A business is an organization whose purpose is to produce goods
and services to meet the needs of customers. A business might
produce its own goods or buy them from a supplier and sell them to
customers. The place where buyers and sellers meet to exchange
goods and services is known as a market.
Before selling your goods to customers, you have to look at
their needs and this can be done through market research. Market
research can tell a business several things such as; what features
customers want, how much they are willing to pay for it, who are
their main competitors, etc There are two types of research,
primary research is collecting data that did not exist before
(field research) and then we have secondary research which is
collecting data that already existed (desk research)
Secondary research has 2 advantages over primary research and it
is that its less time consuming and offers a wide range of
information, primary research though can be more accurate and up to
date as well as effective for collecting qualitative data.
Qualitative data is information collected from your research that
is to do with opinions, judgments and attitudes. It is 1 of 2 types
of data that can be collected. The other kind is Quantitative and
it is to do with numbers.
When researching for their products and where they should be
placed in the market, business use market mapping. Market mapping
helps businesses identify market segments and position their
products through identifying gaps in the market. These maps can be
used to position and compare products in a market based on their
similar characteristics and then identify where customer needs are
not being met. These similar characteristics make the process
called market segmentation and they can be anything from age,
gender even income.
An example of how the market map diagram looks like:
Businesses have competition in the market amongst each other and
it has to be dealt with well and the way on doing that is allowing
the business to differentiate from others, basically allowing it to
have something that their competition doesnt have. It can have a
wider range in products, better design, better quality and even a
stronger brand image. You can add value. Added Value is the
increased worth that a business creates for a product. Adding value
is very closely linked to profit and its a way on differentiating
the business from completion. Another way which you should add to
the list mentioned above is that you have a Unique Selling Point
(USP).
There are several types of businesses one could deal with. One
for example is a franchise; a franchise is the right given by one
business to other businesses to sell goods or services using their
name. In a franchise you have a franchisor and a franchisee, the
franchisor is the business that gives franchisees the right to sell
its product or service and the franchisee is the one that agrees to
distribute the products under license by a franchisor.The
franchisee gets a lot of things from buying a franchise, such as;
1- An established brand name.2- Training.3- Equipment.4- Access to
goods and services.5- Advertising and promotion.6- Ongoing
support.
We have enterprise, which is a word often used in business which
represents the ideas and initiatives involved in starting a
business. Businesses might sell a good (which is a
physical/tangible object such as a car) or a service (which is an
non-physical/intangible product such as insurance).
An entrepreneur is a person, who owns and runs their own
business and takes risks, they start after they have the initial
spark and idea to make a business and this is called an
enterprise.Every entrepreneur should have enterprise skills. These
skills are
To be risk taking Showing Initiative Willing to undertake a new
venture
Once the entrepreneur has thought of his business idea, he has a
few ways on protecting them. Protecting them is important since you
wouldnt want someone to steal your idea after you worked hard on
it. You have patents which is registered with the government that
you have the right of ownership with your design or invention. You
then also have copyrights which is the legal ownership of books,
music and films which prevent these being copied by others. You
then also have trademarks which is things like logos, signs and
symbols for your business to be protected.
Entrepreneurs must take risks, but they should be calculated
risks and this is done by comparing both upsides and downsides of
what could happen.
There is something called the marketing mix, which is the 4 P
principle. 1- Price 2- Place 3- Product 4-Promotion^These are
things that should be looked at by businesses to help with their
ideas.
You must know a few basic terms and formulas before moving
on-
Revenue is the amount of income a business receives by selling
goods or services over a period of time. (Total Costs + Profits =
Revenue) (Price x Quantity = Revenue)
Fixed Costs: It is a cost that does not vary with the output
produced by a business, e.g. salaries and business rates. Variable
Costs: It is the cost that changes directly with the number of
products made, e.g. raw materials and labor. (Variable Costs = Cost
of 1 Unit x Quantity Produced)
(Total costs = Fixed Costs + Variable Costs)
To calculate if a business has a profit or loss you use the
formula below:(Total Revenue Total Costs = Profit or Loss)
You must know what a cash flow is and how to work with one A
cash flow is the money that flows into and out of a business on a
day to day basis. It predicts how cash will flow through a business
over time.
**PLEASE NOTE; THIS SECTION MUST BE GONE THROUGH WITH ME, HERE I
AM JUST SHOWING YOU HOW A CASH FLOW LOOKS LIKE. I NEED TO SHOW YOU
HOW IT WORKS IN PERSON!!!!!When business start, they start with
something called a business plan. A business plan is a plan of the
development of a business, giving forecasts of items such as sales,
costs and cash flows. A business plan has several purposes such
as;1- To convince a bank to give you a loan.2- Forecast financial
projections.3- Identify the needs of customers. 4- Provide
information.
More on the Marketing Mix-
Product: The product itself has to meet the needs of customers
and have the correct attributes and features that the customer
wants. A successful business will try to differentiate their
product.
Place: The way in which a product is distributed, how it gets
from the producer to the consumer. This can be online or a retail
store.
Promotion: It is the communication between the business and
customer that makes the customer aware of its products including;
advertising, sponsorship, sales promotions and public
relations.
Price: The price of the product must reflect the value customers
place on the product. High-Quality products have a high price and
also extra features can make the products worth more so prices can
be higher.
Basically you have to sell the RIGHT product in the RIGHT place
with the RIGHT promotion at the RIGHT price for a greater chance in
sales.
The term liability refers to the legal responsibility a business
has towards its debts.
Unlimited Liability: It is when the business is legally
responsible for any debts of the business, therefore there is
potential for the owner of the business to lose their personal
belongings to pay off debts.
Limited Liability: Any debt incurred by the business belongs to
the business and the owners can only lose up to the amount that
they have invested. Their personal belongings are not liable.
Unlimited is dealt with sole traders; limited is dealt with
private limited companies (Ltd).
The Difference between sole traders and Ltd.s:
Sole TradersPrivate Limited Comp.
RiskUnlimited Liability means there is more risk.Limited
Liability reduces risk on owners.
ControlThe owner has 100% control of decisions. The control of
the main owner will depend on the proportion of the business sold
as shares to other shareholders.
ProfitsThe owner keeps 100% of the profits.Profits are shared
proportionally between the shares owned by shareholders.
PrivacyThere is more privacy. Accounts are filed with Companies
House and can be viewed by anyone on payment of a small fee.
When a business starts there will be certain tax issues. All
business have to adhere to and every business must keep records on
business activity so that government can keep track. Also to make
sure everything is kept safe and legal.
What taxes do small businesses pay?
Value Added Tax (VAT): A tax on the value of sales of a
business. Businesses that sell more than a certain amount will
register to pay VAT. Income Tax: A tax on the income earned by
workers and sole traders. National Insurance Contributions (NIC): A
tax on earnings of workers and sole traders linked to state
benefits. Corporation Tax: A tax paid by limited companies on the
profits of the company.
Customer Satisfaction is a measure of how much a business or its
products meet customers expectations. A business must have good
customer service but how can they do this?
It can be done by dispatching orders quickly, offer excellent
after-sales care, be convenient and polite, respond to complaints
immediately.
If a business has good customer satisfaction, it can lead to
repeat purchase, loyalty, and differentiation, improves reputation,
and can allow a business to charge a premium price.
Repeat purchases help achieving long term sales and therefore
the success for a business.
Market Demand and Supply
The price of goods and commodities change constantly. These
changes in price are influenced by the relationship between supply
and demand.
Supply is the amount that sellers are willing to sell at any
given price, demand is the amount that buyers are willing and able
to purchase at any given price.
Demand:Supply: Impact:
High Low Shortage prices rise
Low High Surplus prices fall
A market is where buyers and sellers meet to exchange products
and services.
Commodity Markets are markets for raw materials, such as oil,
steel and wheat, used in production of other goods.
Goods Markets are markets for everyday products such as clothes
and food.
An interest rate is the percentage reward or payment over a
period of time that is given to savers or paid by borrowing on
loans.
When an entrepreneur starts his/her business they may not have
the capital (money) to start. So they would need to borrow money,
typically from a bank, and this is called a loan.
A rise in interest rates will increase the costs of
borrowing:-Businesses on a variable rate may struggle to repay
loans.-Small businesses are less likely to borrow money to start up
or expand. -Customers are less likely to spend money as borrowed
money costs more, so consumer spending falls.
A fall in interest rate will lower the costs of borrowing:
-Businesses will have more money to spend and cash flow may
improve.-Businesses may borrow money for a start-up or expansion.
-Customers are more likely to borrow and spend their money.
Customer spending rises.
What is fixed interest rates? An interest rate that does not
change over the life of the loan. A business could lose out on a
fixed contract if the rate falls.
What is variable interest rates? An interest rate that changes
over the life of the loan. They can be more risky and hard for a
business to plan against.
An exchange rate is the price of buying foreign currency.
**Please note that this is a very important section. It is not
covered because it is difficult to write down and explain in words,
but this will be gone through with me!
The lines below are for after we go through it together, you
will explain it in your own words for yourself.
A stakeholder is an individual or group that has an interest in
and is affected by the activities of a business.
Since a business can have an impact on stakeholders, they must
take in their needs as consideration.
Examples of stakeholders are:Suppliers
ManagersOwners (Shareholders)
GovernmentWorkers
The local community
Competitors
Customers
Stakeholders interested in the financial success of the business
will look at not just its profit but also its market share and
revenue.
A sort of market research is the product trials. Product trials
is when consumers buy a product for the first time to assess
whether or not they want to buy it again. Now if this is successful
then it would lead to repeat purchases and customer loyalty, this
is when customers will buy a product more than once and keep coming
back.
Examples of product trials are: Low trial prices. Advertising.
Public Relations. Viral Marketing. Free Samples.
What are some methods that can be used to increase customer
loyalty and chances of repeat purchases? Special Promotions.
Reminder Adverts. Product Innovations. Customer Loyalty Schemes
(loyalty cards).
Product Cycle:
Introduction: The product is launched/released onto the market.
(Cash flow is negative money goes out not in)
Growth: If the launch is successful then sales would increase
sharply and the product may make a profit for the first time. (Cash
flow is positive, but small)
Maturity: Sales growth slows down, but repeat customers continue
to buy and customers become loyal. The market becomes saturated as
rivals bring out competing products. (Cash flow most likely to be
positive)
Decline: Eventually the product is outdated and there is a big
fall in sales, leading to withdrawal. (Cash flow most likely to be
positive)
//Extension strategies can be a way a business can use to
increase the life of its product. This involves slightly changing
the product so that it has a fresh appeal to the target market or
appeals to a new market segment. Examples may be, creating new
packaging or adding new features
Businesses sell a range of products. Selling a range of products
is called a Product Mix or Product Portfolio. New products are
constantly being launched onto the market. Product portfolio
analysis helps business to make decisions on lots of things such
as; What products to launch and when? When to withdraw a product.
How to increase sales?
The Boston Matrix is a product portfolio tool used to plan the
development of products. It can closely be linked to the product
life cycle.
Star: Very successful product, but growth has to be funded to
keep up demand and cash flow may be a problem.
Cash Cows: Little Growth, but an established and profitable
product that can support others.
Question Marks: Presents a problem should the business invest to
increase sales.
Dogs: Few prospects, but should the business continue to sell it
if it is profitable and it funds other products?
How can a business measure its stock?
Firstly you must know that managing stock is about managing the
materials that a business holds in the most efficient and effective
way. Stock can include materials waiting to be used in the
production process, work in progress and some can be finished stock
waiting to be delivered to customers.
The Just In Time (JIT) stock control is a stock management
system where stock is delivered only when it is needed by the
production system, and so no stock is kept by the business.
So now you know that a business could either hold its stock or
have the option on holding little or no. Here I will tell you the
benefits of each Benefits of holding little/no stock:-Cost Saving
is not saving stock.-Less chances of damaged goods. -Can reduce
price of production => product pricing more competitive.
Benefits of holding stock:-Businesses can meet unpredicted
surges in demand.-Businesses can replace damaged goods.-A business
can receive discounts for bulk buying.-Limited Problems.
There are two ways a business can achieve good quality. This is
done through Quality Control and Quality Assurance.
Quality Control is seen as one part of the chain production. A
quality controller will examine and/or test for quality once the
product has been made.
Quality Assurance involves focusing on quality at every stage of
the production process. Everyone is involved and is responsible for
contributing towards the achievement of quality standards.
*Please note that the benefits are not included but should be
looked at. But I will go through them with you and the lines below
are for you to right them out in your own words.
What are some ways on improving both Cash Flows and Profits?
Firstly we must know that cash is important in businesses. A
business can still be profitable and run of cash and if a businesss
outflows are greater than its inflows then it could run out of cash
and trading will cease.
You can improve yours outflows by; 1- Delaying the payment of
your invoices. 2- Leasing rather than buying. 3- Reducing the
orders of your stock. 3- Improving your credit terms with suppliers
5- Use cheaper supplies.
You can improve your inflows by; 1- Increasing sale revenues 2-
De-stocking 3- Reducing credit terms with customers. 4- Use short
term sources of finance.
*-*-*To improve profits is not easy and you should look into it
more. //I will go through it with you// but know that you must
increase revenue and decrease costs.
Break Even Charts
The breakeven point is the point where the business is making
zero profit and zero loss.
Formulas for you to know 1) Total Revenue = Quality Sold x
Average Price 2) Total Costs = Fixed Cost + Variable Cost3)
Break-Even = Fixed Costs Sales Revenue/PricePer Item Variable
CostPer Item 4) Price Variable Cost is called Contributions.
The margin of safety: It is the amount of output between the
actual level of output where profit is being made and the
break-even level of output. This is how much production could fall
before the business starts to make a loss.
Break Even Analysis
This break-even analysis is a useful tool to help a business
make decisions and set targets, and plan for the future. Any fall
in fixed or variable costs is likely to lower the breakeven point.
And an increase in price will also lower the number of units
required to break even.
When would a business want to use the break even? 1- To
understand the past (Were past decisions on pricing correct?)2- To
set and achieve production targets. 3- To launch a new product.4-
To start a new business. 5- To develop a business plan.
The organizational structure is the way in which a business is
structured to achieve its objectives. This is normally through a
hierarchy. A hierarchy is a structure of different levels of
authority in a business organization, one on top of the other.
A business can be organized in a number of ways. 1) Product
Divisions 2) Regional Divisions 3) Functional areas such as
marketing or finance
Organizational Structures can be seen through organization
charts.An example of an Organizational Chart
A business can be centralized and decentralized Centralized
Decisions are made by senior managers (normally at head office).
Decentralized Decisions are delegated to regional employees at
local stores as well as branches.
Due to being an outgroup in some situations, there are then
barriers to effective communication throughout the business. This
can have an impact on a lot such as; the customer service, employee
motivation, number of mistakes made, understanding the employees,
etc Barriers of effective communication include; using
inappropriate email systems, being angry or tired, cultural
differences, use of jargon, etc
Most business operations will have an impact on the environment;
this impact could be short term or long term. And these impacts
will have to managed by the business in order to achieve long term
success.
Short-term effectsLong-term effects
Traffic congestion through transport and deliveries. Climate
change.
Air, noise and water pollution through manufacturing and
industry.Depletion of land, food and other natural resources.
Business should recycle since this is a major help on reducing
the environmental impact they are doing. Please note that the
impacts done by the businesses are depending on size, so the bigger
the business then the greater the impact. The consumers today are
becoming much more environmentally aware and since that is
happening businesses can differentiate themselves and their
products by taking this simple opportunity on becoming greener.An
example from the above could be a car industry provides more hybrid
cars.
Many businesses would have to deal with trading internationally,
but there are some economic issues that affect this international
trade.First know the opportunities for countries like the UK, the
opportunities they have; their costs of productions is less in
developing countries, they can import cheap natural resources,
increased demand from foreign countries, etc This is all good but
the countries which the UK is importing from can be a threat to UK
businesses since for example if UK buys cheap imports then the UK
businesses may suffer since no one is dealing with them. Now the
government can have a major role with a businesss international
trade with another, they do this to support exports or restrict
imports in order to protect their home markets. What can they
do?They can use; 1- Tariffs and customs duties tax imports and make
them more expensive. 2- Quotas put a limit on the number of
imports. 3- An export subsidy will reduce the price of exports and
encourage exporting firms. 4- Whether importing or exporting UK
businesses may suffer or have a benefit from these policies.
**The EU has a bunch of laws and regulations on UK businesses
and consumers; I will look at those with you in person.
The planets resources are scarce; scarce is when there is a
limited amount of resources such as raw materials, fuel and time.
But the problem is that people have an unlimited number of needs
and wants. For example they might want a better car or a bigger
house or a cleaner environment, etc Since we have this situation we
will have Trade Offs and Opportunity Costs. A Trade Off is a
situation that involves losing one quality or aspect of something
in return for gaining another quality or aspect.An Opportunity Cost
is the cost of an alternative that must be forgone in order to
pursue a certain action. Put another way, the benefits you could
have received by taking an alternative action.
I will give you a further explanation- use the lines below to
write it in your own words for better understanding.
Success is not just measured by the profit a business makes.
Stakeholders that are interested in the financial success of a
business are likely to look at the following: Profit Revenue Market
Share Social Success
This is business performance in terms of social, environmental,
and ethical responsibility. Note that profit is the most common
measure of success, and that revenue is the money a business gets
from selling its output.A growing market share (which is the
quantity sold by a business as a percentage of the sales in the
market) or an increase in revenue is a sign of success.
Competitiveness and competitive advantage Competitiveness is the
strength of a firms position in a market, measured by market share
and probability. It reflects whether consumers are prepared to use
the business over its rivals. Competitive Advantages are the
advantages that firms have over their rivals. They help to win
customers. These advantages need to be difficult to copy
(defensible) and unique (distinctive).
NOTES