Business studies

Enterprise and Entrepreneurs

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 What motivates entrepreneurs?
1. Money: being your own boss!!!!!!!!!!!
2. Profit: the money left over after all other costs have been covered
3. Social entrepreneur: start a business organisation to provides goods
and services.

Why we need social entrepreneurs?

 Help other people who may not be able to help themselves
 To provide goods/services-other entrepreneurs are not interested in.
 Leadership styles
Leadership is the action of leading a group of people or an
organisation.

Autocratic: Is a strict leadership. Have an one-way communication.

Gives orders!

Democratic: listens to ideas, let employees contribute in discussion.

Two-way communication, involves workers in decisions.

Paternalistic: is like a father, listens to views but makes decisions,

interested in social needs/happiness of staff.
 Theory X & Y
THEORY X:
 People are motivated by money alone at work
Employees dislike work, employees prefer to be directed and avoid
responsibility. Employees need to be controlled, and have limited ambition.

THEORY Y:
 People are motivated by factors other than money.
i.e. staff events etc.
Employees will naturally put effort in their work, employees want
responsibility, employees are creative, employees are rewarded for
satisfaction in the business.
 Advantages and disadvantages

Autocratic
Advantages: employees work harder/quicker, decision making quicker & boss will demand quickly.
Disadvantages: no second opinion, weak relationship, employees not motivated and one person responsible.

Democratic
Advantages: Employees are confident, more skilled, relationships are good and motivated staff.
Disadvantages: waste too much time, wrong choices might be made, too dependant on staff & disagreements.

Paternalistic
Advantages: Loyal with the business, employees can rely on manager, respected manager, trust, feel supported.
Disadvantages: manager might become attached to employees, decision making may be long, one person making decisions,
too much responsility for one person.
 Markets and supplying markets
A markets is where buyers meet seller.

Types of market:
The local market – small corner shop
The national market – market across the whole of the UK i.e. HMV, TESCO
Physical markets – buyers and sellers meet in a physical location. i.e. Primark store.
Virtual markets – online stores i.e. amazon, eBay
Mass market
 Niche market
A niche market is tailoring a product to a particular type of customer

Why target a niche market???

Found a gap in the market
Internet easier to target customers

Advantages: Disadvantages:
 Unique Brand loyalty

 Less competitors Aimed at only targeted people

 Customer satisfaction
Price is determined by market forces i.e.
demand and supply

As price increases the quantity demanded will decreases.

As price decreases the quantity demanded increases.
 Supply
Supply is the quantity of a good or service that a producer is
willing and able to deliver within a given time period.

Factors that affect the -Cost(materials/advertising

quantity of goods -Price
supplied of a product -How many competitors?
-Competitors charging price?
-How many customers in the
market?
 Demand
Demand is the want or desire to possess a good or service with
the necessary goods/services.

-The season
The competition/competitors
Factors that affect the -Quality
-Taste/Fashion
quantity of goods -Supply
DEMAND of a product -Income/economy
-Population
-Price
-Cost
Supply and demand curve
 Market research
Market research gathers information about consumers,
competitors and distributors within a firms target market.

Two types of market research: Primary & Secondary Research

 Sample
A sample is a group of people used to
represent a larger population.
Types of Sampling:
1. Random
Selecting people so that everyone in the population has an equal chance of
being interviewed.
2. Quota
Involves selecting interviewees in proportion to the consumer profile within
your target market.
3. Stratified sample
Choose to interview people with a key characteristic you want to research
 Market mapping
Market mapping is a useful tool to help you
identify a product or market niche that hasn’t
been filled.

 Identify key features that characterise

consumers within a market
 Identify key brands/competitions.
 Market segmentation
Market segmentation is dividing the market into smaller sections
of customers who share common characteristics.
How to segment a market?
1.Research
2.Focus
3.Create
Types of segmentation:
Demographic(GENDER-AGE-INCOME)
Psychographic (LIFESTYLE-SOCIALCLASS-PERSONALITY)
Behaviour segmentation (BENEFIT-OCCASION-USAGE)
 Market orientation
A market orientation approach means a business reacts to what customers
want and are sensitive to change in demand and supply.

Market orientation is based on information about customers needs and wants

rather than what businesses think is right for customers
 Added value
Added value is the increase in value that a business creates by undertaking the production
process.

Ways to add value:

- Building a brand
- Delivering excellent service
- Product features and benefits
- Offering convenience

Why do this?
>profit

BENEFITS OF ADDED VALUE:

- Charging a higher price
- Protecting
- Creating difference from the competition
 Competitive advantage
Competitive advantage is an advantage over competitors gained by offering consumers greater value.

1. Cost leadership – to become the lowest cost producer in the industry- have sales – mass market
EXAMPLE: M&S, TESCO, EASYJET, MCDONALDS, SPECSAVERS

2. Differentiation – aimed at a large market – uniquely – charging a premium price.

EXAMPLE: WAITROSE, MAC, VIRGIN ACTIVE

3. Cost focus – seek a lower cost in a small number of market targets – basic products.
EXAMPLE: LIDL, POUNDSTORE

4. Differentiation Focus – Small number of target market segments – meeting customer needs and
wants – other opportunities.
EXAMPLE: THE PERFUME SHOP
 Opportunity cost
Opportunity cost is the cost of missing out on the next best alternative when making a decision.

Example: you can either get clothes or the alternative is games. You cannot afford both!!!!!!!!!

 Business faces the same issue: limited resources and limited time and money!!!
 People have to be careful with what they buy, as they cannot use the money and time again!

Types of opportunity cost:

1. Personal: If you are a new entrepreneur, this will effect your personal life.

2. One idea over another: you only have time and money once, so make the best decision.
 CASH FLOW FORECAST
A cash flow forecast is a statement created by a business that looks at the predicted cash inflows and the predicted outflows.
 Cash inflows are the sums of money entering businesses bank account. Types of cash inflows: capital, sales revenue &
loans.
 Cash outflows are the sums of money leaving business bank account. Types of cash outflows: purchases, loan repayments
& wages.
Regular cash flows: cash flows that happen often – easy to predict (examples: monthly phone bill, wages bill)
Irregular cash flows: cash flows that don’t happen often – hard to predict (examples: replacements/ overtime wages)
Seasonal cash flows: revenues are seasonal and impacts on the cash flow of a business. (example: ice cream van)
 CASH FLOW FORECAST
The timing of inflows and outflows: Why is having cash available so important:
1. Critical - For emergency
2. Bankrupt - For paying bills
3. May not have enough cash in the bank to pay bills. - To survive

Common factors that affect cash inflows and outflows:

Why can a business plan ahead?
1. Late credit payments
- Predict cash inflows/outflows and budget.
2. Seasonal business
3. Capital expenditure – investing in a new equipment (expensive)

Liquidity:
The availability of cash in a business
High liquidity - lots of cash
Low liquidity – not much cash
 Business plan
A business plan is a document setting out the business idea and showing how it is to be financed, marketed and
put into practice.

Why do you need a business plan????

 To raise finance from banks and external sources
 To coordinate tasks that need to be completed
 To set a clear purpose and vision and aims and objectives for the business.
Structure of a good plan:
1. Executive summary
2. The product service
3. The market
4. Marketing plan
5. Organisational plan
6. Operational plan
7. Financial plan
8. Conclusion
Benefits of a business plan: Limitations of a business plan:
1. Entrepreneurs can seek help early 1. Plans are too rigid
2. Plan may attract additional investment 2. Opportunity cost
3. Forces the entrepreneur to think ahead and carefully. 3. Forecasts doesn’t make the action happen.
 Ownership
A sole trader: a sole trader is a business that is owned by one person.
Advantages: simple and cheap to start, you are the owner, keep all the profits and you don’t need large amounts of money to start trading.
Disadvantages: unlimited liability, have to work longer hours, may find it hard to raise money for start-up costs

A partnership: a partnership is owned by 2+.

Advantages: partners have to share the workload and cover holidays, easier to raise money, comfortable with decision making(two people
making decision's not one).
Disadvantages: unlimited liability, disagreements.
A private limited company (ltd): A ltd is a small company only friends and family members can buy shares of the company.
Advantages: Limited Liability, ltd may have a professional image,
Disadvantages: people tend to think it is an expensive service but it is not!, less powers….

A public limited company(plc.): A plc. is a large company anyone can buy shares.
Advantages: anyone can buy their shares, high Liquidity,
Disadvantages: expensive start up costs, less power, less decision choices,

Franchises: franchises is an arrangement whereby the owner of a business idea given other then the right to trade and to use their ideas.
Advantages: less risky in new ideas, franchises have a name and less advertising is needed, may provide training.
Disadvantages: under the control, franchises is an expensive way to start up a business, some run badly, very strict and rigid rules.

Co-operatives: Cooperative is owned by their members- democratic -

Advantages: limited liability
Disadvantages: co-op’s are often short of money as they only have money that members invest.
 Ownership and growth
Most people start up their businesses as a sole trader because it is cheap and
simple to start up, sole trader keeps all profits and you don’t need a large
amount of money to start-up.

As a business grows it may decide to become a Private Limited Company, this is

because selling shares is a way to raise finance, you can choose who you sell shares
to, limited liability – if the business goes bankrupt you do not lose your personal
assets!!!

The biggest businesses in the UK are Public limited company’s, this is because
selling shares to the public raises finance, good for promotion/becoming well known,
good for large business expansion.
 Economy
The economy is just a way of talking about buying and
selling on a national and international level.
 Economy – Exchange rate
 The exchange rate is simply the value of a currency compared to another

 UK exchange rate getting WEAKER:

SHORT TERM = LESS EXPORTS, MORE IMPORTS
LONG TERM = BUSINESS WILL BECOME WEAKER

 UK exchange rate getting STRONGER:

SHORT TERM = MORE EXPORTS, LESS IMPORTS
LONG TERM = BUSINESS WILL BECOME STRONGER
 Economy – Interest rate
 Interest rates are the cost of borrowing or dividends of saving.

 UK Interest rates getting WEAKER:

SHORT TERM = pay lower costs
LONG TERM = business may not be able to expand

 UK Interest rates getting STRONGER:

SHORT TERM = high costs > lose money> less spending
LONG TERM = business may not be able to expand
 Economy – Unemployment
 Unemployment is created when the demand for labour falls, when less
people work.

 UK Unemployment decreasing:
SHORT TERM = Less competition
LONG TERM = Poor customer service

 UK Unemployment increasing:
SHORT TERM = More competition
LONG TERM = Better customer service
 Economy – TAX
 Taxation is any compulsory levy from individuals, households and firms to
central or local government. i.e. VAT.
 UK exchange rate getting increased:
SHORT TERM = businesses will not invest
LONG TERM = businesses may become weaker

 UK exchange rate getting decreased:

SHORT TERM = more investment > more customers
LONG TERM = expanding more
Economy – Government spending

UK Government Spending increasing:

SHORT TERM =
LONG TERM =

 UK Government Spending decreasing:

SHORT TERM =
LONG TERM =
 Economy – Inflation

UK inflation increasing:
SHORT TERM =
LONG TERM =

 UK inflation decreasing:
SHORT TERM =
LONG TERM =
 BREAK EVEN
The break even point for a firm is when total costs equals total revenue. At
this point the firm makes neither profit or a loss.

FORMULA = FIXED COSTS / SELLING PRICE-VARIABLE COSTS PER

UNIT

Assessing the break even

 Makes a business work out their fixed and variable costs and make decisions
about how they are going to price their products
 A bank will ask for a break even data.
 Advantages break even
 Simple, clear and as easy to construct
 Can work out an amount of ‘profit’ or ‘loss’ at any output
 Helps a business to figure out if they should start up a business
 Supports application for a bank loan.
 Can see changes in revenue/costs that will affect break-even

Disadvantages break even

 Only an estimate
 Assumes all products are sold at a certain price
 Assumes all prices don’t change
 Maybe be inaccurate because it seems too good.
 Why may costs change?
Inflation, taxation, interest rates, recession,
competitors, exchange rates and demand/supply.

Why might the selling price change?

Season, demand, trend, competition, recession,

inflation, supply
 Margin of safety
Margin of safety is the amount by which current
output exceeds the level of output necessary to
break even.

FORMULA: ACTUAL OUTPUT – BREAK EVEN OUTPUT

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 Formulas….
Break even formula: fixed costs/selling price-
variable cost per unit
Profit: total revenue – total costs
Revenue = price x quantity
Total costs = Fixed Costs + Variable Costs
Gross profit = revenue – variable costs
Net profit = revenue – total costs
FINANCE OF SOURCES
INTERNAL SOURCES
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EXTERNAL SOURCES
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