Business Course

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1.1 Spotting a Business Opportunity

Purpose of a business is to provide goods and services

  • Goods: physical, tangible items
  • Services: non-physical items 
  • Suppliers: business which sells (or supplies) products to another business
  • Markets: where buyers and sellers meet to exchange goods and services.
  • Primary Research: inolves the collection of data first-hand in ways such as surveys, focus groups, observations and experiments. 
  • Secondary Research: involves the usage of information that's already available via telephone directories, the internet, local newspapers and market reports. 
  • Qualitative data: Opinions, judgments and attitudes.
  • Quantitative data: Numerical data 

Market segments can be split up into age, gender, income, area, ethnicity, religious groups and socio-economic groups. 

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1.1 Spotting a Business Opportunity

Analysing Competition:

  • Product Range
  • Quality
  • Design
  • Selling Experience
  • After-sales Service
  • Price
  • Brand Image
  • Suppliers

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.

  • Quality
  • Design and Formula
  • Convenience
  • Speed and Quality of Service
  • Branding
  • USP
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1.1 Spotting a Business Opportunity

Benefits of a franchise:

  • Training is provided by the franchisor
  • Equipment and materials for production are provided
  • Finding customers is easier
  • Back up service like advice, loans and insurance cover
  • Established brand name
  • Exclusive area from which to draw customers

Advantages for the Franchisee

  • Franchisor selects people and eliminates unsuitable people
  • Franchisor sets out how much money the franchisee needs
  • Franchisor provides on-going support 

Disadvantages for the Franchisee:

  • Initial investment can be high and unaffordable
  • Franchisee cant sell the business without permission - limits the freedom
  • In some franchises, the franchisor can end the franchise arrangement without giving a reason
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1.2 Showing Enterprise

Enterprise skills:

  • Risk taking
  • Showing initiative 
  • Willingness to undertake new ventures

Examples of Competitive Advantage:

  • Have a better product
  • Have a better way of producing what it makes with lower costs or better quality
  • Provide better customer service
  • Be better than rivals at selling its products to customers 
  • Come up with a unique product idea
  • Use technology or technique that makes its product/service unique
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1.2 Showing Enterprise

Creative Thinking:

  • Deliberate Creativity: The intentional creation of new ideas through recognized techniques.
  • Lateral Thinking: Creating new and unexpected ideas that come up are fairly predictable.
  • Blue Skies Thinking: Thinking about as many ideas as possible about an issue or a problem
  • Six Thinking Hats: 
  • White Hat: Facts
  • Red Hat: Emotions
  • Black Hat: Problems
  • Yellow Hat: Positives
  • Green Hat: Creative
  • Blue Hat: Thinking about thinking 
  • Invention: Disovery of new processes and potential new products, typically after a period of research.
  • Innovation: Process of transforming inventions into products that can be sold to customers. 
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1.2 Showing Enterprise

  • Patent: Right of ownership of an invention or process when it is registered with the government
  • Copyright: Legal ownership of material such as books, music and films which prevents these being copied by others. 
  • Trademarks: Symbol, sign or other features of a product or business that can be protected in law.

Calculated Risk: The probability of a negative event occuring. 

Enterprise Skills:

  • Seeing opportunities 
  • Effective planning
  • Thinking ahead
  • Drive and determination
  • Making connections
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1.3 Putting a Business Idea Into Practice

Financial Objectives:

  • Survival
  • Profit and income
  • Wealth
  • Financial security

Non-financial Objectives:

  • Personal satisfaction 
  • Challenge
  • Independence and control
  • Helping others
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1.3 Putting a Business Idea Into Practice

Qualities shown by entrepreneurs:

  • Determination
  • Initiative
  • Willingness to take risks
  • Decision making
  • Ability to plan
  • Persuasion
  • Showing leadership
  • Being lucky

Total Revenue = Price x Quantity

Total Costs = Fixed Costs + Variable Costs

Cash flow is the flow of money into and out of a business.

  • Inflows: These are the receipts of the business
  • Outflows: Payments of the business: wages, equipment, telephone, gas, electricity, interest, advertising, rent.
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1.3 Putting a Business Idea Into Practice

Long-term Sources of Finance:

  • Share capital: monetary value of a company which belongs to its shareholders.
  • Personal savings
  • Venture capitalists: buys shares in what they hope will be a fast growing company 
  • Loans
  • Security (or collateral): assets owned by a business which are used to guarantee repayments
  • Mortgage: Property is used as a security
  • Retained profit: Profit kept back in business and used to pay for investment in the business
  • Dividend: Share of profits a company received by shareholders who own shares
  • Leasing: Renting equipment or premises
  • Grants

Short-term Sources of Finance:

  • Overdraft: Borrowing money from a bank by drawing more money than is in the account
  • Trade capital: Short-term borrowing because goods and services don't have to be paid for immediately. 
  • Factoring: Business receives cash immediately for invoices it has issued from a factor (bank)
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1.4 Making the Start-up Effective

Marketing Mix:

  • Price
  • Product
  • Promotion
  • Place

Sole trader: Only owner of a business which has unlimited liability

Unlimited liability: Legal obligation on the owner of a business to settle all debts of a business. In law, there's no distinction between what the business owes and owns and that the business owner owes and owns.

Limited liability: When shareholders of a company aren't personally liable for the debts of the company: the most they can lose is the value of their investment in the shares of the company.

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1.4 Making the Start-up Effective

Difference between PLCs and sole traders:

  • Risk: PLC less risky than being a sole trader
  • Control: PLC depends on the proportion of shares owned by a shareholder.
  • Profits: Sole traders get all profits while shareholders only get a set %
  • Privacy: PLCs must, by law, file their accounts each year with an agency of government called Companies House. Sole trader has more privacy.

Taxes are paid to Her Majesty's Revenue & Customs 

Taxes on small businesses:

  • 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; this includes sole traders who have to pay income tax on their net earnings.
  • NICs (National Insurance Contributions): tax on workers' earnings - employees and sole traders have to pay this too.
  • Corporation Tax: tax on the profits of limited companies
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1.4 Making the Start-up Effective

Encouraging Repeat Purchases:

  • Cheaper prices 
  • Easy to use website with fast ordering and quick payment
  • Effective customer service 
  • Promotions aimed at existing customers

Recruiting Process:

  • Job Advert: Brief job description and the skills and experience it was looking for in an applicant.
  • Job Particulars: Information about the business and about the job. More detailed than advert.
  • Job Description: Document that describes the duties of a worker and his/her status in the organization.
  • Person Specification: Profile of the type of person needed for a job - their skills and qualities.
  • CVs and Application Forms: Document to be filled in with personal details.
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1.5 Understanding the Economic Context

  • Commodity Markets: Where buyers and sellers meet to exchange commodities - often these are international, organized markets. 
  • Demand: 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 the demand for a good or service is greater than the supply. When a shortage exists, prices will tend to rise.
  • Surplus: When demand for a good or service is less than the available supply. When it exists, prices will tend to fall. 
  • Variable interest rates: Interest rates that can change over the lifetime of a loan depending on what is happening to other interest rates in the economy. 
  • Fixed interest rates: Interest rates that stay the same over an agreed period of a loan. 

Fall in the value of the pound: Exporting means the price falls for foreigners - sell more outside the UK. Imported goods become more expensive - sell more in the UK 

Rise in the value of the pound: Price of exports for foreigners will rise - sell less. UK firms that compete against foreign imports will become less price competitive and are likely to lose sales. Firms that use imported materials will be happy because import prices fall.  

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1.5 Understanding the Economic Context

Stakeholders include:

  • Owners
  • Managers
  • Workers
  • Customers
  • Suppliers
  • Government
  • Local community

Business cycle:

Fluctuations in the level of economic activity over a period of time. Most economic experience times when economic activity is rising and others when economic activity is slowing.

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3.1 Marketing

Market Research:

  • Designing the research
  • Undertaking the research
  • Analysing the information

Encouraging Product Trial:

  • Advertising
  • Free publicity
  • Free samples
  • User testings
  • Low trial prices
  • Targeting trade buyers

Encouraging Repeat Purchases:

  • The 4 P's: Place, Price, Product, Promotion
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3.1 Marketing

Product Life Cycle:

• Growth phase: Sales and profits will be rising

• Maturity phase: Reaches a peak in sales. Research and development costs are likely to have paid off. Product is profitable enough to be financing the development of new products. Most people want to extend the maturity stage of the product using extension strategies.

• Saturation & Decline: Competitors bring out products which take sales away. This means that customers have plenty of choices of products and it becomes difficult to grow sales. Eventually, there's a decline and there's a big fall in sales. 

Product Portfolio: Combination or range of products that a business sells. 

  • Stars: High market share, successful. Sales and profits will be growing. 
  • Cash Cows: In maturity phase however the market itself has relatively low growth and sales will be in decline. Good levels of profit.
  • Problem Children: Low market share in a fast growing market. 
  • Dogs: Low market share, low market growth. Unsuccessful and poor.
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3.1 Marketing

Ways of Differentiating the Product:

  • Design, formulation and function
  • Name
  • Packaging
  • Differntiating across the value chain

Advantages of Branding:

  • Premium prices
  • Greater consumer awareness
  • Increased sales and market share
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3.2 Meeting Customer Needs

Stocks: Materials that a business holds. Some could be materials waiting to be used in the production process and some could be finished stock waiting to be delivered to customers.

Stock Control:

  • Max. Stock Levels
  • Re-order Level
  • Minimum or Buffer Stock Levels

Just In Time stock control:

Stock management system where stocks are only delivered when they are needed by the production systems, and so no stocks are kept by a business. 

Adv. & Disadv. of different stock control methods:

  • Cost: Having the least amount of stock can minimise wastage.
  • Production needs: Holding too little stock could lead to a loss of production and sales. 
  • Price: The more that is ordered, the lower the price per item = this is why they buy in bulk.
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3.2 Meeting Customer Needs

Quality Control: Ensuring that a product or service meets minimum standards, often through testing of sample products once they have been made. 

Quality Assurance: Ensuring that quality is produced and delivered at every stage of the production process, often through making quality the responsibility of every worker.

  • Quality as a part of every process
  • Quality is everyone's job
  • Customers and suppliers
  • Kaizen: continuous improvement 
  • Zero defects
  • Role of management 

Raising Productivity:

  • Training
  • Better equipment 
  • More effective work practices
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3.2 Meeting Customer Needs

Reducing Costs:

  • Improved purchasing
  • Relocation
  • Better design
  • Cutting overhead costs

Good Customer Service:

  • Meetin the needs of customers
  • Quality
  • On time service
  • Innovation
  • Collaboration
  • Spotting problems 
  • Listening to customers
  • Dealing with complaints
  • Staff training
  • Going beyond what's expected 
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3.2 Meeting Customer Needs

Consumer Protection Laws:

Sales of Goods Act

  • Match the description
  • Merchantable quality
  • Fit for purpose

Trade Descriptions Act and Consumer Protection from Unfair Trading Regulations

  • Giving false information
  • Failing to give important information
  • Acting aggressively 

Effects of Consumer Legislation on Business

  • Knowing the law
  • Compliance costs
  • Revenues and profits
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3.3 Effective Financial Management

Changing cash inflows:

  • Increasing sales revenues
  • De-stocking: reducing the level of stocks in a business
  • Improving cash flow from customers
  • Long-term solutions

Changing cash outflows:

  • Orders for new materials and stocks
  • Delaying paying invoices
  • Leasing rather than buying

Cutting costs:

  • Material costs
  • Labour costs
  • Investments
  • Marketing 
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3.3 Effective Financial Management

Increasing Revenue:

  • Improved marketing
  • Better products

Break-even Point: Levels of output where total revenues are equal to total costs; this is where neither a profit nor a loss is being made. 

Analysing Break-even:

  • Understanding the past
  • Achieving future targets
  • Launching a new product
  • Starting a new business
  • Business plans
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3.3 Effective Financial Management

Internal Sources of Finance:

  • Retained profit
  • Asset sales

External Sources of Finance:

  • Share capital 
  • Debt

Adv and Disadv of Different Types of Finance:

  • Cost: Trade credit is interest free and cheap. Retained profit is also cheaper.
  • Risk: Retained profit is relatively risk free. 
  • Availability of Finance: Start up business will have no retained profit nor will a business that is making losses. Businesses can only sell assets if they own them and a buyer is willing to buy the assets. All businesses are likely to have access to bank overdrafts and loans. Trade credit is limited by the amount a business buys from sppliers. 
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3.4 Effective People Management

Delayering: Remove layers so there are fewer workers in the chain of command.

Empowerment: More responsibility to workers further down the chain

Downsizing: When a business employs fewer workers to produce the same amount through increases in productivity which can be achieved through delayering. 

Span of Control: Number of people who report directly to another worker in an organisation.

Delegation: Passing down authority for work to another worker further down the hierarchy

Centralisation: Type of business organization where decisions are made at the centre or core of the organisation and then passed down the chain of command.

Decentralisation: Type of business organization where decision-making is pushed down the hierarchy and away from the centre of organisation. 

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3.4 Effective People Management

Maslow's Hierarchy of Needs

  • Physiological Needs: Eating, warmth, being in good health.
  • Safety Needs: People want their environment to be safe
  • Love and Belonging: People want to feel accepted as part of a group
  • Self-Esteem Needs: People want to feel that others respect them for what they can do
  • Self-Actualisation: Ability to realize your full potential 
  • Horizontal Communication: Workers at the same level communicate formally.
  • Vertical Communication: Communication up and down the hierarchy.
  • Through The Grapevine: Informal communication

Communication Skills:

  • Accurate information
  • Right sender and receiver
  • Right time and place
  • Right method
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3.4 Effective People Management

Barriers to Communication:

  • Person might not explain themselves well
  • Receiver might not be capable of understanding the message
  • Receiver might not hear the message right
  • Messages might get distorted
  • Equipment might break down
  • Excessive communication
  • Contradictory communication

Poor Communication could lead to:

  • Dissatisfied customers
  • Problems with suppliers
  • Misunderstanding amongst staff
  • Demotivation
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3.4 Effective People Management

• Time-based systems: Blue collar workers: Workers who only do physical work: paid in wages

• Salaries: Non-manual workers or white collar workers.

• Results-based systems: Paid on piece rates: paid in commissions 

• Temporary Workers: employed on a temporary contract for a set period of time.

• Freelance Workers: paid for particuar tasks 

• Fringe Benefits: Payments in kind over and above the wage or salary, such as a company car.

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3.5 Wider World Affecting Business

Business can be ethical when it comes to:

  • Production
  • Suppliers
  • Workers
  • Customers
  • Competitors
  • Product
  • Environment
  • Local Communities 
  • Possible Trade-Offs: acting ethically raises costs 
  • Pressure Groups: 

Business can:

  • Do nothing
  • Work against pressure groups
  • Work with pressure groups
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3.5 Wider World Affecting Business

Short-term effects of environmental issues:

  • Traffic congestion
  • Air, noise, smell and water pollution

Long-term effects of environmental issues:

  • Climate change
  • Resource depletion

Import protection and export subsidy:

• Import protection: designed to reduce imports - using tariffs and customs duties: which are taxes put on goods imported into a country which make them more expensive for buyers. 

• Quotas: Limits on the physical number of goods that can be imported over a period.

• Export subsidies: Measures that reduce the price of goods sold abroad.

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3.5 Wider World Affecting Business

Taxation: Taxes reduce the amount that business and consumers have to spend. Taxes on employing workers discourage businesses from employing workers. 

Regulation: Government regulations are often called "red tape" because they tie things up and is difficult to unravel. 

Minimum Wages: High minimum wages tend to increase costs and hit profits. So pressure groups tend to argue that minimum wages are too high and that they should certainly not be increased. However, trade unions try to persuade governments to have higher minimum wages. They argue that low paid workers are paid too little - this is the ethical argument. 

Health and Safety Regulations: Regulations about how long employees can be made to work. storage of dangerous chemicals, level of heating and amount of ventilation in a factory. These are meant to prevent workers from having accidents or falling ill due to their work.

Maternity and Paternity Rights: Minimum maternity leave is 14 weeks. Pressure groups tend to argue against any extention in maternity and paternity rights. On the other hand, pressure groups representing workers such as trade unions argue that women who choose to have a child shouldnt be penalised at work.

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