AQA AS BUSS 1 key termsWatch this thread
Enterprise: refers to the process by which new businesses are formed and new products and services are brought to the market
Enterprise Skills: skills that allow an individual or organisation to respond effectively to changing market situations, including problem solving, thinking and acting innovatively and creatively, and understanding the importance of risk and uncertainty.
Entrepreneurs: individuals who have an idea that they develop by setting up a new business and encourage it to grow. They take the risk and subsequent profit and success or the losses that come with failure.
Characteristics of an entrepreneur:
- Determination and persistence
- the ability to spot and take advantages of opportunities
- Relevant skills and expertise
- Vision, creativity and innovation
- Motivation to succeed and not be daunted by failure
- Willingness to take risks
Opportunity Cost: the real cost of taking a particular action or the next best alternative forgone (sacrificed).
Generating and Protecting Business Ideas
Franchise: when a business (the franchisor) gives another business (the franchisee) the right to supply its product or service
Copyright: legal protection against copying for authors, composers and artists
Patent: an official document granting the holder the right to be the only user or producer of a newly invented product or service for a specified period.
Trademark: signs, logos, symbols or words displayed on company’s’ products or on its advertising, including sounds or music, which distinguish its brands from those of its competitors
Transforming Resources into Goods and Services
Resources (inputs): the elements that go into producing goods and services
Factors of Production: the four elements – land, labour, capital and enterprise – used in the production of goods and services
Production: the process whereby resources (factors of production) are converted into a form that is intended into a form that is intended to satisfy the requirements of potential customers
Output: the finished products resulting from the transformation process
Primary Sector: those organisations involved in extracting raw materials
Secondary (manufacturing) Sector: those organisations involved in processing or refining the raw materials from the primary sector into finished or semi-finished products
Tertiary Sector: those organisations involved in providing services to customers and to other businesses, in either the public or private sector
Quaternary Sector: The portion of an economy that is based on knowledge applicable to some business activity that usually involves the provision of services. For example, the quaternary sector might include: information gathering, distribution and technology; research and development; vocational education; business consulting; and strategic financial services.
Adding Value: the process of increasing the worth of resources by modifying them
Added Value: sales revenue minus the cost of bought-in materials, components and services
USP: a feature of a product or service that allows it to be differentiated from other products
Developing a business plan
Business plan: a report describing the marketing strategy, operational issues and financial implications of a business start-up.
Conducting start-up market research
Marketing: the anticipation and satisfying of customers’ wants in a way that delights consumers and meets the needs of the organisation.
Market research: the systematic and objective collection, analysis and evaluation of information that is intended to assist the market process
Primary Market Research: the collection of information first-hand for a specific purpose
Secondary Market Research: the use of information that has already been collected for a different purpose
Qualitative market research: the collection of information about the market based subjective factors such as opinions and reasons
Quantitative market research: the collection information about the market based on numerical data
Sample: a group of respondents or factors hose views or behaviour should be representative of the target markets as a whole
Random Sample: a group of respondents in which each member of the target population has an equal chance of being chosen
Quota sample: a group of respondents comprising several different segments, each sharing a common features (age, gender). The number of interviewees in each classification is fixed to reflect their percentage in the total target population, but the interviewees are selected non-randomly by the interviewer.
Stratified Sampling: a group of respondents selected according to particular features (age, gender) unlike quota sampling, where the final selection is left to an interviewer, in stratified sampling the sub-groups and their sizes are chosen specifically.
Market: a place where buyers and sellers come together
Demand: The amount of a product or service that consumers are willing and able to buy at any given price over a period of time
Market Segmentation: the classification of customers or potential customers into groups or sub groups (market segment), each of which responds differently to different products or market approaches
Segmentation analysis: where a firm uses quantitative and qualitative data or information to try to discover the types of consumer who buy its products and why.
Market size: the volume of sales of a product or the value of sales of a product.
Market growth: the percentage change in sales over a period of time
Market share: the percentage or proportion of the total sales of a product or service achieved by a firm or specific brand of a product.
Choosing the right legal structure for the business
Unincorporated business: there is no distinction in law between the individual owner and the business itself. The identity of the business and the owner is the same. Such businesses tend to be sole traders of partnerships.
Incorporated Business: this has a legal identity that is separate from the individual owners. As a result, these organisation can own assets, owe money and enter contracts into their own right. Such businesses include private limited companies and public limited companies.
Unlimited Liability: a situation where the owners of a business are liable for all the debts that the business may incur.
Limited Liability: a situation in which the liability of the owners of a business is limited to the fully paid-up value of the share capital.
Sole trader: a business owned by one person. The owner may operate on his or her own or my employ other people.
Partnership: a form of business in which two or more people operate for the common goal of making a profit.
Private Limited Company: a small to medium- sized business that is usually run by the family or the small group of people who own it.
Public Limited Company: a business with limited liability; a share capital of over £50,000 at least two shareholders, two directors, a qualified company secretary; and, usually, a wide spread of shareholders. It has ‘plc’ after the company name.
Ownership: providing finance and therefore taking risks
Control: managing the organisation and making decisions.
Stakeholders: any group of individuals with an interest in a business. This includes employees, customers, shareholders and the local community
Ordinary Share Capital: money given to a company by shareholders in return for a share certificate that gives them a part of the ownership of the company and entitles them to a share of profits
Loan Capital: money received by an organisation in return for the organisation’s agreement to pay interest during the period of the loan and repay the loan within an agreed time
Bank Loan: a sum of money provided to a firm or an individual by a bank for a specific, agreed purpose
Bank Overdraft: when a bank allows an individual or organisation to overspend its current account in the bank up to an agreed limit for a stated period of time.
Venture Capital: Finance that is provided to small or medium-sized firms that seek growth but which may be considered as risky by typical share buyers or other lenders
Personal Sources of Finance: money that is provided by the owner(s) of the business from their own savings or personal wealth.
Locating the Business
Teleworking: working in a location that is separate from a central workplace, using telecommunication technologies
Least cost site: the business location that allows a firm to minimise its costs
Infrastructure: the network of utilities such as transport links, sewerage, telecommunications systems, health services and educational facilities.
Qualitative factors: based on the opinions and wishes of individuals. These factors can influence business decisions because an entrepreneur will want to include his or her own wishes and preferences in decisions taken.
Calculating costs, revenues and profit
Price: the amount paid by a consumer to purchase one unit of a product
Total Revenue: the income received from an organisation’s activities.
Total Revenue= price x quantity
Profit: the difference between the income of a business and its total costs
Profit= total revenue – total costs
Fixed Costs: costs that do not vary directly with output in the short run
Variable Costs: costs that do vary directly with output in the short run
Total costs: the sum of fixed costs and variable costs
Using breakeven analysis to make decisions
Contribution per unit: selling price per unit – variable cost per unit
Total Contribution: the difference between total revenue and total variable costs
Contribution per unit x number of units sold
Breakeven analysis: study of the relationship between total costs and total revenue to identify the output at which a business breaks even
Breakeven output: the level of output at which total sales revenue is equal to total costs of production
Breakeven output = fixed costs/ contribution per unit
Target profit output = fixed costs + target profit/ contribution per unit
Using Cash flow forecasting
Cash flow: the amounts of money flowing into and out of a business over a period of time
Cash Inflows: receipts of cash, typically arising from the sales of goods and services
Cash Outflows: payments of cash, typically arising from costs
Net cash flow: the sum of cash inflows to an organisation minus the cash outflows over a period of time
Cash-flow cycle: the regular pattern of inflows and outflows of cash within a business
Cash- flow forecasting: the process of estimating the expected cash inflows and cash outflows over a period of time.
Cash-flow statement: a description of how cash flowed into and out of a business during a particular period of time
Liquidity: the ability to convert an asset into cash without loss or delay
Budget: an agreed plan establishing, in numerical or financial terms, the policy to be pursued and the anticipated outcomes of that policy
Income budget: sows the agreed planned income of a business over a period of time.
Expenditure budget: shows the agreed, planned expenditure of a business over a period of time
Profit budget: shows the agreed, planned profit of a business over a period of time.
Management accounting: the production and use of financial and accounting information for internal purposes of planning, review and control.
Measuring and increasing profit
Profit: the difference between the income of the business and its total costs. Profit = revenue – total costs
Profitability: the ability of a business to generate profit or the efficiency of a business in generating profit
Net profit margin: this measures net profit as a percentage of sales. Net profit margin % = net profit before tax/ sales x 100
Return on capital: ratio showing net profit as a percentage of capital invested. Return on capital % = net profit before tax / capital invested x 100
Capital invested: all of the money provided to the business by owners
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