Business Studies Unit 1: Starting a business Mock

 Franchise

A franchise is

the right to use the name and logo of an existing company and sell their products/services.

Advantages:

• Able to sell products from a recognisable and already successful company
• Can benefit from central services, such as training and marketing

Disadvanages:

• Some of the revenue made is paid to the franchisor
• There would be a lack of complete ownership
• There is a possibility of losing a franchise

Sole Trader

A sole trader is a business set up often with just one person in control

Advantages:

• Simple and quick to set up
• Cheap to set up
• Profit is kept by the owner
• Owner has complete control of the business
• Hours worked can be tailored to suit the owner

Disadvantages:

• Unlimited liability for the owner (owner is responsible for all of the business' depts)
• Raising finance to support the business may be difficult
• Decisions made may not be appropriate, due to the fact the owner may not have specific expertise
• The business is reliant of the health of the owner

Many factors affect where a business located, but the decision rests with the business owners and managment, but must prirotise the needs of stakeholders.

Costs

Rent or buy?

Impact on business image?

Cost of utilities?

Wage levels in area?

Transportation costs?

Cost of courcing materials?

Infrastructure

Transport links for goods in and out

Access for staff and customers

Availability of local services

Market

How close to customer/competition it is

Other Factors

Entrepeneur's lifestyle choices

Planning laws

Availability of premises

Subsidies, government and local council initiatives

Market research is research which enables a firm to find out about its market

Primary Research - Information that hasn't previously existed before, often obtained through field research. Examples are:

• Telephone survey - These are cheap and allow interviewers to clarify unclear questions, but may be viewed as annoying by people being phoned
• Questionnaire - The results are easy to analyse and it's a fast way of gathering information from a wide range of people, however interviewer may bias results through 'over friendly' approach.
• Focus group - Gives information about customer attitudes and motives behind purchasing decision, however it's expensive per person asked and is only ever carried out on small samples, so information may not be valid.

Secondary Research - Gathering information that already exists

• Internet research - It's free of charge and allows a quick overview of the market, although some sources may be biased and its hard to find information specifically needed

Job Production

Job Production is making specialised products for each customer, for example architects who design different houses for different customers.

Advantages:

• One-off products allow customers' special requirements to be met
• High prices can be charged as customers may be prepared to pay extra for specially designed products

Disadvantages:

• Production costs can be high, as it is a slow process which requires lots of planning and designing per project
• Labour costs can be high as skilled workers are often needed

Batch production

Batch production is groups of identical items which pass through different stages of the production process at the same time

Advantages:

• Costs of each unit produced is likely to be low, as it is more efficcient to make lots of similar items
• Different customer tastes can be supplied by producing different products in different batches

Disadvantages:

• There is less scope for customising products
• It can take a long time to switch between different batches
• Stocks of finished goods of each batch may take a lot of time to sell

Wage: When an employee is payed a fixed amount of money each hour or day they work

Salary: When an employee is payed a fix amount per month or year, regardless of hours they work

Deciding how much to pay employees depends on many factors:

• Skills they offer to the business
• Experience
• How much similar local firms are paying

Customer servies is providing services to customers before, during and after purchase, to standards that meet their expectations

How to offer good customer service

• Reliability - Business is open at convenient times, keep appointments with customers and keep promises.
• Pre-sales service - Business can give product advice on options available, advantages and disadvantages of model and brands and explinations of key terms.
• Service at time of purchase - Must ensure products meet customers' needs and purchasing can be done in many different methods.
• After-sales service - Business can provide a helpline or web service to answer queries about product or service

Benefits of good customer service...

• Customers will return time after time
• Business will be reccomended
• Fewer complaints
• Staff will be more motivated

A cash flow forecast is a prediction of a business's future cash inflows and outflows, showing the closing balance.

Why is it important?

• It allows the owner to check if they will have enough cash available over the next few months to keep the business going
• It allows the owner to reduce future outflows of cash
• It can help persuade the bank to lend the business money or give it an overdraft
• Forecasted numbers can be used as targets, to motivate both staff and entrepeneurs

Calculations

Net cash flow is the different between the receipts and payments

Net cash flow = reciepts - payments

Opening balance is money the business has at the start of the month

Closing balance is the money a business has at the end of the month

Closing balance = net cash flow + opening balance

Solutions to cash flow problems

• Make payments to suppliers at later dates, when spare cash is available
• Encourage reciepts to be payed earlier
• Use a source of finance, such as a loan
• Cut payments by finding ways of reducing costs, e.g. making a worked unemployed