Unit 1.

1- Setting up a business
Definitions:

Franchise The legal right to use the name and logo of an

existing firm and sell the same products.

Business Aims A stated target for the future.

Market Share The proportion of market sales sold by one

business

Stakeholders An individual or group with an interest in a

business.

Business Plan A statement showing how a business sets

out its aim and objectives.

Sole Trader The most common and most simple form of a

business organization, often just one person.

Partnership The simplest way two or more people can be in

a business together, where partners are jointly and personally
responsible for debts.

Private Limited Company A company that cannot sell

shares to the general public. It is not listed on the Stock
Exchange.

Limited Liability Investors (shareholders) in a limited

company can only lose their investment in the business if it
fails; they cannot be forced to sell assets to pay off the firms
debts.

1) What is a business?
An organization that is set up to provide goods or services to
customers.
2) Why are businesses set up?
To pursue an interest or a hobby.
To escape an uninteresting job.
To use new technology or ideas for making a product.
To work from home.
To provide a service or product that benefits others.
To be their own boss.
To make the most of a business opportunity.
To have a big business one day.

3) Types of business aims?

Sales Growth
Making a profit
Survival
Market Share
Customer Satisfaction
Social Objectives
4) What are different business stakeholders?
Community
Shareholders
Customers
Supplier
Bank Manager
Manager
Employee
Government
5) What is on a business plan? And why is one needed?
A business plan includes:
Mission/Aims
Objectives
Competition
Funding
Forecasts
Resources needed
Description of the product or service
How the business will market the product
Timescale of when everything will happen
We need a business plan to ensure that we meet objectives in the
most efficient, cost-saving and profitable way. It also helps a
business identify its costs, organize its resources, calculate its
turnover and anticipate any risks.
6) What are examples of business risks?
General Business Risks:
Business Failure
Partial Business Failure
Loss of earnings
Shrinking market (less potential customers)
Loss of market share (competition)
Personal Risks
Functional Risks:
Marketing (bad market research)
Sales (customers can no longer afford)

Operations (competitor has more efficient tech)

Finance (interest rate increase so bank loan increases)
Human Resources (no one with the right skills)

7) How do we minimize business risks?

By identifying the risks and putting plans in place to try to either
remove it completely or reduce its impact on the business.
8) What are the factors of location?
Costs:
Rent or buy?
Impact on business image?
Cost of utilities?
Transportation cost?
Wage levels in area?
Cost of sourcing materials?
Infrastructure:
Transport links for goods in and goods out
Access for staff and customers
Availability of local services
The market:
How near to customer/competition?
Other factors:
Entrepreneurs lifestyle choices
Planning laws
Subsidies, government and local council initiatives
Availability of premises
FRANCHISE :
Advantages
Able to sell an already
recognized and successful
product
Take advantage of experience of
franchisor
Benefit from central services
such as marketing and training

Disadvantages
Some of the revenue is paid to
franchisor
Lacks complete ownership
Could lose franchise

SOLETRADER :
Advantages
Simple and quick to set up
Inexpensive to set up
Profit kept by owner

Disadvantages
Unlimited liability for owner
Raising additional finance can be
difficult due to individuals
limited resources
Decisions all made by owner who

Owner has complete control of

business
Hours of work can be tailored to
suit business owner

may not have specific expertise

Reliant on health and wellbeing
of owner

PARTNERSHIP :
Advantages
Very few procedures to set up
Expertise of a number of people
combined
More sources of finance as more
people are involved

Disadvantages
Unlimited liability for owners
Profits are shared amongst
owners
Decisions of other partners must
be honored
Maximum of 20 people can join
the partnership
Partnership ends when one
partner leaves

PRIVATED LIMITED COMPANY :

Advantages
Limited Liability
Minimum 2 shareholders to start
the business
More capital can be raised as
maximum is 50 shareholders
Continuity of business
Scope of expansion is higher

Disadvantages
Growth may be limited since only
50 shareholders allowed
Shares cant be sold without
agreement of shareholders

Unit 1.2- Marketing

Definitions:

Market Research Research that enables a firm to find out

about its market, its customers and its potential customers

Questionnaire A set of questions designed to discover

information relating to a product or service

Focus Group In depth discussion with a small group of

consumers, which probes their feelings towards a product or
service.

E-commerce Transactions between people and business

carried out entirely via the internet

Wholesalers Middleman or distributor that buys in bulk,

hold stocks and sells mainly to retailers not consumers

Retailers A person that sells goods to the consumer

1) Why do businesses conduct market research?

To try and find out a little bit about his/her market and
customers
2) What is the relationship between price and demand?
The lower the price, the more demand
3) What are different promotion methods?
Advertising in local newspapers
Free publicity
Word of mouth Recommendation
Direct mail
Website

Banners or pop ups

Promotion through personal selling of the product

RESEARCH METHODS :
Research Methods
Internet research

Telephone survey

Questionnaire

Supplier feedback

Customer
feedback

Focus Group

Advantages
Free of charge
Allow a quick
overview of the
market

Disadvantages
Some sources
may be biased
Unlikely to be
exactly what firm
needs to find out
May be viewed as
a nuisance by
those telephoned

Cheap
Allows
interviewers to
clarify any
questions that are
unclear
Results are easy

to analyse as
mostly uses
closed questions
A relatively fast
way to gather
information from a
wide range of
people
May give insight
on future trends
not yet visible on
the high street
Helps to build
relationships with
suppliers
Real insight as to
how to improve
the customer
experience
In depth
information about
consumer
attitudes and
motives behind
purchasing
decisions

May fail to
discover why
people behave the
way they do just
shows how they
behave
Interviewer may
bias the results
through an
overly-friendly
approach
Suppliers may
present a biased
view

Explains nothing
about what non
customers think

Very expensive
per person
questioned
Only ever carried
out on small
samples, so the
results may be
unrepresentative

METHODS OF PROMOTION :
Methods of
promotion
Advertising in local
newspaper

Advantages

Disadvantages

Size can be
adjusted to fit the
budget
Should allow a
wide local
audience to be
reached
If the news story
is carried by the
local paper and
radio stations this
is free

Free publicity

Customer word of
mouth
recommendation
Direct mail

Free and
trustworthy

Delivery is quite
cheap

Promotion through
personal selling

Website

Banner/Pop-ups

Allows an
individualized
approach to
selling to each
customer
Provides basic
description
Can be used for ecommerce
Can target people
by interest or
hobby

May not be well

targeted
Paying for a large
and well-designed
advert can be
expensive
The company
does not control
the content so
those reporting on
the event may
provide negative
publicity
Impossible to
control
Often seen as junk
mail
Have low success
rate
May be seen as
nuisance
Expensive
Needs regular
maintenance
Needs to be really
easily found
May be ignored

E-COMMERCE :
Advantages
Time saving
Easy to compare
Convenient
Easy access
Rise in sales
Instant Transactions

Disadvantages
Unknown quality of product
Hidden costs
Need Internet
Lack of personal interaction
Security
Credit card issues

Lots of options

Constant update

Unit 1.3- Finance

Definitions:

Bank Loan Finance provided by the bank that will be paid

back over a set period

Overdraft A flexible arrangement that allows a business to

spend more money than it has in its bank account, as and
when it needs the finance

Loan form friends and family Finance provided by friends

or family where the interest rate and repayment periods are
agreed with them

Mortgage Long-term loan for purchasing a builing

Grants Money given to a business by a government

organization or charity

Revenue The amount of money a business receives from

selling goods or services

Profit What is left after costs have been deducted from

revenue
(Profit = revenue costs)

Cash flow forecast A prediction of a businesss future cash

inflows and outflows, showing the closing balance

1) How to interpret a cash flow forecast?

Cash in/receipts:
These figures should be increasing
Cash out/payments:
These figures should flow the same way as the cash in
figures
Closing Balance:
These figures should be increasing
2) What are possible solutions to improve cash flow?
Make payments to your supplier at later dates when you
can have more spare cash
Encourage cash in to be paid earlier
Use a source of finance
Cut payments (reducing costs)
3) How to calculate profit and revenue?
Profit = Revenue Cost
Revenue = Number sold Selling price
SOURCES OF FINANCE :
Source of Finance
Bank loan

Loan from friend

and family
Overdraft

Advantages
Large amounts
can be borrowed
Flexible time
No Interest
You can use it as
many time
without having to
ask banks
permission

Disadvantages
Interest
Repayment terms
must be met
Not a lot of money
can be borrowed
High Interest

Mortgage

Trade Credit

Grants

Fixed rate of

interest
sometimes
Repayments every
month
Free finance

available for the

period
Not paid back

May have variable

interest rates so
can be expensive
Lender may insist
on security
Discounts for
immediate or
quick payments
may be lost
Many businesses
dont qualify for
them

LOWERING PRICES :
Advantages
More people will buy
Helps launch new product line

Disadvantages
Anger past customers
Can affect brand name (low
quality)

CASH FLOW FORECAST :

Advantages
Helps obtain funding
Set out clearly the money
needed to put together
Help prevent you from going into
a business that isnt successful
Highlight periods where your
business needs financial help
Helps spot problems early

Disadvantages
Can take a long time
Can be expensive and need
assistance of your accountant
Use is limited

Unit 1.4- People in business

Definitions:

Full-time workers Working for the normal full working

week

Part-time workers Working for a proportion of the full

working week

Internal Recruitment Appointing an existing employee of

the business to fill a vacancy

External Recruitment Appointing an employee of another

business to fill a vacancy

1) What are the factors that determine wages?

Skills needed by the job?
Experience of the worker?
How much other similar local firms are paying?
2) Suggest ways to motivate staff?
Monetary Techniques (offer bonuses for reaching target)
Non-monetary techniques (make staff interested in their
jobs)
Training programs (singling out individuals to train for other
skills)
Offering responsibility (sense of achievement for the
workers)
3) Types of legalization?
Equal pay act 1970
Means employers must pay both sexes equal rates for
the same job
Minimum wage act 1998
Minimum amount of wage paid per hour for different age
groups
Discrimination legalization
Illegal to discriminate people because of sex, race,
age
Employment rights
Right insurance against injuries for employments
Holidays or Maternity/Paternity leave
FULL TIME OR PART TIME (ADVANTAGES) :
Full time workers
Fewer staff in total will be
needed as they work more hours
per week
Lower recruitment or training
costs

Part time workers

The number of customers may
not justify a full-time workers, so
a part-time worker saves on
wages
Two workers may be more
flexible

Easier to manage and control

fewer staff

Workers may feel more secure

and motivated having a full time
job and earning more money
than if they worked part time
If a worker has two separate part
time jobs they may have divided
loyalties

Part time workers can be asked

to work at busy times of the day
or week, this could lead to better
customer service or a
competitive advantage
Some workers may prefer part
time employment

INTERNAL OR EXTERNAL RECRUITMENT (ADVANTAGES) :

Internal Recruitment
Business Owner will already
know workers skill and
weaknesses
Little additional training required
Cheaper than external
recruitment
Employees in the business will
feel there is a chance to promote
themselves
MOTIVATED STAFF (BENEFITS) :
Work harder
Make fewer mistakes
Pleasant
Helpful to customers
Business can gain good reputation
Good value for money
More customers
More profit

External Recruitment
New ideas and skills
More applicants to select from
Doesnt create a vacancy
Internal Recruitment can cause
jealousy among workers

Unit 1.5- Operations

Definitions:

Job production Making one-off, specialized products for

each customer

Batch production Groups of identical items that pass

through different stages of the production process at the same
time

Operation Efficiency Producing goods and services to an

acceptable standard with as few resources as possible to keep
costs per unit low

Customer Service Providing services to customers before,

during and after purchase, to standards that meet their
expectations

1) What ways are there to be operationally efficient?

More efficient machinery (advanced tech)
More highly motivated workers (work quickly and well)
Minimum wastage (everything that is produced can be
sold)
More effective management (faster production methods)
2) What are customers expectations of quality?
They are different for each products, they would expect a
product that cost less to last for at least a year, however a
product that is the top of the range and expensive to last for
at least 10 years
3) What laws are there to protect customers?
Sales of good act 1979 & Supply of goods and services act
1982
Description of goods/services sold
Good/Service must be fit for purpose
Good/Service must be of satisfactory quality
Consumer protection act 1987

Compensation must be paid to a consumer who suffered

damage using the good
Competition act 1998
Businesses must not agree to set prices at high level
together
Consumer protection 2000
Clear Description of goods/services sold
Description provided in writing
Exchange period of 7 days to change mind
Consumer protection from unfair trading regulations 2008
Advertisements should not mislead

4) How is customer services improved from advances in

ICT?
Websites are easy to access and contains detailed
description of products
Easy to compare prices with other businesses
Can order and pay online from home
Easy to contact business (via email)
JOB PRODUCTION :
Advantages
One off products allow
customers special requirement
to be met
High prices can be charged since
customers will be ready to pay
extra fro specially designed
products

Disadvantages
Production costs can be high
Labor costs can be high and
skilled workers would be needed

BATCH PRODUCTION :
Advantages
The cost of each unit produced is
more likely to be lower than job
production as it is more efficient
to make a lot of similar items
Different consumer tastes can be
supplied by producing different
products in different batches

Disadvantages
Consumers must be prepared to
buy similar goods
Takes a long time to switch
between batches of different
goods
May take time to sell