introduction to a small business

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deliberate thinking

BLUE SKYS THINKING- THINKING of as many NEW ideas as possible

LATERAL THINKING- thinking of new idead that may over come a problem or to come up with unexpected ideas

SIX THINKING HATS- DEBONO

NEATRALITY WHITE HAT- thinking about what existing products there are out there

RED HAT FEELING- going on gut feeling and how you feel about your line of products and business

BLACK- NEGATIVE - thinking about what could go wrong with a product

yellow positive- thinking about all the benefits of your product

green creative thinking e.g lateral and blue skies

blue hat- process control- thinking about what others have thought and come up with

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invention and innovation

invention-something new that has not been done before e.g product or process

inventions typically try to go for a patent which can last 20 years, this protects the product once the goverment sign it to being of your ownership

innovation-putting a new idea or process into action

innovation could include adding value to your product for example by changing the design. This would differentiate the product from other businesses, and open it into different market segements

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factors that affect demand of a business

the price as some people may only want the product due to it being a reasonable price

income levels of consumers if these go up, consumers are more likely to spend money on goods

competition- if they charge lower, people wont want to buy your product which will decrrease demand

fashion your product may not be part of latest trends which will mean less people will purchase it lowering demand

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costs

what methods could a business do to get repeat purchase?

-regular communication e.g emails ands news letters

-promotional discounts

-research into what a customer actually wants

VARIABLE COSTS-costs that change when output changes

-raw materials

-wages

-marketing costs

-commissions

FIXED COSTS-do not vary as output varies

-rent    -heating  -council tax -rent -salaries

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cash flows

cash flow- movement of cash in and out of a business

net cash flow- differencebetween cash inflow and cash out flow over a period of time

CASH INFLOWS EXAMPLES

-goverment grants -sales of spare assetts -cash sales -personal funds invested

CASH OUTFLOWS EXAMPLES

-wages and salaries -interest on bank loans -income tax

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how can a business imrpove cash flow

-cut stocks -delaying payment to suppliers -cut costs

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what is a business plan

- a written document which describes a business, its objectives and strategies, market its in and financial objectives

BENEFITS OF A BUSINESS PLAN

-can see how successful a business can be

-may help get loans of banks as they will see how successful the business will be

-provides a focus on a business idea

-helps see financial probability and amount of cash flow and profit

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finance

long term- mortgages,loans, share capital, retained profits

SHORT TERM- short term bank loans - bank over draft -trade crediting

SHARE CAPITAL-MONEY INVESTED INTO a company by share holders, the gain a form of ownership

HOW DO SHARE HOLDERS BENEFIT FROM LIMITED LIABILITY

-they are only liable for the amount they invest, rather than all of the debts of the company

WHAT DOES THE SHARE HOLDER GET IN RETURN FOR PAYING A SHARE

-get dividents (payment out of profit)

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definitions

TRADE CREDIT- when a business buys supplies, services or goods from another business it can pay on a later date

its a short term source of finance and its advantages

-flexible, low cost as dont charge interest -

BANK OVER DRAFT

-flexible borrowing facility on a bank current acount which is repayable on demand

-amount of interest varies

LEASING

-renting property over a period of time

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limited liability

sole traders- people like hairdresserd snd gardeners who keep all profit and are completely self employed

disads -they have unlimited liability meaning all debt is completely down to them. suffer if they are ill

advs - its simple and easy to set up,low risks of failure

- keep all profits -minimal paper work

Limite company adv -protects the wealth of share holders -pay less tax -easier to raise finance through sales of shares

disads- less privacy and share holders have to agree on how profit is shared

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taxes when setting up a business

- tax charged on most goods in the uk. Its charged when a business sells to customers or to another business when reigstered with vat

Income tax amd national insurance- most people pay income tax whih is a deduction from gross pay and national insurance which depends on number of employeesC

CORPORTATION TAX- based on profits earmed by a company

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motivated work force

BENEFITS

-better productivity which means a lower cost of production so can charge less for its product

-lower levels of staff turn over (leaving) meaning lower training and recruitment costs

--customer service and quality is more likely to improve

WAYS OF MOTIVATING WORKERS

-fringe benefits e.g discounts, cars, health insurance

-piece rate by paying employees on number of item produced

-commsion- payment based on number of sales produced

-pension

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commodities

-product which there is demand for and there is no difference between quality or standered

e.g tobacco oil cocoa sugar coffee

DEMAND COMES FROM whole salers who want to use commodities in production process

what can change commodity prices?

-climate -economic growth of other countries will mean they demand more commodities

WHAT AFFECT DOES COMMODITY PRICES HAVE ON A BUSINESS

-affects sale revenue and a change in raw material and operating costs

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stake holder

someone who is interested in the buiness

-managers -competition -customers -employees -media -local community -banks

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