Download Business Studies Revison Guide

Exam Date: 24th May 2017
Key Terms to Revise
Businesses
Goods-are physical items like a can of baked beans, litre of petrol, an x box 360 or a watch.
Service- are non-physical products like a haircut, a bus journey, a lesson in a classroom or a
consultation with a doctor.
Understanding customer needs
Market research- the process of gaining information about customers, competitors and market
trends through collecting primary and secondary research.
Primary research- the gathering of new information i.e. first-hand information. Examples are
questionnaires, interviews, focus groups and observations.
Secondary research- the process of gathering secondary data, which is information that has
already been gathered, i.e. 2nd hand information. Examples are newspapers, internet,
magazines, and books.
Qualitative data- information about opinions, judgments and attitudes. For example I think red
is a nice colour.
Quantitative data- data that can be expressed as numbers and can be statistically analysed. For
example 5/10 people like red or 50% of people like red.
Market mapping
Market Mapping- helps businesses to identify market segments and position their products
through identifying gaps in the market.
Market segment- part of a market that contains a group of buyers with similar buying habits,
such as age or income.
Price sensitive- when the price is very important in the decision about whether to buy or not to
buy.
Gap in the market- occurs when no business is currently serving the needs of customers for a
particular product.
Competition
Brand- a named product which customers see as being different from other products and which
they can associate or identify with.
Ways to compete:
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Better design
Better product features
Higher quality
More enjoyable experience
Lower prices
Added Value
Added value- the increased worth that a business creates for a product. It is difference
between what the business pays its suppliers and the price that it is able to charge for the
product/service.
Ways to add value:
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USP
Better design
Improved quality
Branding
More convenience
Unique selling point (USP) - a characteristic of a product that makes it different from other
similar products being sold in the market such as design, quality or image.
Franchising
Franchise- the right given by one business to another to sell goods or services using its name.
Franchisor- the business that gives franchisees the right to sell its product, in return for a fixed
sum of money or a royalty payment.
Franchisee- a business that agrees to manufacture, distribute or provide a branded product
with the permission of the franchisor.
Benefits of a franchise for franchisee:
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Training given to franchisee
Equipment given to franchisee
Materials given to franchisee
Help finding customers
A brand name
Exclusive areas to trade
Disadvantage to franchisee:
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The initial investment can be high and not easily affordable
The franchisee cannot sell the business without the permission of the franchisor
The franchisor in some cases can end the agreement without giving a reason or paying
compensation.
Enterprise
Entrepreneur- a person who owns and runs their own business and takes risk
Enterprise- another word for business
Enterprise Skills:
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Risk taking
Showing initiative
Willingness to undertake new ventures
Thinking creatively
Thinking creatively-coming up with new and unique ideas
Lateral thinking- thinking differently to try and find new and unexpected ideas.
Blue skies thinking- a technique of creative thinking where participants are encouraged to think
of as many ideas as possible about an issue or a problem
Invention and innovation
Invention- the discovery of new processes and potential new products, typically after a period
of research.
Innovation- the process of transforming inventions into products that can be sold to customers.
Patent- right of ownership of an invention or process when it is registered with the
government.
Copy right- legal ownership of materials such as books, music, films which prevents these from
being copied by others.
Trademark- the symbol, sign, or other feature of a product or business that can be protected by
law.
Objectives
Financial objectives- targets set by a business which is expressed in money terms such as
making a profit, earning income or building wealth.
Non-financial objective- a target set by a business that does not involve money such as helping
other, personal satisfaction, independence and control.
Qualities shown by entrepreneurs
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Planning
Initiative (being pro-active)
Taking Risks
Determination
Making Decisions
Persuasion
Leadership
Luck
Marketing Mix (4 Ps)
Marketing mix- the combination of factors that help the business to take into account
customers needs when selling a product. Also known as the 4Ps Price, Product, Promotion and
Place.
Price- how much it cost for customers to buy the product
Product- the good or service the business is selling
Promotion- Making the customer aware of the business and its product. E.g. advertising.
Place- where will the product be sold, how will it get there.
Customer Focus
Understanding customers and focusing on their needs is vital if a business intends to attract
people to buy their product. There are three stages of being customer focused:
1) Identifying needs of customers
2) Anticipating the needs of customers e.g. if it’s hot customers may want a cool drink
3) Meeting customer needs
Business Ownership
Unlimited liability- a legal obligation on the owner of a business to pay off all the debts of the
business. The owner could lose their personal property (car, house etc) in order to pay off the
debt.
Limited liability- The most that the owners of the business will lose is the amount of money
that they invest in the business. So if owner invested £20 in the business that’s all they can lose.
They will not lose their personal property to pay off the debt.
Three types business ownership:
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Sole trader- the business is owned by one owner. Unlimited liability for debts.
Partnership- the business is owned by two or more people. Unlimited liability for debts.
Companies- businesses whose owners have limited liability.
Taxes
VAT (value added tax)- a tax on the value of sales. It is paid by the business to the government.
Income tax- a tax on the income earned by workers.
National insurance contributions- a tax on the earning of workers. Business takes it from the
employees pay and give it to the government. Sole traders have to pay this tax themselves.
Corporate tax- a tax on the profits of a company. Sole traders do not pay this tax because they
are not a company.
Recruitment and training
Recruitment documents:
Job description- document that describes the duties of a worker and his or hers status in the
business.
Person specification- a profile of the type of person needed for the job- their skills and
qualities.
Application form- document to be filled in with persona details.
Curriculum Vitae (CV)- a brief list of the main details about a person, including name,
qualifications and experience.
Draw up recruitment documents
Receive applications
Shortlisting
Selection
Training
Employment legislation
Employers must abide by laws that protect employees in a number of areas:
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Recruitment- employers cannot discriminate on the basis of sex, age ,gender or
disability
Pay- employees must be paid equally for doing the same job.
Discipline- employees are protected from unfair dismissal
Working hours- employees cannot be expected to work over a certain number of hours.
Demand and Supply
Commodities- raw materials such as coal, oil, copper, iron ore, wheat, soya.
Demand- the amount consumers are willing and able to buy at any given price.
Supply – the amount sellers are willing to offer for sale at any given price.
Shortage- when the demand for a good or service is greater than the supply. When a shortage
exists, prices will tend to rise.
Surplus- when the demand for a good or service is less than the available supply. When a
surplus exists, prices will tend to fall.
Interest Rates
Economy- the amount of buying and selling that takes place in a country.
Interest rates- the cost of borrowing money. The higher the interest rate the more money you
will have to pay back on the loan or credit card.
Variable interest rate- interest rates that can change over the lifetime of a loan depending on
what is happening to the economy.
Fixed interest rate- interest rate that stays the same throughout the life time of the loan.
Exchange Rate
Exchange rate- the exchange rate is the price of buying a foreign currency. It tells you how
much of the foreign currency you will get for every pound or how many pounds you have to
give up to acquire a foreign currency.
Exports- an export is the sale of a good or service to foreign buyer that leads to a flow of money
into the UK. The foreign buyer will have to change their currency into pounds to complete the
purchase.
Import-an import is the purchase of a good and service from a foreign business that leads to a
flow of money out of the UK. The UK buyers will have to change pounds into the sellers
currency to make the transaction.
The effect of a fall in the value of the pound:
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Good for UK exporter of Goods-prices of export falls-sales increase.
Good for UK tourism-prices cheaper to foreigners- tourism increases
Good for UK businesses-import more expensive-people buy more UK goods
Bad for UK importers of materials-imports more expensive-cost rise
The effect of a rise in the value of the pound:
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Bad for UK exporters of goods-price of exports rises-sales fall.
Bad for UK tourism-prices more expensive to foreigners-tourism falls
Bad for UK businesses-imports cheaper-people buy fewer UK goods
Good for UK importers of materials-imports cheaper-costs fall
The Economy
Economic activity- the amount of buying and selling that takes place in a period of time in a
country.
Business cycle- fluctuations (rises and falls) in the level of economic activity over a period of
time. Most economies experience times when economic activity is rising and others when
economic activity is slowing.
Recession- a situation where the level of economic growth is negative (state of decline) for
successive financial quarters. During recessions there is an increase in unemployment and the
cost of living might increase.
Boom- where there’s a lot of economic activity and the economy is doing well. During these
periods there is low unemployment and people have lots of money to spend.
Stakeholders
Stakeholders- an individual or a group which has an interest in and is affected by the activities
of a business; stakeholders have an interest in how the business operates and whether or not it
is successful. For example workers, suppliers, governments, managers, customers.
Revenue and Cost
Revenue or sales or Turnover- the amount of income received from selling goods or services
over a period of time.
Total revenue (total money raised from sales)= Price x Quantity
Sale volume- the number of items or products or service sold by a business over a period of
time.
Fixed costs- costs that do not vary with the output produced (the amount of products a
business makes or sell), such as rent, business rates, advertising cost, insurance, administration
cost and salaries. For example even if a business sells 1 or a million products they still pay the
same rent.
Variable cost- cost which change directly with the number of products made by a business such
as the cost of buying raw material. For example if you make 1 pizza you use less raw material
than if you make 1 million pizzas hence the amount of cost will be different.
Total cost- all the cost of a business; it is equal to fixed cost plus variable costs.
Total Cost = Fixed Cost + variable cost
Profit- money left over once all cost has been taken away from money earned.
Profit/Loss = Total revenue – Total cost
Cash flow
Money going in and out of a business.
Cash flow Forecasting
Predicting the flow of money in and out of a business. Businesses do this to try and anticipate
times when they might struggle financially. If they predict they might have trouble financially
they can take out a loan, make cut backs to workers or try to reduce spending in other areas.
Why is Cash flow important?
Without sufficient cash within the business a business would go insolvent. This means that it
would not be able to pay its debts, pay wages, promote the business or buy raw materials and
products to sell.
Business Plan
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A business plan is a plan for the development of a business, giving forecast of items such
as sales, costs and cash flow.
Business owners may write a business plan to:
 Convince a bank to loan the business money
 Forecast financial projections
 Identify needs of customers
 provide owner with a plan of action
What goes into a business plan?
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Overview- name, location, type of business
Objectives- what the business hopes of achieve
Market research
Personnel- who works for the business
Finances- source of finance, cost, cash flow, profits
Production- information on suppliers
Obtaining Finance
Long term sources of finance, sources that do not need to be paid back within a year such as:
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Share capital (for limited companies only, not sole traders)
Personal savings
Venture capital
Grants
Loans
Leasing
Short term sources of finance, sources that are repaid immediately or fairly quickly, usually
within a year such as:
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Bank overdraft
Trade credit
Credit Card
Factoring