Business and Economics Unit 1
- Created by: naomirebecca
- Created on: 16-05-14 11:40
Characteristics of Entrepreneurs
Entrepreneur - A person who is will to take all the risks involved in setting up a business.
C reative - need to have good original ideas
H ardworking - willing yo work long hours or carry out difficult tasks
R esilience - ability to withstand or recover from difficult situations
I nitiative - see and seize every oppurtunity to advance the business
S elf-confident - believing in your own ideas / abilities
T aking Calculated Risks - estimating the probability of success or failure
Leadership Styles
Autocratic - makes and takes all decisions without consulting employees. One way communication.
+ useful for guiding new employees, swift decision making can be crucial in a crisis
- staff may resent it and become de-motivated
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Democratic - guides rather than dictates, two way communication. Tasks most likely to be delegated.
+ Consultation increases motivation, all ideas considered
- lengthy decision making, not necessarily the best decision could be made.
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Paternalisitic - parent figure, some consultation, takes final decision themselves.
+ some consultation, needs of staff looked after
- still mostly autocratic
McGregor's Theory X and Y
Theory X manager assumes -
- The average person dislikes work
- They will avoid work unless directly supervised, controlled and directed
- Threat of punishment must exisy
- People are relatively unambitious
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Theory Y manager assumes -
- The average person enjoys work
- They can be self motivated and work without supervision, no need to be controlled / directed
- Respond well to praise and incentives
- People are ambitious
Identifying a Business Opportunity
Demand Curve -
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.Supply Curve -
Causes of Supply Curve and Demand Curve Shifts
SUPPLY
- Change in costs
- Imposition of a tax
- New technology
- Change in size of the industry
- Natural phenomena
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DEMAND
- Changes in income
- Changes in population
- Advertising
- Changes in the prices of other goods such as
1. Substitutes - goods that can be consumed in place of one another
2. Complements - goods that are normally consumed together
Market and Product Orentation
Market Orientation - business focuses its activities, products and services around the wants and needs of the customer
+ produces a product/service the customer wants and will therefore buy
+ competitive advantage, brand loyalty may be created
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Product Orientation - business will focus its effort on creating the product rather than responding to market preferences
+ More unique products with high quality
Market Research
Primary (Field Research) - First hand information that has not been collected before.
- Can be specific to suit the purpose
- Up to date and directly relevant
- Not available to competitiors
- Can be expensive
- Can take a long time
- Can be biast
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Secondary (Desk Research) - Second hand information, already gathered.
- Quick
- Cheaper than primary
- May not be specific
- Can be dated
- May not be accurate
Sampling ( Market Research )
Random Sampling - group of people to be representive of the population as a whole. completely random choosing e.g. pick addresses at random etc.
- Can be effective and accurate
- Needs a large sample size to be accurate
- Can be expensive
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Stratified Sampling - Targeting one particular segment of the market you are researching.
- Targets market effectively
- More complex to organise and analyse results
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Quota Sampling - Segmenting the market into groups that share specific characteristics.
- Cheap and effective sampling
- Need to be careful drawing up quotas to avoid bias
Markets
Market size - total sales of all the businesses in that market added together
Market share (individual business) - total sales as a percentage of the overall market
Mass market - very large market with a high value of sales by volume
Niche market - small part of an overall market that has certain special characteristics
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Market segmentation - dividing the market into groups of consumers with similar characteristics
- more likely a sale will be made
- Encourages the devlopment of brand loyalty
- Can be expensive to research and identity different segments
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Market positioning - how individual products or brands are seen in relation to their competition by the consumers
Product Differentiation - businesses make their product a little different from competing products
Markets 2
Market mapping - use of a grid showing two features of a market.
- enables a business to spot gaps in the market
- help business to differentiate its product from the competition
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- Identifying a gap does not mean there is a need for a product to fill it
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Adding value - altering the product so it increases its value to the customer
Product trial/ Test marketing - lauching the product on a limited scale in a representative segment of the market to measure initial reactions.
Opportunity cost - cost of the next best alternative that has been sacrificed
Trade off - where more of one thing leads to having less of another
Economic Considerations - Unemployment
Unemployment - number of people able and willing to work but can't find a paying job
Rising unemployment
- Demand for businesses that sell luxury items may fall
- People may switch to cheaper substitutes
- Wages less likely to increase as there is more competition for remaining jobs
- Easier to recruit employees and easier to find people with skills that are normally scarce.
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Falling unemployment
- Demand for business that sell luxury items may increase
- Fall in demand for cheaper substitutes
- Wages more likely to increase
- Harder to recruit employees and harder to find people with the right skills
Economic Considerations- I, I, E
Inflation - sustained increase in the average price level of a country; fall in the value of money. May mean that costs of supplies and wages are rising.
CPI (Consumer Price Index) - measures inflation based on price changes of a wide range of goods and services thought to be typical of the 'average consumer'
RPI (Retail Price Index) - includes mortage interes payments and council tax
Interest rate - price of borrowed money
Interest rates increase
- businesses less likely to borrow money to expand and fewer new businesses starting
- consumers less likely to borrow money, spending credit cards likely to reduce, mortgage repayments will increase leaving less disposable income for other spending.
Interest rates decrease
- investment may increase, existing businesses may expand, new businesses may start up
- consumer spending may increase as cheaper to borrow money. mortgage repayments may decrease leaving more disposable income for other spending
Exchange rate - price of one currency expressed in terms of another
S P I C E D and W P I D E C
Finance Source - Internal
Businesses need finance for:
- Start-up costs
- Day to day
- Expansion
Internal Sources bghhjOwner's equity - the money that the owner have available to put into the business
- does not have to be repaid (no interest)
- owner may lose all their saving
- -best for starting a business-
Retained profit - money that's left after all deductions have been taken from total sales revenue does not have to be repaid (no interest)
- can be limited, not available for new business
- -best for expansion of the business-
Sale of assets - selling assets (things of value) in order to raise money
- does not have to be repaid (no interest), good to dispose of underused assets
- sold assets may be useful in the future
- -best for raising money quickly-
Finance Source - External
External Sources
Trade credit - time allowed by a business after supplying another business with goods/services before payment is due
- + no interest -only a short term solution fdfdfdfdf
- -best for short term cash flow problems-
Overdraft - bank allows a business to spend more than it has in it's account to an agreed limit
- + flexible, only play ointerest on amount borrowed - interest charges usually higher than loans
- -best for short term cash flow problems-
Leasing-longterm rental agreement that lets a business use assets without having to pay for them
- + assets obtained without large expenditure, new models regularly updated
- - more expensive than businying outright, interest paid
- -best for items such as vehicles etc.
Debenture - flong term loan secured on company's property, equivalent of a mortgage
- immediate sum available - secured against property
- -best for very long term large expansions-
Finance Source - External 2
External Sources
Hire purchase-similar to leasing but asset becomes property of the business at end of payments
- + assets obtained without large expenditure - more expensive than businying outright
- -best for items such as vehicles and machinery-
Loan - use of someones money for a period of time, involves repayments and added interest
- + fixed sum available - interest paid and regular payments
- -best for expansion-
Venture capital - provided by specialist firms or individuals (D.Den) in return for some share
- + immediate cash - some loss of control / high interest rates to compensate for increased risk
- -best for businesses deemed too risky for other sources of finance-
Share capital - finance raised by selling shares in the company
- + immediate cash, does not need repayment - loss of control as people on a share
- -best for long term or large expansions-
Sales levels, Costs, Profits and Break even
TR = P x Q
TC = TFC + TVC
FC - do not change with output VC - do change with output
Break-even point = Fixed Costs P-VC
Break-even analysis
- helps to assess the strength of a business of a business idea and shows impact on changes in price, enables the calculation of porfit/loss of different output levels
- only a forecast and may be wrong, markets are dynamic (constantly changing)
Gross Profit = Turnover - Variable Costs
Operating Profit = Turnover - (Fixed + Variable Costs)
Profit margin = Profit x 100 Turnover
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