component 1



-New business are formed


-business might fail and lose investment

-unlimited liability

-competitor response is aggressive

-poor market research=low costomer demand=no profit


-control over business

-profit can be used to expand business

-capital growth

motivation if business succeeds

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Characteristics needed



-risk taker





-ability to build relationships 

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-local community


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business plans

Business plans helps understand businesses objectives and aims






SMART objectives






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Niche- smaller segment of a larger market, specific needs and wants 

Mass- larger part of the market where similar products are on offer

Global vs Local markets

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Market structure

Monopoly- one product/seller, high barriers

Monopolistic- firms have many competitors, not many barriers 

Oligopoly- a few firms dominate, small firms can operate, high barriers

Perfect competition- lots of firms, low barriers

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supply and demand

surplus- when supply exceeds demand

shortage- demand outweighs supplies 

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elasticity of demand

price elasticity of demand- measures the responsiveness of demand for a product following a change in its price

%change in demand/%change in price 

income elasticity of demand- %change in demand/%change in income

elastic- highly price sensitive

inelastic- isnt price sensitive 

percentage change-difference/original x 100

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market research

primary, secondary

quantitive- numerical

qualitative- opinions, longer answers

interviews, field trips, observations, surveys, telephone, postal

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market share and growth

market share- % of total market-sales/market size x 100

market growth- new sales or size- old sales or size/ old sales or size x 100

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business structure

Public sector- government owned businesses eg police, nhs, banks

Private sector- private owned businesses eg clothing brands, post office 

sole trader- one owner, unlimited liability

partnership-2-20 owners, unlimited liability

franchise- business selling other brands

private limited- shareholders, limited liability

public limited- government owned, limited liability

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factors to consider





-labour cost/skills



-access to supplies


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credit cards- short term funds

own savings- only limit is the amount they have, no interest

bank loan- typically repaid over 1-5 years, interest

trade credit- sup0pliers provide 2-3 months credit to business customers

venture capital- a venture capitalist invests a large sum into the firm in return for a share

government grant- no interest, firm has to jelp society in some way

selling shares- common for LTDs and PLCs

mortage- repaid typically over 25 years

overdraft- agreement with bank allows account to be overdrawn, high interest rates

loan from family&friends- no interest

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costs, revenue and profit

revenue- income

profit- total revenue - costs

variable cost- expenses that vary

fixed cost- cost is constant 

semi-variable cost- mixed

direct costs-direct to a product

indirect cost- cant be from a specific object

total cost- fixed+variable+semi-variable

opportunity cost- benefit someone couldve recieved but gave up to take another course of action

overheads- things you pay even when you dont use them

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contribution and breakeven

contribution- difference between sales and variable costs of production

                     Total sales - total variable costs

breakeven- volume of sales needed to cover costs

                  total fixed costs/ contribution per unit 

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penetration- offering a lower price

skim- charging the highest price then lowering it 

cost plus- adding a specific amount markup to a products unit price 

competitve- setting price based on competitors 

psychological- (£2.99, £99.99)


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product and price

Rising star- high market share, high market growth

Problem child- low market share, high market growth

cash cow- low market growth, high market share

dog- low market growth, low market share 

product life cycle:

intro - growth - maturity - saturation - decline 

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promotion and place

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finance continued

budget- financial plan for the future concerning the revenues and costs of a business

zero budgeting- budgeted costs&revenues are set to zero

variences- arises when theres a difference between actual and budgeted figures

cash flow- total amount of money being transferred in and out of a business

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