Why do people start their own businesses?
- To make a profit
- To provide a good or service
- To fill gap in the market
- To turn a hobby into a
... [Show More] career or business
- To be independent/their own boss
What is an entrepreneur?
An entrepreneur is somebody who starts and runs a business. Perhaps they make a product or provide a service, the quite possibly may employ somebody to make a profit. Many Entrepreneurs are innovators, they bring new ideas to the market and drive the development of new technologies.
What are the key characteristics of an entrepreneur?
- A risk taker
- Innovative
- Initiative
- Organised
- Hard working
- Determined
Why create a business plan?
1. Gives an idea if the business will work
2. Gives a clear view of aims and deadlines
3. Part of the capital raising process
4. To monitor progress
5. Allows survival and expansion
Drawbacks of using a business plan?
- Costs of market research
- Hard to protect a source of finance
- How reliable is the data?
- Unachievable objectives can give false hope
- Entrepreneurs have little knowledge of market
What are consumer goods?
The final product
What are capital goods?
Used in the production of other good or services
What are public goods?
Available to everybody, non-excludable and non-rivalry (e.g. Police and Street lighting)
What are merit goods?
Goods or services that would be under consumed if left to the private sector (e.g. Education and Healthcare)
What are demerit goods?
Unhealthy or damaging, often subject to a taxes
Advantages of international trade
- Provides employment
- Reduces the risk of closure
- New technologies
- More revenue for the UK economy
- Expansion can can mean the opportunity to benefit from economies of scale
Disadvantages of international trade
- Competition may be misunderstood
- Language barriers
- Exchange rate fluctuations
- Cannot guarantee same response as home country
- Changes in interaction relations may stop trade
What is a Multinational country?
Businesses that operate in more than one country
Advantages of multinational companies
- Creates employment
- Investment leads to infrastructure development
- No export costs
- No language barriers
- investment to locate given my local government
Disadvantages of multinational companies
- Increased competition
- Can put smaller firms out of business
- Deplete natural resources
- More resource costs
Characteristics of perfect competition
- Perfect knowledge of the market
- Many suppliers
- Price takers
- Product is identical/homogenous
- No barriers to entry
- Normal profit in the long run
Characteristics of monopolistic competition
- Independent firms
- Low barriers
- Normal profits in long run
- Differentiated products (colour, size, etc.)
- Many suppliers
- Supernormal profits in the long ru
- Market is dynamic
Characteristics of an oligopoly
- Power to fix prices
- Interdependent
- Market is dominated by a few large firms
- Few barriers to entry (e.g. 3 for 2)
- e.g. Tesco, Morrisons, Asda & Sainsburys
Characteristics of a monopoly
- Controlled by a single producer/seller
- Price makers
- High barriers of entry/start up costs
- Unique products wit no close substitutes
- Price discrimination (different prices at different times - e.g. Cinemas)
Types of barriers to entry
Strategic:
- Predatory pricing
- Brand loyalty
- Aggressive price wars
Structural:
- High start up costs
- Patents
- Copyrights
Characteristics of a contestable market
- Free entry/exit
- No sunk costs
- Constant threat of new entrants
- Perfect information
- Firms compete rather than collude
- The ability to use the best available technology
Reasons to increase market share
- Economies of Scale (lower average cost per unit produced)
- Customers more likely to repeat purchases (brand loyalty)
-Increased bargaining power with suppliers and investors
-When sales in a market are slow, investment is needed for growth
Reasons not to increase market share
- Overall profits may decline
- Working at full capacity may affect ability to meet demand
- Investigations by Competition Market Authority
How do you calculate market share?
Total value of sales for individual product ÷ Total Value of sales for whole market × 100
how do you calculate percentage change?
(Current year - previous year) ÷ previous year × 100
Advantages of Mass Markets
- Greater sales (maximises income)
- Large quantities produced (lower costs)
- Wider customer base
- Brand awareness and loyalty
Disadvantages of Mass Markets
- Lots of competition
- Greater marketing costs
- High market research costs
- Research and Development costs
Advantages of Niche Markets
- Less competition (others may target niche)
- Specialised product
- Less marketing costs
- Able to focus on company strengths
- Firms can gain expert knowledge
Disadvantages of Niche Market
- Competition may target & takeover niche
- Smaller customer base
- Less profit and higher production costs
- Not always neat little markets
What are the 4 main types of market segmentation?
Geographical, Psychographic, Behavioural and Demographic
Why conduct market research?
- Identify consumer's needs and wants
- Monitor competition
- Cain feedback and test customer responses
- Identify changes in demand
- Assess the effectiveness of promotional campaigns
Advantages of primary research
- Specific to business objectives
- Latests and most up to date information
Disadvantages of primary research
- Expensive and time consuming
- Risk of bias
Advantages of secondary research
- Cheaper and less time consuming
-Based on actual sales figures or larger samples
Disadvantages of secondary research
- Quickly out of date
- Not tailored to company objectives
What is the public sector?
Made up of businesses that are owned and run by the government. It is funded by taxes ( e.g. income tax) and includes organisations such as the NHS, Police, Education and Defence . The role of the public sector is to create a fair and just society.
What is the private sector?
This is the part of the economy that is operated by businesses owned by shareholders and private individuals.
What are the objectives of private sector companies?
- To make a profit
- Fill a gap in the market
- Expand and survive
- Increase/gain market share
- Keep shareholders happy (through dividends)
Advantages of Sole Traders
- Be your own boss
- Keep all profits for yourself
- Easy to set up
- Turn a passion into a hobby
Disadvantages of Sole Traders
- Limited capital for startup
- Unlimited liability
- Have to do/make all decisions yourself
Characteristics of a partnership
- Joint ownership of a business (between 2-20 people)
- Often found in professions (lawyers & dentists)
- Shared responsibilities
- Partnership agreement (deed of partnership)
Advantages of Partnerships
- Easy to set up
- Shared responsibility
- Increased capital contribution
- More skills and expertise
- Shared unlimited liability
- Less borrowing required
Disadvantages of Partnerships
- Still have unlimited liability
- Some partners may not work as much as they should
- Disagreements over decisions
- Partners receive a smaller amount of profit for their efforts, than sloe traders
- If there is no deed of partnership, then Partnership Act 1890 states that all partners are equal.
Advantages of Private Ltd Companies
- Limited Liability
- Capital can be raised through inviting shareholders
- Other businesses are more likely to invest
Disadvantages of Private Ltd Companies
- Long and expensive legal procedure in start up
- Profits are shared among shareholders
- Financial information is available to the public
Advantages of Public Ltd Companies
- Limited Liability
- Increased market dominance
- Banks and other lenders are more willing to invest, increased capital
Disadvantages of Public Ltd Companies
- Increased costs in setting up
- Anyone can buy shares, increased risk of losing control
- Accounts are available to the public
What are Charities?
- Established with the aim of collecting money from individuals and spending it on a cause
- Not established to make a profit, but there is sometimes surpluses
- Mainly rely on voluntary donations, but some have retail outlets
What are Co-operatives?
- An organisation owned by its members
- Employees automatically become members and shoppers can if they want to
- Members benefit from payments of dividends through money-off vouchers
What are Social Enterprises?
- Set up to give back to the community they serve
- Trade to help solve social problems, improve the communities they operate in and improve the environment
- Many aim to make profits from selling goods and services in the open market but instead invest them towards achieving their social objectives
What are the key location factors for a business?
- Distance from competition
- Infrastructure
- Level of footfall
- Social reasons (historic or family)
- Government incentives
- Cost of land
- Best fit (surf shop at the beach)
- Skilled labour/workforce
What can cause a movement along the demand curve?
Price
What can cause a shift in demand?
- Income
- Changes in fashion
- Changes in the price of substitute goods
- Advertising campaigns
- Government legislation
What does price do to the supply curve?
Causes a movement
What can cause a shift in supply?
- Changes in costs (raw materials, etc.)
- Weather
- Introduction of new technology
- Legislation
What is price elasticity of demand?
Price elasticity of demand measures the responsiveness of demand to changes in price
What happens when a market is Price Elastic?
A change in price will cause a more than proportional change in demand - Price goes up, demand falls dramatically!
What happens when a market is Price Inelastic?
A change in price will cause a less than proportional change in demand - Price decreases, demand increases just a little!
How can you calculate elasticity?
% change in quantity demanded ÷ % change in price
How do you calculate revenue?
quantity sold × selling price
How do you calculate profit?
total revenue - total costs
What are fixed costs?
Costs that do not change no matter how many products that are produced (e.g. rent)
What are variable costs?
Costs that change with the level of output (e.g. raw materials, wages)
What is contribution?
Selling price - Variable costs (per unit)
How do you calculate Break Even?
Fixed costs ÷ Contribution (per unit) [Show Less]