business

• Dynamic business


  Something which is characterised by constant change, activity, or progress
• Why new business opportunities exist


  • Changes in technology
  • Changes in what consumers want
  • Products and services becoming obsolete
• Calculated risks


  Decisions taken after considering the potential rewards in comparison to the probability of risks and failure
• Risks

  • Business failure
  • Financial loss
  • Lack of financial security (uncertain income)
• Rewards

  • Profit
  • Independence
• Goods

  Tangible and physical product purchased by a customer
• Services

  Intangible purchase of a skill to assist the customer
• The purpose of business activity and enterprise is to produce goods or services which meet customer needs
• Most businesses are incentivised by profit, therefore if they can meet customer needs, then businesses are likely to generate more revenue and therefore more profit
• Decisions made by the entrepreneur must then ensure that the costs of production are less than the revenue. Otherwise, business failure will occur
• Roles of the entrepreneur

  • Organise resources
  • Make business decisions
  • Take risks
• Added value

  The difference between the sale price (paid by the customer) and the costs of production (paid by the business)
• Types of added value

  • Convenience
  • Branding
  • Quality
  • Design
• USP (Unique Selling Point)


  Feature that rivals do not have (which gives the business a competitive advantage)
• Generating sales

  Selling goods and services to generate revenue
• Business survival

  Making enough revenue to cover total costs
• Customer needs

  • Price
  • Quality
  • Choice
  • Convenience
• Purpose of market research

  • Identify and understand customer needs
  • Identify gaps in the market
  • Reduce business risks
  • Inform business decisions
• Types of market research

  • Primary research
  • Secondary research
• Qualitative data


  Opinions and views of potential or actual customers; insight into the value judgements of what people think and feel
• Quantitative data


  Factual research from a sample of people to provide data which can be analysed numerically and provide statistics
• Variation in shops allows businesses to target different parts (segments) of the same group of customers
• Businesses will sometimes create products to 'rival themselves' – this means that a budget good would be produced, in order to make their luxury items look better in comparison
• Market segmentation

  Dividing customers within a market into smaller groups
• Factors used to identify market segments

  • Location
  • Demographics
  • Lifestyle
  • Income
  • Age
• market map


  A tool used by businesses to analyse competing businesses in the market, typically using quality and price as the two variables
• The purpose of a perceptual map is to spot a gap in the market, where certain market segments are unmet by rival businesses
• Break-even


  A quantity produced by a business in which the total costs = total revenue. Fixed costs / (selling price - variable cost per unit).
• Margin of safety

  The difference between the quantity of sales that a business expects to sell and the break-even point
• Cash is essential as it allows business to pay their costs
• Types of costs that cash covers

  • Suppliers
  • Overheads
  • Employees
• Cash is different from profit. Profit illustrates the longer-term ability of a business to cover all their costs over a year
• Despite having high demand for their good or service, businesses can still experience insolvency due to cash flow shortages or inability to supply the product to meet orders
• Fixed costs


  Costs that do not vary when the quantity produced by the business changes
• Variable costs


  Costs that do vary directly with the quantity produced by the business
• Interest


  The extra charge paid when borrowing money Total interest payments (£) = Borrowed amount x IR%

  IR% = (Total interest payments/borrowed amount) x 100
• Revenue

  Quantity x Price
• Profit

  Revenue - Total costs
• Ways to make more profit

  • Reduce variable costs
  • Increase price
• Overdraft

  Allows the account balance of a business to go 'below zero' and borrow from the bank