BUSS1 Overview


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Some of it has converted wrong into strange spaces and stuff like the font but as far as I can tell all the text is there... BUSS1 A Level Exam Overview. Took me two days -.- make good freaking use of it! Covers EVERYTHING on the spec... GOOD LUCK EVERYONE! xx

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  • Ordinary shares in the equity capital of a business entitle the holders to all distributed profits after the holders of debentures and preference shares have been paid. This is also known as equity funding.
  • BUSS1 Overview

    1. 1. BUSINESS UNIT 1 14 May 2012 th
    2. 2. Candidates should consider the role, importance and characteristics of an entrepreneur in establishing a new business. The role of an entrepreneur when establishing a new business is to make sure everything is running smoothly. The importance of an entrepreneur is vital. Without one there would be no business. The characteristics include:  Passionate, driven, determined and focused.  Very organised, calculated risk-takers.  Natural leader and extremely persuasive.
    3. 3. Entrepreneurship can take a number of formsincluding spotting a gap in the market or developing a new or innovative product or process. There are 3 different motives for starting up a new business through development of a new product or process. These are: The Traditional Motive- all about spotting a gap in the market and filling it. The Innovation Motive- all about creating the need for your product and creating a fan base before it is even released. (e.g Apple products like the iPad) The Wrong Motive- all about creating a product or service and hoping that a market for it arrives.
    4. 4. The sources of ideas may include brain-storming, own personal experience and business experience. Thegeneration of business ideas must be in relation to a small business with limited resources.  Business Experience is a common method of sourcing ideas. They come from people who work in a particular industry so there is potentially less need for start-up market research and they probably already have the necessary knowledge to start-up a business immediately.  Personal Experience is another common method. Its about peoples interests and hobbies and the challenges people face everyday. Also, bad experiences with a product or service can create irritation which leads to a fantastic business idea!  Brain-storming is a less popular idea where potentially you sit down and just try to come up with ideas but this is a lot harder. The need for start-up market research is a lot more probable and costly.
    5. 5. Candidates should be familiar with the formation and operation of franchises and understand the benefits and pitfalls tofranchisors or franchisees of operating a franchise as opposed to starting a new business. A franchise is when a business sells the rights to a business in order for them to sell their products and use their brand name. (For example, Subway). A franchisee is the main person involved with this new business. This person is the person who has set it all up with the franchisor. The franchisor is the business who are selling their rights. Benefits of a franchise include not having to come up with an original business idea, taking advantage of having the brand name when it comes to advertising and promotion and financing it may be easier as banks are more likely to lend to a well- established company in order to buy a franchise. Disadvantages of a franchise include a lot higher costs than you might expect as there is an initial fixed cost then possibly buying up supplies and also the franchisor may go out of business.
    6. 6. Transforming Resources into Goods and ServicesThis topic should be considered within the context of the tertiary, secondary and primary industries. The Tertiary Industry is the service sector. This is all about paying for a service rather than a product. Examples include Beauticians and Lawyers. The Secondary Industry is all about transforming resources into commercial products/manufactured goods. A lot of the time this for leisure purposes such as board games or clothing. The Primary Industry is all about natural resources. These are products such as copper, oil or wheat that we extract. Raw materials taken from the Earth.
    7. 7. Candidates should be aware of the benefits andBENEFITS: problems of plans/planning for small businesses. Producing a document allows people to see gaps in information. It encourages the entrepreneur to focus on whats important and how customers/finance-providers can be convinced at how successful the business will be. The plan provides information which can be used to measure actual performance.PROBLEMS: Its not a straight forward and easy process. Its very time-consuming so the plan is sometimes produced with out-of date information. Financial aspects of the plan are usually created with optimism about the business start-up which is often incorrect.
    8. 8. Contents of a Business Plan Executive Summary Market Product The planning process Competition involves decisions based on the resources to be Protecting the Idea used and factors Management Team providing competitive advantage. Marketing Production/Operations Financial projections Funding Requirements Exit Strategy
    9. 9. The sources of information should include: smallbusiness advisors, accountants, bank managers and government agencies. Small Business Advisors- These are people who are called in to assess, advise and counsel on a topic(s). They provide recommendations. Some are free whilst others charge. Accountants- Help with number crunching, book-keeping, advise on presentation. Unless they are are friend of the business they will charge. Bank Managers- Provide free face to face advice on business planning. Comprehensive start-up guides including business planning. They might also employ specialist local business managers in order for the entrepreneur to have legal contacts. They also provide free networking opportunities at local business seminars. Government Agencies- Such as Business Link (online) and Regional Enterprise Agencies offer direct information and/or advice to entrepreneurs.
    10. 10. Candidates should be aware of the relative value of different approaches to market research. Primary Market Research is basically field research. It doesnt already exist and someone goes out of the business place to get new first hand data. Secondary Market Research is desk research. It already exists and is usually completed online, by visiting libraries and directly contacting sources. Qualitative Research is all to do with quality. Its based on opinions and attitudes. Quantitive Research is all to do with quantity. Its based on actual data and facts.
    11. 11. Methods of Primary and Secondary Market ResearchPRIMARY SECONDARY Face to Face  Visiting Libraries Interview  Surfing the Internet Telephone Interview  Contacting sources Postal/Email direction by phone, Questionnaire fax or email. Direct Observation Consumer Panel Test Marketing
    12. 12. Advantages and Disadvantages of the Methods of Primary Market ResearchADVANTAGES OF FACE TO DISADVANTAGES OF FACE TO FACE FACE Detailed, Accurate Information.  Time consuming and costly Good Response Rate.  Answers might not be truthful and the respondent may tell the Harder to ignore than postal. interviewer what they think they want to hear.ADVANTAGES OF DISADVANTAGES OF POSTAL/EMAIL POSTAL/EMAIL Easy to target respondents.  Low response rate- easy to ignore and its a slow process. Relatively cheap.  Short questions and no opportunity More likely to be truthful. to clarify.ADVANTAGES OF DIRECT DISADVANTAGES OF DIRECT OBSERVATION OBSERVATION Simple and you can survey large  Time consuming and no numbers. clarification.
    13. 13. Methods of sampling should include: random, quota and stratified.RANDOM STRATIFIED Individuals are chosen to be  When the population is sampled in a completely divided into groups that share accidental way. Everyone common characteristics such has equal chance of being as age then a random picked. sample being taken from each group. No bias and a sampling error can be calculated if the sampling frame is obtained. QUOTA BUT, its more time consuming, costly and  When the population is complex. And, the sampling divided into groups such as frame is almost impossible to gender. Then the researcher obtain for large populations. is given a number of people to research in each group.
    14. 14. Candidates should be aware that the available finance, the nature of the product, the risk involved and the target market will influence the choice of sampling method and size of sample. Sample size depends on: The variability of characteristics. Size of population. Sampling methods The larger the sampling size the more accurate the findings.BUT The longer the research time, (I.e data collection, collation and analysis) the greater the research costs.
    15. 15. Candidates should be aware that markets takedifferent forms, eg local, national, physical and electronic.LOCAL PHYSICAL Where customers are only a  A physical market brings buyers short distance from suppliers. and sellers together in the same location. Common for sale of locally- sourced and fresh products.  Prices are often negotiable. However the market size may  EXAMPLE: Car-boot sale. be relatively small.NATIONAL ELECTRONIC The same product or service is  Transactions are completed spread and sold all around the electronically with the delivery country. method depending on the nature of the product. A business may have several locations in order to reach  EXAMPLE: eBay. different customers.
    16. 16. Candidates should know that demand is affected by a range of factors including the price of the product, competitor actions, consumer incomes, success of businesses’ marketing and seasonal factors. Price of the Product Competitor Actions Consumer Incomes  If the price of a  This is what the  Consumer income is product goes up then competitors do. If they the amount of income demand will usually have a better left after tax and living fall. This is all about marketing strategy. costs have been elasticity of demand For example, a deducted. If the though. Some supermarket with a consumer income is products the demand much cheaper price high then the demand will not change demand will be higher. for luxury products will according to price. be higher.Success of Businesses marketing Seasonal Factors This is to do with how well a business has marketed a  This is all about the time of year. product. If a product has been For example, Christmas is widely promoted then the always very strong for retailers likelihood is that demand will and Summer is always at peak- increase. If a product has not demand for overseas holidays. been marketed well then less people will demand it.
    17. 17. Candidates should be aware of the benefits and drawbacks of types of segmentation.DEMOGRAPHIC GEOGRAPHIC SEGMENTATION SEGMENTATION This is about dividing the  This is to do with dividing the markets into groups such population into geographical based on variables as age, units such as regions, gender, family size, income, countries, city size or occupation, education, population density. religion, race and nationality.  Limitations include the lack of information and data, difficulty measuring and predicting and reaching customer segments once identified.  A start-up that is focused on really understanding its market has the best chance of success.
    18. 18. Candidates should be able to calculate market size, growth and share. Market size- The number of buyers and sellers in a particular market. It is what your revenue would be if you had 100% market share in your business. Market Growth- ALWAYS expressed as a percentage.FORMULA: New Value-Old Value/Old Value x 100= n% Market Share- The Percentage of the market owned by each competitorFORMULA: Sales of Firm/Total Market Sales x 100 = n %
    19. 19. Candidates should be aware of the benefits and drawbacks of legal structures and understand plc’s as a means of comparison.Social Enterprises Not-for-profit Trade in goods or  These are businesses services for a social that trade in order to purpose. benefit the community. Sole Trader Surplus goes towards  EXAMPLE: charity. social aims.  Most common. A sole trader is simply an  Social aims include jobLimited Company individual owning the creation and training. business on their own. These are separate legal Partnership entities to the founders.  A sole trader can employ A legal entity can own people but dont share in  A business is started and things itself (assets), can ownership. owned by more than one sue and be sued. person. They are owned by  The partners between shareholders and run by them all own the directors. Shareholders business assets and owe own a share but not all business liabilities. assets and arent liable This means that Partners for the debts of the also have unlimited company. liability.
    20. 20. Limited vs Unlimited Liability Unlimited liability means  Limited liability means that that the finances of the the legal duty to pay debts business are treated as run up by a business stays inseparable from those of with the business itself, not the business owners. If the the owners (shareholders). If a company has £1million of business has debts that debts and has insufficient the owner cannot pay, they cash to repay them, the can be made personally courts can force the business bankrupt. Two types of to sell its assets. If there is businesses that have still not enough money, the unlimited liability would be company is closed down, but Sole-Traders and the owner/shareholders have Partnerships. no personal liability for the remaining debts.
    21. 21. Sources of finance should include: ordinary share capital,loan capital (bank loans, overdrafts only), venture capital and personal sources.Ordinary Share Capital Loan Capital Venture capital loans typically are entitled to Ordinary shares in the equity  interest and are usually, though not capital of a business entitle the necessarily repayable. Loans may be secured holders to all distributed of on the companys assets or may be unsecured. A secured loan will rank ahead of profits after the holders of unsecured loans and certain other creditors of debentures and preference the company. A loan may be convertible into equity shares. Alternatively, it may have a shares have been paid. This is warrant attached which gives the loan holder also known as equity funding. the option to subscribe for new equity shares on terms fixed in the warrant. They typically carry a higher rate of interest than bank termVenture Capital loans and rank behind the bank for payment of interest and repayment of capital. Venture Capital is a form of "risk capital". In other words, capital Personal Sources that is invested in a project (in this case - a business) where  Things such as cash and there is a substantial element of investments, redundancy payments, inheritances, personal credit cards, risk relating to the future re-mortgaging and working for free. creation of profits and cash They are important because they flows. are cheap and they maintain control.
    22. 22. LOCATING A BUSINESS: The factors should include: technology, costs, infrastructure, the market and qualitative factors. Candidates should understand that their relative importance may vary according to the type of business.Technology Costs Most start-ups can quickly  Costs and proximity to establish reliable broadband customers are key factors in internet connections. choosing an optimal location. Infrastructure The market and qualitative factors  The basic physical and  A start-up may need to be organisational structures and located near particular centres facilities (e.g., buildings, roads, of population. and power supplies) needed for  Franchise business often the operation of a society or analyse the population enterprise characteristics of a potential new territory before setting up in a new location.
    23. 23. The types of employees should include: temporary, permanent, full-time and part-time. Candidates should be aware of the reasons, drawbacks and difficulties of employing people and/or using consultants and advisors. TEMPORARY PERMANENT PART-TIME  They dont have to  There are  Often dont have to have a permanent committed pay national contract so they are members of staff insurance. Lower easier to get rid of. employed. Worth costs. training employees  People want a if on contract.  Lots of different permanent contract. people, more Harder to employ FULL-TIME employees, more people. people to call on. Businesses know  who their staff are.CONSULTANTS AND ADVISORS They can train people on the job. Self-employed. Individuals and businesses external to the business which provide specific services and advice. Eg. Accountants, Lawyers and Marketing Specialists.
    24. 24. Candidates should understand the relationships between cost, price, revenue and profits. COST PRICE The total capital, time and resources  A value that will purchase aassociated with a purchase or activity. definite quantity, weight, or other measure of a good or service. Fixed Costs are the costs that dontchange when output changes. Variablecosts are the opposite PROFITS  The surplus remaining after totalREVENUE costs are deducted from totalSales revenue (or turnover) refers to revenue, and the basis on which the total value of sales achieved tax is computed and dividend is in a particular period. TOTAL SALES = VOLUME SOLD X paid. AVERAGE SELLING PRICE.  PROFIT = TOTAL SALES – TOTAL COSTS.
    25. 25. Candidates should understand how start-up businesses may use contribution and break-even to analyse theimpact of different costs and prices, and make decisions on whether to start the business. CONTRIBUTION CONTRIBUTION= TOTAL  BREAK-EVEN SALES – TOTAL VARIABLE  BREAK-EVEN OUTPUT= COSTS FIXED CONTRIBUTION PER UNIT= COSTS/CONTRIBUTION PER SELLING PRICE PER UNIT – UNIT VARIABLE COSTS PER UNIT  This is all about calculating the TOTAL CONTRIBUTION production output at which the COULD ALSO BE business achieves break-even. CALCULATED AS  Break even output is always CONTRIBUTION PER UNIT X expressed in terms of units. NUMBER OF UNITS SOLD Contribution is the difference between sales and variable costs of production.
    26. 26. Candidates should be aware of the strengths and weaknesses of break-even analysis. STRENGTHS  LIMITATIONS Tells the entrepreneur how long it will take for the business to become  Unrealistic assumptions are profitable. sometimes made when products are not sold at the same price at Helps entrepreneur and any sources different levels of output which of finance to understand the viability causes the fixed costs to of the business proposition. change. Margin of Safety calculation shows how much a sales forecast can  Sales are unlikely to be the prove-over optimistic before losses same as output. are incurred.  Variable costs do not always Helps in trying to understand the stay the same. risk involved in a start-up.  Should be seen as a planning Calculations are quick and easy. aid rather than decision making tool.
    27. 27. Candidates should understand the sources ofinformation for cash flow forecasts and understand the significance of the forecasts. The main sources will be:  Cash flows are VITAL for a Entrepreneur experience- some business. They are used to: assumptions will be make on  Identify potential shortfalls in instinct. A cash flow forecast cash balances in advance. A bit produced by and inexperienced entrepreneur has to rely heavily on like an early warning system. other sources.  Make sure that a business can Market research into the key afford to pay its suppliers and aspects of sales and costs- employees. Example: Seasonal Fluctuations in Demand, Average Selling Price and  Spot problems with customer Quantities in the Market, Typical payments. Gross Profit Margins.  Give to external stakeholders Suppliers- mostly about timing and such as banks who may require costs. a regular forecast. Advisers- Example: Business Link.
    28. 28. Candidates should be able to amend or complete a cash flow forecast.  Cash inflows (into the bank account)- When customers pay for their sales, when a loan is received from the bank, interest is received or when assets are sold. These are movements of cash into the business.  Cash outflows (out of the bank account)- When suppliers are paid, employee wages and salaries are paid to the bank and so on. These are movements of cash out of the business.  Net Cash Flow- The difference between the total cash inflows and the total cash outflows. This will vary by month.  Opening Balance- Simply the balance in the bank at the start of a period. For a start-up this is often 0. The opening balance in any one month should equal the closing balance at the end of the previous month.  Closing Balance- The amount in the bank at the end of the month. In the exam you may be asked to calculate this balance. The formula for closing balance is: Opening Balance+Net Cash Flow.
    29. 29. Limitations of Cash Flow Forecasting. Sales sometimes prove lower than expected. - Often too easy to make optimistic assumptions when starting-up. Market research often helps this. Customers do not pay up on time. - This is a key issue for business that allow credit for a certain agreed period before they pay for their purchases. This is very popular with expensive household items such as TVs or Sofas. The cost of raw materials and other inputs prove higher than expected. - EXAMPLE: A business may underestimate the price that has to be paid for each supply. Certain costs are not included. - This is an extremely common problem in start-ups particularly if there has been no previous experience in the market before.
    30. 30. Candidates should be aware of the reasons forsetting budgets and the problems in so doing. PROBLEMS   Putting a sales budget together is  A budget is a financial plan often hard for a start-up because for the future concerning the there is perhaps no experience in revenues and costs of a the market and they have to business. predict sales volume and prices.  Budgets are based on estimates  Businesses use budgets to and assumptions so the actual measure whether key results always turn out differently. objectives and targets are being achieved, to control  Start-ups have no trading history. expenditure by allocating who  Time Consuming. can spend what, to provide a  Limited motivational effect, sense of direction and to especially if the business has no monitor actual results against employees. budget.
    31. 31. Candidates should be able to amend or complete a budget. Income Budget-An  Expenditure Budget-This is operational budget based an expense plan and is a upon achievement of specific vital part of a start-up income levels. because the business is likely to incur costs before  Sales Budget-A sales it even starts trading. budget is a detailed schedule showing the expected sales for the  Profit Budget-A planned budget period. financial forecast for the  It need to take account of net income of a business. market research when being completed.
    32. 32. Candidates should be aware that objectives for start-ups may vary and that determinants of success and failure depend upon the circumstances.  TO SUCCEED- You need a business COMMON OBJECTIVES model that can make money, a market in the gap and a well executed idea. Financial- Capital gains and You need Entrepreneurial characteristics: just the fact of making a Passion, commitment, resilience, living. energy, initiative, risk-taking, multitasking, hard-work and lots of luck. Personal- Proving people wrong, gaining control and  WHY START-UPS FAIL- No market in building something. the gap because of poor market research, an unrealistic plan and competitor response. Social- Because your giving something back. Good idea, poor execution such as the wrong people so consequently poor management, if growth is too quick or too slow and there is a failure to manage cash-flow. Or it could be due to economic shocks such as the credit crunch.
    33. 33. Causes of failure should include: unexpectedchanges in demand or costs, unavailability of supplies and delays. (pretty self-explanatory)