more well known brand will sell more shoes than a smaller less common brand.

Added Value - the increased worth that a business creates for a product, it is the difference between what a business pays its suppliers and the price that it is able to charge for the product/service.

Unique Selling Point or USP - a characteristic of a product that makes it different from other similar products being sold in the market such as design, quality or image.

Added value is the difference between what a business pays its suppliers and what it receives for selling its products. The wages its pays its staff are part of its added value. The workers of a business add value to the output of a business. A product may have more than one unique selling point. There could be several ways in which the product is different to other products on the market.

Franchise - the right given by one business to another to sell goods or services using its name

Franchisee - a business that agrees to manufacture, distribute or provide a branded product, under licence by a franchisor

Franchisor - the business that gives franchises the right to sell its product in return for a fixed sum of money or a royal payment.

Becoming a franchise might seem like a good idea. However there are plenty of franchises who think they are paying too much for the privilege of being a franchisee and wished they had started their business independently. The advantages of buying a franchise have to be balanced against the restrictions that exist for the franchisee. A franchise may be a means to run a business but it is not totally independent.

Benefits of a franchise: training - equipment - materials to use in the product of a good or service - finding customers - back up services - a brand name - exclusive area.

Entrepreneur - person who owns and runs their own business and takes risks

Enterprises - another word for businesses

Enterprise - willingness by individual or business to take risks and show initiative

Risk - chance of damage or loss occurring as a result of making a decision

Goods - physical, tangible products like a car, a pair of scissors or television set

Services - non-physical, intangible products like taxi journey, haircut or tv programme

The word enterprise can be used as another name for business. But enterprise has another meaning. It describes the willingness of an individual or organisation to take risks, show initiative, and undertake new ventures. So enterprise should be a characteristic of all entrepreneurs.

Creative thinking - coming up with new and unique ideas

Competitive advantage - advantage a business has that enables it to be the best

Deliberate creativity - the intentional creation of new ideas through recognised and accepted techniques

Lateral thinking - thinking differently to try and find new unexpected ideas

Blue skies thinking - creative thinking where participants are encouraged to think of as many ideas as possible about an issue or problem

Gaining a competitive advantage does not mean that a business has to be better at everything compared to other businesses. Being better at one thing is enough for success. For some businesses simply being the only firm in a local area is enough to give it the advantage. Lateral thinking can be vital to overcome problems. But the solution to a problem is often fairly obvious and does not need lateral thinking to solve it. If it remains unsold in a shop for over a year for example it is true that the shop has stock problems. The solution is to get rid of it and use the space to sell items that are selling more quickly.

With some questions there is a single definite answer. However with many questions there is a range of possible answers, all of which could turn out to be correct in the future. In your thinking you need to show you understand this. Often it is correct to say this could happen and incorrect to say this will happen. Even better is to say how likely something is to happen. This is very likely to be the outcome or this could be an outcome but it is most unlikely.

Invention - discovery of new processes and potential new products after research

Innovation - process of transforming inventions into products that can be sold

Patent - right of ownership of an invention or process when registered with government

Copyright - legal ownership of material e.g books/music to prevent them being copied

Trademarks - the symbol, sign or other features of a product or business that can be protected in law

It's easy to confuse invention and innovation. Invention discovers the idea, innovation transforms the idea into a real product that's sold to customers. Taking out a patent or getting copyright doesn't stop businesses copying the idea. When this happens small businesses have to take the other business to court to sue for damages. Copyright is a complex area. Developments in technology such as the Internet have made copyright protection more difficult to enforce. Illegal copying of DVDs and computer programmes is a multi-billion pound industry world wide.

Calculated Risk - the probability of a negative event occurring

Downsides - disadvantages of a course of action, including what can go wrong

Upsides - advantages of a course of action, including what can go right

Estimating risk is often very difficult particularly for a small start up business. More established businesses have some understanding of how frequently problems occur. A small start up business has no history by which to judge these things. This is one of the reasons why businesses that are started by people who have already worked in the industry have a better chance of survival than businesses started by people with no knowledge. It is often thought in the UK that someone who has failed in business is likely to fail again if they start a new business. In the USA, failure in one business is more likely to be seen as a learning experience. If the entrepreneur starts another business, they are more likely to succeed. People do learn from their mistakes.

Driven - in business, being very motivated

Mindmap - a diagram that is used to record words/ideas connected to central word

Some important enterprise skills: seeing opportunities, effective planning, thinking ahead, drive and determination.

You don't need to be good at everything to be a successful entrepreneur. However knowing your strengths and weaknesses is very helpful. Where you have weaknesses, you can overcome these buying in help. So if you are not very good with numbers, you can hire an accountant. If you are not very good at dealing with customers you can hire a sales person.

Financial objectives - targets expressed in money terms such as making a profit, earning income or building wealth

Financial objectives are: survival, profit, income, wealth and financial security.

Non-financial objectives are: personal satisfaction, challenge, helping others, independence and control.

Not everyone starting up their own business has the same range of objectives. Some may be very profit driven. Others may be more concerned about their quality of life than earning an extra £1. Treat each case individually and look out for the clues about the motives of the entrepreneurs concerned.

Determination - the act of making or arriving at a decision

Initiative - A beginning or introductory step; an opening move

Taking Risks - going through with something knowing it has a chance of failing

Making Decisions - Being good at making judgements and coming to a decision on something

Planning - knowing what you want to do with the business and mapping out how you can achieve the objectives

Persuasion - persuading other people to do what they want them to do

Don't think that every business owner has to have every skill needed to be a successful entrepreneur. All entrepreneurs have strengths and weaknesses. Good entrepreneurs have enough strengths and few enough weaknesses for them to make a success of running a business. Many of them know their strengths and their weaknesses and are prepared to work at overcoming their weaknesses.

Revenue - the amount of income received form selling goods/services over time

Sales Volume - number of items/products/services sold by a business over time

Fixed Costs - costs that don't vary with output e.g. rent, business rates, salaries

Total Costs - all costs of a business, FIXED COSTS + VARIABLE COSTS

Variable Costs - costs which change directly with number of products made by a business e.g. cost of buying raw materials

Profit - when the revenues are greater than its total costs over time

Loss - when revenue is less than total costs over time

PROFIT/LOSS = TOTAL REVENUE - TOTAL COST

TOTAL COST = FIXED COSTS + VARIABLE COSTS

TOTAL REVENUE = PRICE x QUANTITY

Cash - notes, coins and money in the bank

Cash flow - the flow of cash into and out of a business

Inflow - the cash flowing into a business, its receipts

Outflow - the cash flowing out of a business, its payments

Net cash flow - receipts of a business minus its payments

Insolvency - when a business can no longer pay its debts

Cash flow forecast - prediction of how cash will flow through a business in time/future

Opening balance - amount of money in a business at the start of the month

Closing balance - amount of money in a business at the end of the month

Cumulative cash flow - sum of cash that flows into a business over time

Trade credit - a supplier gives customer time to pay a bill once delivered

Business plan - a plan for the development of a business giving forecasts of items such as sales, costs and cash flow

Don't assume that every start up business has a business plan. However the evidence shows that businesses which do have a business plan are more likely to survive the first few years of trading than those which do not have a business plan. In a business plan it is better for entrepreneurs to be cautious about the future prospects of the business. Then they can see what will happen if things do not go well. Can they survive even if sales are disappointing? Can they survive if costs are higher than might be expected?

Longterm finance - sources of money that are borrowed/invested for more than a year

Shortterm finance - sources of money to be repaid immediately(1year) e.g. overdraft

Share - part ownership in a business

Personal savings - money set aside and not spent by individuals and households

Share Capital - monetary value of a company e.g5 people invest £10000 SC> £50000

Share holders - owners of a company

Venture capitalist - individual/company who buy shares in a company to later sell

Loan - borrowing a sum of money which has to be repaid with interest over time

Security/Collateral -assets owned by a business used to guarantee payments of loans

Mortgage - a loan where property is used as security

Dividend - share of the profits of a company received by shareholders

Retained profit - profit kept back in the business to pay for investment

Leasing - renting equipment or premises

Overdraft facility - borrowing money from bank by getting more money than in a account

Factoring - source of finance where a business receives cash immediately from invoices it has issued from a factor, such as a bank, instead of waiting a typical 30 days to be paid

Make sure you understand the difference between the money needed to start up the business and the money need to run and expand the business when it is up and running. They are not always the same. The typical start up needs a mix of both longterm and shortterm finance. It needs longterm finance to pay for all the costs of setting up and then running the business. It needs shortterm finance to cope with changing cash flows through the business. Many start up businesses fail because they dont have enough longterm finance. Then either they cant get enough shortterm finance to run the business and have to stop trading, or they get into financial difficulties and the business collapses owing money.

Marketing mix - the 4 factors which help the business know the customers needs

Price - the amount of money customers have to give up to acquire a product

Product - a good/service produced by a business/organisation available for customers

Promotion - communication between business and customer explaining the product persuading them to buy it

Place - the way a product is distributed, how it gets from producer to consumer

The needs of customers change very quickly, for example there are new trends and styles every season. In other industries the customers needs change very slowly. Farmers can't change their milk or potatoes every few months to satisfy the customers needs, so be careful what you say about customer needs. Place is about where a product is sold like a shop. It's about how the business gets its product to its customers when they want it. Place is therefore about distribution methods.

Sole trader - the only owner of a business which has unlimited liability

Unlimited liability - legal obligation on owner of business to pay off all debts. No distinction between what the business owns and what the business owner owns

Limited liability - shareholders of a company are not personally liable for debts, the most they can lose is the value of their investment in the shares of the company

Companies - businesses who's shareholders have limited liability

Being a shareholder in a limited company reduces risks compared to being a sole trader but it does not get rid of all risks. If you invest £100,000 in shares of a limited company, you stand to lose the whole amount if the company fails and has to be closed. But unlike with a sole trader you would not be forced to pay any outstanding debts of the company. The sole trader has a single owner, but may employ many people.

Records - evidence of what has happened in the past in paper form or computer files

HM Revenue&Customs - government authorities in UK responsible for collecting tax

VAT(value added tax) - tax on the value of sales, paid by businesses to government

Income tax - tax on the value of income earned by workers, including sole traders who have to pay income tax on their net earnings

National insurance contributions - tax on earnings of workers; employers' national insurance contributions are paid by employers on the waged of their workers; employees and sole traders have to pay national insurance contributions on their earnings

Corporation tax - tax on the profits of limited companies

Customer service - the experience that a customer gets when dealing with a business and the extent to which that experience meets and exceeds customer needs and expectations

Customer satisfaction - a measure of how much products meet customers' expectations

Repeat purchases/repeat business - orders or sales that occur from customers who have bought the product or service in the past

Some businesses are highly dependents on repeat purchases. A local fish and chip shop or a national supermarket chain like Tesco rely on customers coming back time and time again for their sales. However, some businesses tend to sell to a customer only ever once or very infrequently. The best they can usually hope for is that a satisfied customer will recommend their product to someone else.

Job applicant - someone who shows they want to be considered for appointment to a particular job with a business

Job description - document that describes duties of a worker and his/her status in job

Person specification - profile of the type of person needed, skills and qualities

Application form - document to be filled in with personal details

Curriculum vitae - brief list of main details about a person, name address qualifications and experience

Motivation - the desire to complete a task and meet needs of business consistently

Application forms, job descriptions and person specifications might exist in a medium to large employer. However these documents might not exist in a small business appointing a new employee. The business might not even advertise a job. Instead the owner might take on a family member or a friend. In small businesses the recruitment process is likely to be far more informal than in a larger business.

Commodities - raw materials like coal, oil, copper, iron ore, wheat and soya

Commodity markets - buyers and sellers meet to exchange commodities

Demand - the amount consumers are willing and able to buy at any given price

Supply - amount sellers are willing to offer for sale at any given price

Shortage - when demand for a good/service is greater than the supply (prices rise)

Surplus - when demand for good/service is less than available supply (prices fall)

Goods markets - the market for everyday products like clothes, food, petrol, cinema

Some firms are price takers. This means they cannot control the price they get for their production. Producers of commodities are price takers. Most firms though are price makers. They have some limited ability to set their own prices.

Interest rate - the % reward or payment over time that's given to savers or paid by borrowers on savings or loans

Bank of england - central bank for UK, monitors banking system responsible for settling interest rates in the UK

Variable interest rates - interest rates that change over lifetime of loan depending on whats happening to other interest rates in the economy

Fixed interest rates - interest rates that stay the same over an agreed period of a loan

Changes of interest rates affect businesses in different ways. A small change in interest rates will not have much impact on the vast majority of the business.

Exchange rate - price of buying a foreign currency

Export - sale of good/service to a foreign buyer leading to flow of money in UK, foreign buyer has to change their currency into pounds to complete purchase

Import - purchase of good/service from foreign business leading to flow of money out of UK, UK buyer has to change pounds into sellers currency to make transaction

When you make an exchange rate calculation, use your common sense to check whether it is right. Should you get more or fewer dollars or euros for the amount of money you need to exchange? Many firms that export goods also buy imported products. Whether a change in the value of the pound is good for them depends on the balance between their exports and their imports.

Economic activity - the amount of buying and selling that takes place in period of time

The economy - the economic activity carried out by people and businesses in country

Economic growth - rises in rate of economic activity in an economy, measured by calculating value of sales in an economy over a period of time

Business cycle - fluctuations in level of economic activity of period of time, most economies experience times when economic activity is rising and others when it is slowing

Recession - situation when the level of economic growth is negative for two successive quarters

Not every business suffers in a recession. In a recession the government often increases its spending. So firms that supply the government might see their sales increase. Don't confuse redundancy with sacking. When the economy is slowing, firms may reduce the size of its workforce(redundancy). Sacking is where the employee has broken the terms of their contract in some way.

Stakeholder - individual or a group which has an interest in and is affected by the activities of a business, stakeholders have an interest in how the business operates and whether or not it is successful

Stakeholders are - owners > managers > workers > customers > suppliers > government > the local community