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    Clear Revise Business Gcse Edexcel Book

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    PollarOpposite

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    © All Rights Reserved
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    (obs, PG ONLINE ClearRevise 2 Illustrated revision and practice A Edexcel GCSE Business > f CONTENTS ey Section 14 Enterprise and entrepreneurship ‘Specification point 11 Tre cymamic nature of business 112 Rick and reward 115 therole ct business enterprise 115 therole cf entreprenaurchip (Case study: The Blue Ribbon Dance School 12a 122 122 125 125 124 ‘Customer neode Markct recente Market research methods Market sogmentation, Market map The cormpettve environment 131 152 132 135 138 busness aime anc objectives. Business revenues, costs and profits Break even Cashand casviiow. Sources of busness nance. Luabity and owrersnip. Hrancnsina, Busness location The marceting mix Busness plans. Examination practice. eee Wy Cloarmevise a 23 29 0 4 2 38 Do00000 &® oOOD00DB wR ooOoooow DooooooS Section 15. Understanding external influences on business ast 152 15s 154 155 ‘Theme2 Section 2 Growing the business Business stakenolders. Technology and business co Legitation and business. co Ihe eccromy and business co External infuences, Building a business ‘Specification point 21 Business growth Ho 211 Financing growth co 242 Changes in business ame and objectives. 2.1.5 Business and globalization So 21.5 Barris to ternational race. co 214 Ethie, the emironment and buses nn Case 24d) MES oo [Examination practice wrveeerseneeeeesnnnnnnceerenenineenntinnncnnnnnenee ee eee eed pea pea 222 228 22a 22s Procuct. The productte cycle — Price... Promoton, Place Using the marketing ix to make business decisions. Case study: ASOS.. Dooooco® Dooccooooe Doocooooo® ae el 2a 282 242 285 234 ee el a Business cperations - 6 O Bar gate stock graph. oo 6 O Worlang with suppliers. - 2 o Managing gusty. oo . 65 O - co cennnce6A OD a a e ———— rs ee ge ee 2 me e : : sammnation practice answers... co svn Levels bazed mati echemes for extanded responce question... en) Wi Clearmevise COMMAND VERBS Points-based questions ‘This question type will only appear n Section C of Paper 2 They requre you to recall Jneoedge ane wil always be wort ra “Tic requres you toque an accurate defiionct a key {arm wllonly appara Paper 2, Secon twat be ‘won Vera wile uso ‘merchangeably waive “questions! “This tmark question tess the dll ofappleation Iva linked 0 2 case tu, 50 wil Sppoat Section B or C of finer paper Your esponse must ben the content ofthe bushes te case study or ‘yeu aot gaa marks SS w= a-— “Ths question type requis you to find a pleco of inforration fiona chart, dagier, gph or other quertitave mater, Ween _araaeneg these, you co not peed to weta in full carters. just {rte cone the conect piece of rfermatont wi aways be woth {mark and could appa ie Soction B ardC of athar papar (Calculation questions wil alvays be werth 2 marks Yous 0 not {2 ny marks for sempy wetieg the formula. A conect answer wah ‘Bua/s~ -ouldbe nine certo of re usines Why s this option the bes!? What are ‘the key ponts that have led yout that ecsion? One wayyoucan showhgh | level evatatve sls sto use me 't depends on. ‘rule. What might your fra! ddeccion depend on? wer .clesrrevizecom TOPICS FOR THEME 1 INVESTIGATING SMALL BUSINESS 1BS0/01 Information about Paper 1 paren ‘The paper will consist of calculations, multiple-cheice short-answer Cee ne eee net eee bbe based on business contexts given in the paper. THE DYNAMIC NATURE OF BUSINESS Businesses operate in dynamic markets, meaning that they have to cope with an ever-changing environment. These changes occur because customer wants are constantly evotving, often driven by changes in technology. Te be success, businesses must have an appreciation ofthese Changs and develop Or adapt products te meet these needs his can lead to new Eusines ideas arc opportunibes Some successful businesses emerge Decause ine entrepreneur comes up wth {an ongnal product that meets 2 need thats not seniced by any esting business. A product becomes obsolete wher i ceases to meet customers nee. Needs an change fer enry reasons, bul very ‘ten t can be duc to achioncements 9 technology. Keeging 3 product upto date wth customer needs importare 2 Dsiness wants to contrive to be success As technclogy cevelors. new opporunties arse tna businesses can take avantage ot 2 fennard thinking busress tat embraces change, and swing to uy cut new ideas, can gan a compettwve advantage ac more technologically advanced products val be ‘sought after bythe consuzners. lecrologcal advancermerts canalso help a business (0 become mote efficient in terms ct peducton, allowing producte tbe manutsctured more “ely, roee quickly ane Yor les enct The needs of customers are constantly changing. Businesses must adapt ther products Pine wth demand to ensure they are meeting thare need: and to prevent custerners going tercemponiters.8y doing 20, ow buriness ‘oppertunnies arse irougn changes in fashion, Ineeconomy orn he lees o society. RISK AND REWARD ‘When deciding whether to go ahead with a business venture, or when making business decisions, an entrepreneur considers the risks and rewards associated. with it. Some businesses may be deemed rise han oirers. Common examples ot such business arethose ‘at face seasonal demanc or operate in highly competrive markets, Business rature Pront Fhe umate isk that an enueprencur A Lsiness wll make a profi whens revenue excess faces when starting a business, the toll costs overa peviod oftme This would be the iefolure Alot of business wit ‘inane reward that mact entrepreneur wil sein fal because tney vl fun cur of retum forthe neks they take funds ara tnerefore cannot pay for Dusiness Sveti Bey mete: ‘Success comes in different ways for different Financial loss entrepreneurs. For many it may be firancial, However busineseesncklosra any eapital there ae huge ner-franceal rewards such 2s hang lnvestment hat tie owner Mas put ———_pessonal satisfaction running a busness thet in personally f twere tofal the performing well, doing good for sciety or gaining busress hat unlimited ability, tye recogniion tough awards ‘owner's personal assets would also ees be att F the business cannot pay Many entrepreneurs wil value wotkrg for thernscives ici ‘and beret from the fredorns that this may berg, Lackof security rather than werking for sorneone alee wha may Seine When an noida sets up business. their working Nours. Independence also alow the they do nothave a quararcecs ‘enepreneur io make al the key decisions which can reqularincame. these alzo wail nat be very rewaring benait rom cick, holiday or maternity pay. This could make paving ter ‘own bls, suchas a merigaue, very dificult wth severe consequences for missing payments r ‘Asia's winking of siting up 2 frutand + ‘eg stl athe local epan a market . Cutie emer that Asta right face in setungup he market stall BI THE ROLE OF BUSINESS ENTERPRISE ‘Abuses must proved what lis customers wan! or need. A bushess wil do hs by preaucing ‘goods cr services theses or by buying them fem a supplier inorder to sellon to customers, These must be products that customers ae wing t> Buy ‘ded value the clference between the varlable east of the product arate pre that ‘customers are willrg to pay for tis acheved by ther reducing the cos or by guirg the ‘customer a reason tc accept higher price. Addad value can be achieved by the folowng methods: product that saves a customer ulanga strong brand name wi qve a business a good time one that may meet their Feputation arc makes products mere scughtafter. This need Detter Inaretore they will alews the busnazs to increace te price. Customers il be wiling to pay more for it pay 3 pramium so they can have that brane preci A product that sof high quality, whetherit ben lor have supatir function, willbe abie to be peca. Customers wills wiling to pay more for scenething that Periorms netior ‘va products ‘unique selling point isa charactersic or feature ofa product that maker & diferent from al other products inthe market. A USP canis be ganneo rom naving unsque packaging or oustanding customer service ‘compared to nvals. Customers re tel tay ‘more for something ts ° . i fom ‘plain one benefit a business of adding value tot THE ROLE OF ENTREPRENEURSHIP ‘An entrepreneur is someone who starts and runs their own business. In doing 9, it is important that the entrepreneur demonstrates the necessary skills to: [An antiepreneuir must manage mary ctforent resources. nese include numan rescurces arc capital Organising human resources volves the entrepreneur encuzing thay get the bast out of Tair employees. Organising capial nvclves ranagrg the business finances. well asa the resources used to ressarch and devcop the Product oF to provee the sence | Decisions are nat always e2sy to male [Asan examnle, an entrepreneur will need to dace what the sire ofthe business 310. whether thay need to ernploy peple ‘and wnat product to sell Ir they ae nck decisive, they mey miss opportunities Showing intative a key sil as italows the leniepreneur to say ane ct cornpetiion Running a business vertu i sy, but to be suecesstulan entreprencur must be able to acknowledge? and evaluate these risks. Fists can be managed ard steps can be token t recuce them, but an entraprencur anne plan for every aventuaty ard must be prepared to accent tne outcomes of theractone and decisions, “There are about twee rllon active business in the UK. OF these, between 10% ‘and 12% of business fall each year- There are about 350,000 new businesses ‘reqistered in the Uk each year. Hal ofthese are Ukely to fal within three years. [rere atd ener aed CASE STUDY Khadija suns a Dance and Performing Arts School, The Blue Ribbon Dance Scheol. in her local vilage. Khadija has a passion for teaching and loves to see her pupils performing in local competitions and in local amateur dramatic shows. The dance school offers high quality training for all ages (toddlers through to adults) and abilities. radia decided to startup the Dance Schoo! back in 2015. She hed bean werkingin the loca Figh school, teaching Dance a part ofthe schools GCSE PE programme She very quicéy realised that there was alot of loca talent but mare importantly she noticed ustRoN mary people enjoyed taking part ‘After conducting come research Kacijz noticed that there were no other dance schools in the local area so decided 10 sei up her own dance stuclo ‘She wants to invelve as ‘mary people irom the local ‘communty as possible and ‘asa result has deaberately epther pricing low. making her lessons scresabie to al Since 2015 the schook tras been successful, with ‘mony pupis coming aivards in competitions and former pupishavina a careerin the eforming ars. 6 ClearRevise EXAMINATION PRACTICE 1 Agames In wnat way has the manufacturer added value ta is pce ict? ‘A By lowering the price ofthe corsole B ~ By raking the price ofthe conscle. Through trarcing, 1D With improved design onsole manufacture: has updeted is latest console wan rrproved features. 2. Which twe of the folowing are examples of svicas A Buying 2 new desk for your room trom an eniinefuriture sore 1B Buying some sweets fn ts local convenience store € ~ Paying tax diver fora to he arport 1D ~ Paying.avet for an cperation they pestorned on your pet FE ~Visitrg the Inca dei to purchase some cheese 5. Explain one meinod a business may use to acd value 10 a product 4. Explain one reascn why itis important that an enireprercur can organise rescues, Llane acvantage to an entrepreneur of running their own buses For the following questions you must refer tothe care study on the previous page 6. Outine one reason way Khadija came up win we dea ior The Blue Riven Dance Schoo 7. Pealysethe isk that Rradja might face in running The Eluc Fibbon Dance School 8 Evaluste whether profit the main reward that Khadija sae from running Ihe Blue sbon ‘You should usa the information provided! ar wel as your lnowledge of business Edexcel GCSE Business 2650 a Pl PI m1 CUSTOMER NEEDS Businesses must meet customer needs if they are to be successful. In providing products that customers find desirable, businesses will be meeting these needs. Customers want a precuct that sti theirnedt When Customers wltcemmand croosing which product ic buy, tere atea number ot atterent. |_Yalue for money. Some i customers wil be re topay a ngher price F thay 4 sealthe product swerth 1 Otner customers wt purchase the precuct that has the lowast prica. The Customers wil expect to be able to choate For a range of buses has to decie wnat dlerent peceucts Ihe more chocethey have. the move lkelyit _IPeE Customers ae valing to Is tat er news willbe res pay when seting the price. Customers wit expect ‘fe productto be ofa sufficient standard and the dusrece must match these > expectatons. weiner the product iscf a very high ‘uty wl be depenaent ‘on the expectations of the ‘roe market ousnesses can make ite ver for customers, than ‘rey are mere tkely to be able io meet ther neces Forinstance, the Easiness ‘could chose a loestion| ‘hat is reaty accessible for 8 CieamReviee MARKET RESEARCH Satisfying customer needs is the key to success. One of the key reasons for carrying out market research is to find out information about what customers want. It will also give a business data on the market itself and any potential competitors. ‘To identify and understand customer needs By canying out market esearch a business can asceriain exactly What the custorner wants ‘To identify gaps in the market By looking at what ake i avilable inthe marke, ausiness Toinform business canting our i there are other ousresces who ave selina simibr | decisions Broaucts hee ae nen DUNES TYNE BABI anon astomers, aries teres {and compettors al alow ‘To reduce risk atusiness tohave a better Understanding as to what ‘Market research can help establish whether there wil be productsto sell howit suffeient damand fora product Without finding out tis ‘should premota them, Information a business ray produce and all a produc that where eho eat nobody wants! and at what price. ‘Discuss’ questions canbe answered ina number of ways. The key i to ensure that you have at leas fve Inked stands of evelopment across one or two valid points. To achieve this, you nsed ‘ouse clear connectives, such as therefore, this leads o.-, because. et [edencol GCSE Business 1880 - Section 12 ° MARKET RESEARCH METHODS ‘When a business has decided what information will be helpful to them, they then need to decide how they will find out the information. They can gather information themselves or choose to use information that has already been collected by others. Primary market research is rw infoirnaton that = colected frst-han! by the buses. tinctdes ring out a survey, ashing peopleto fil cut a questionnaire, icing fecus groups and carrying 5:4 obseriations Benefits Drawbacks + Ihe informacion coltacted wal be up to date + Itean be iene consuming to cotect, + ne questions asked can be tailored to ascspectic + the research s open to potential Das, ‘questions relevant to the business. ‘depereing on the sarrple used. + Hallows thebusiness to have direct contact wth» Gifenmere expense. ‘exsting and potential customers. When conducting pimary market research,» business may want to find aut infcemation about their aistors. their competitors and the market tselt (Guestons iney shoula tnd ine answers fo nclude: I ‘Customers: Markot: + What price would custemers be prepared = Are more prople being attracted tothe market er to.p9y for he procuct? ‘sdomand dropping off? + Wht do customers ke about the product? + How can the product be improved to better meet customor' rade? + What features cf the product are mest Important to custorner=? + What's the demographe ofthe tkely target market? ‘Competitors: + Who are the main va? + Wht aes cornpetitor products unique? + Wy mant a potential customer choose toby foracompetio? + ow are competitors products pricec? 10 Chummevise ‘Secondary market research s whee a business gathers data that alley exstsas & hasbeen collected by somanne ele. samples neue researching on the Internet looking at market reports 2nd ccoszing government reports Benefits + is usualy cheaper than primary research, 4 hcan be less time consurning because information ‘emore easly found. Qualitative data © b2cad on people's tectings: Jdgerten's and opinions. and cannot be expressedtin pumercal form. Quantitative data s urerical and can therelore be more easly statstealy aralysed aret research wil be more effective when a busnest uses a combination of both quanitatve and qualtatwe date. Managers need tobe able to expan the statistics ard figures that have been colecied. Qualitaine dota allows them to do ths market research & novertacwve # the cata s urvelable The use of seetal media hac hoc positive impsct when conducting research, Busiraccos have Deen able fo collect si-nerd information much more cucky land more cheaply than through wagtiona resricds. MARKET SEGMENTATION Market segmentation involves grouping customers together based on shared characteristics, wants and needs. Once the target segment is decided upon, the business must decide what their needs are and where to place their product in the market. roupieg customers nase on their hobbies and interests or batadion the wy they ve ee Grouping customers lves(ea. neat conscious x together based on where and active theylve The buisness may . enoweto focus of sting te people ia conan areas === Abusiness may decide to ‘gmert the mrtet based on Pf ——_satstcalaataeztina to ine population, For nstancs, they \ Grouping eustomess bases ‘enon much money they ‘ein Rousse may be 2016 tw charge moreto aigner ay decide io target single patent fame. or youne counts con serena met cour Tenet || oer BOA potentially attracted to the business. Also, they may miss ormnon ANGST, rad the busness been focusing on the market as a whole Inscan cause overall sales ngures i fa Cost ‘Acapting promotions to aut each ncvidual agement can ‘cause cents to create. [nie ebacsure aach cargagy has to be slighty citterent to meet the exact need 01 tnt segrnent Need tore-evaluate Customers charactetisics and desires will change over time. Theretor, a business ust continual review its [acne in order to enue that ke sl tractive to llthe Ctterert segments is targetng, 2 Ceamevise MARKET MAP. A market map is a diagram that helps a business to position their product and others in a market. Products or brands are plotted against two variables, such as quality and price. The variables used will be based on the needs of the target market. Businesses ae able to sce f there 5 apart of the market wnere tnere are no proaucts.Ihis may ‘mean that thee i gap in the market whcre customer nocdsare not eng rick Market rape ‘aso helps 2 business to find cut who ther closest mais are and how they are perceived Proguctsate plottea on the diagram basec' on ine opinions and perceptions ofthe person creating it This may not reflex realty apd businesses nay make poor decisiors as ares. Abusive tha no demand spots 2 gop m the market must be cautious [ners may be a gap beau fer the ‘ype of product that thy have idertied Why are there few brands inthe High pice, low quality quecrart? The example below shows a matket map for the car marke. it compares a parcayec quality fats ath he price charged to customers. THE COMPETITIVE ENVIRONMENT A competitive environment is one in which there are many businesses selling similar products, each trying to attract the same customers. When operating in a. competitive environment, a business should look at the foliowing features to assess just how strong each competitor is: ‘business may choose ta dferertiate sf by reducing products that are ofa beter quay Therefore customer willbe atracted because tey may seek a arog thats Supenotwn erms ct ncton anc aural. Nakina nats gonniney acres in tit rises, can encourage 20 Word of mouth wl hep to bulla postive reputation that wil so Pea meremneenen | torte prcauct ts etd rles on bea cathe freductchcaply 50 crouah pot sade of Haring a wide product prio wil give customers more choice. Tis may make them more Bey to uc from that Bunez than form are that hae a namrewer product ange CASE STUDY ‘Micah has a paszion for the outdoore and recently finished studying at agricultural college. gaining qualifications in landscaping. Wanting to work for himset hei thinking Construction of walls, pats, fencing, road, dives and tennis couts(o around clearance, turfrg tre plarting, timing and pruring, As a keen gardener himsei, hes also looking to offer everyday gardering sanicer,inclucing mowing and lawn care He hac a detailed knowledge of plants and hopes to be ate to ctfer horticultural services in tie. Before deciging wheiher to tart, Mcan has cared out some market research To begin with, Micah looked onthe Intemat to cee wn hie rival Businesses would be He found that there were: several other: already cet up. To help Fim understand thase competiters bette, he platted them ‘on a market map based on hisknowledge ofthese businesses. One ofthe competitors is Green Gardens Lid, who offer al services ata competitive price. After creating the map, ne concluded ‘that there was a gap inthe marke! for an upmarset sevice As ares, has decided that he must ferantiata his sence in corre way in onder to attract encugh custom to imoke hie busineces success eS ee Peg aerate iene nantes ‘As part of his secondary research ne also looked at population data rom the mast recent census. Fen ‘that he dicovored that the vllage had 3 large proportion of eldery people. He believed that this proves tna there would bea sufficient cemand for his services He ao surveyed his rende apd family 2 ‘ther thoughts on him setting up this business. The ‘esuls were very postive and encouraged him further that he could make this @ successtal business, Fdoncsl GCSt Business 1850 — Section 12 EXAMINATION PRACTICE 1. Which ene of the folowing would be 2 reaccn for ereating a market rap? - lofind out what customer noeds re 8 ~ loideily any potential gaps inthe market ~ lo lower the breakeven level of sale lo snow haw much Frofita business maka, 2 2. A business has decided to siock a wide product ange as they believe that this is nat customers \Whicr ene ot ine fobowsng customer needs the DuSness tying to sais A-Croce 8 Convenience 9- Quality 5. Liplen ene benef to 2 business of using a focus group, 4. Caplan ene reason why business might want to colest quantitative data 5 om n ene drawback to a business of using secondary markst research Ferthe following questions, refer tothe catestudy on the previous page. 6. State one way that Mican could meet the naecs of ns potential cusicrners. J. Qurtne now mican couta segmere the marke. 8, Analyse the npact on Micahs business ‘om operaling in a compete market 9. Evaluate the effectiveness ofthe research that Micah conducted. You shautd use the inforration provided 2s wel as your knowledge of business. 16 ClorRevise o a a wa, BUSINESS AIMS AND OBJECTIVES ‘An aim is what a business hopes to achieve in the long term. It can also be referred to as the goal of a business; itis the reason that the business is in existence. An objective is more specific and is the short-term target that a business secks in order to fulfil their aim. These are aims ard objectwes tha te related 10 money. [ney includ the folowing survivat Businesses must bring enough to cash to pay forall ther bls 0 that thay can continu to wads Pron Eusiness revere that exceec £S costs creates profi. [his « the main objective for mary usnesces, particulary these inthe prvate secter Sales Businesses set tnernselves a goal to increase the umoor of products orsenices they sll Market share Iss the percentage ofthe total sales ina ‘matkes made by one business. Sometires a kusness will piortize increasing thor markt share so that they can become the comirant rem, Financial security [Ensuring that» busines: generates enough revenue so that the business becomes se sulicent. An entepreneur may 380 want Fave cnough personal wealth2o that they Ive comfortably withous financial worry These are aims and obecives thatare not related io money. thay include the following: ‘Social objectives ‘A business may prioise the people arcund them. Iny wil ry too the nght thing for society Personal satisfaction Ini the objectwe of some entreprencurs to run a busnecs in an area that interact ther, They achieve saistacion and happiness trom ‘owring their own business in that secice. Challenge Some entrepreneurs like the personal ‘chalenge tat comes wan sectng up ther ‘own business and making a success of Independence and controt Some entrepreneurs wil ike ea of being the ovr boss, so they sec up an run the ‘own business. By doing this, they have the freedom to make ther own decisions and ean ‘conwolther own werking Fours. BUSINESS REVENUES, COSTS AND PROFITS To be able to accurately calculate profit, a business will need to know its, revenue and its total costs. If a business can calculate these then it can. also carry out some analysis by locking at what profit it will make at different sales levels. Revenue i lz0 rolered toa sales revenue cr turnover I the total amcunt of income emacs fiom selling 3 product cr emce Ricealeulatd by using the flowing fel Revenue = Selling price x Number of units sold Fired costs ate those that do not cnange in ine wit changes output An example would be adverising costs. ‘Variable carts are those that wil charge directly wth changesin output An example woul be ra rmateras. the forma tor toa! vanatte costs “Total variable costs = Variable cost per unit x Number of units sold “Total conte 22a he cots aed together {hata business ncurs n making a product or Profit ic made when the reverus received micaade the total cess. I! busness has total cost that are Greater than revenue itis called a less. Profit= Revenue Total costs In the exam you wll always be giver ful marks forgiving the correct answer, regardless aso whether you have shown any workings outo: not. However, tis a ‘good idea to show workings out. you ‘male a mistle with the firs answer you ‘may sil pick upa mark for showing your calculations When a business vorows money trom the bank, the bank wil chaige theman interest rate. 1h expressed asa percentage per annum. Ihe formula used tc calcuaic the interest te charged ona loan (Totat repayment — Borrowed amount) + Borrowed amount x 100 Inthe exam you ray be asked to demonstrate your (quandiauve dll. This could include calesbting percentage nereates For eample ia businosseatmod £5,000 proft in January bu earned £6,000 in February, whats the percentage increase? Te caleuate ths you need to use the following formula: (Ditfrercain fguros = orginal gure) 100 In this case it would be: (1,000 = 5,000) x100 = 20% Profit has increased by 20% Fdoicol CS! Business 1850 ~ Section 13 3 Eg BREAK EVEN A firm will break even when it sells enough products to generate sufficient revenue to cover its total costs. ‘Anew business rust know how rnuch it aed to elso that & can ensure tha the business & viable: A brealceven analysis is usc to aid 9 business in making decisions about what price 19 charge, how erch to produce and to hep in managing cost. Ihe break even level of output the number of products that a business needs to sain oxder for revenue to equal total costs, I can be calculated using tis fxr Broak even = Fixed costs + (Selling price — Variable cost per uni) Brook even anaiysis 5 particulary useful for new start-up businesses sit wil allow them to scot thairbusness ie wae. Unis because they wil know how many products or sanicae tay need to sellto cover their cas's. They can then decide wether that is an achevatle aMourt. Brook even Ss used for whotif analysis. A business can change the veriables, such a the seting pce and variable cost por unt, to cee what mnpact that ha on tha level of break even. he wil so tall the Business what might happen to presi Ives 50 it can make important decisions lated :0 price, production levels and cost. Break even can also be shown dagrammatcaty with the usc of a breakeven chart this chat, 2 ‘susnacs vil plot it cost: and revenues at diferent Quip loves in order find out the break ever level of ouput. When constructing a break even chart, reverus, total costs and feed costs must ach be plotted «000 ene 3 : < 3 ‘Break even point: [hiss asc browns the breakeven level of output As you can see. this artcuar business needs 1 sell 000 products in order to recelve enough revenue (0 cover Is tot Coss At thi point, protit wuld be £0, neither a profit nora lossis mack rofittoss: Heyond the break even point. reverue exceeds total costs. Iherelore. the business aking a prott tary curt level above 5.000. Below the break even level of cutpur total costs are greater than reverve so the business i raking 2 fs Margin of safety: The margin af safety isthe diferorce botwoon the actual curput of a business and the break even level of output Ifthe businessin the charts producing 10.009 unt then the ‘arg of safety alle 3000 unas (1.000 ~ 8000), This eneans Ura sales can aap by 5090 unks ‘before alos: ermads. CASH AND CASH-FLOW Cash-flow is the amount of money flowing into and out of a business over a period of time. Having enough cash is critical to a business. Many businesses fail because they do not have sufficient cash to pay all their bills. |Aburiness utes cash to pay for allie dy today expences. |his include payng its employees and baying Tors supplies. Witnout woreers, mst businesses could not continue. Wehout sump. tne Dusness Could not produce Ks product or provide ts serve. Ifa business does net have enough cash to pay forts bils when they are ue, its said to be insolvent hic wil lead to the fre ofthe buses (Gash 1s ne arrount of money that a busiress nas avalabe to pay for is Gay 0 Gay expences. Prof 'Sthe diference between revenue ard toll costs. A protable business can tun Out of cash. This ‘sbecause 9 busness records revenuc as soon asa sale sade. but they may nok receive actual payment rnmedistely In the rtermn parods lage bil ray baceme due. Inthe srawer givon 1o the question above, you can ce that two athe reator ivan ae seaconal {éemand and poor credit terms. As his was a‘Discuss question the response can be gener. I this was an ‘Analyse’ question would be linked to a case study and you would have to apply your response tothe bushes inthe case study. Make sure you read it thoroughly as it wil give you hints 125o why the business had cash-flow difficulties. Other reasons could include: + Unexpected changes n costs. + Having too much cash ee up instock that cant be seta. + Unexpected changes in demand + Overtrading pending too much on expansion) Aeath-flow forecast 2 prediction of tire cash infaws and outflows cr a business Totatrecoipts| :19.000 90,000 a0) 50000 “Total payments P5000 153000 sau e000 Net cash tow 53000 (45000) (2000) 70000 Opering balance 2,000 ‘50000 S00 ‘a0000) Closing ptance 0000 15,000 ‘a9900) 10000 ‘Abusiness wil use a forecast spot. in acvance. nen fs ikely to have cash-low aicules Therefore the busess can take action to ensure that t does not run oUt of cas n the examote above, the business [00k ike it wil nave problernsin March, Inereire, the business should ake ction toercure that t doesnt cnccurser nanal probes 6 Remember the lallowing! Aneram question could ask you toil inthe blarks on a cash-flow forecast: + Net cash low = ota receipts — total payments. + Closing balance = opening balance 4 net cash flow. + Opening balances atways the sameas the previous mantis losing balance Better credit terms: business could encourage is customers to pay cash upfront rather than ‘offering them trade eredit. t could 32923 for 3 longer period of trade eect fom Re supplies ‘Arranging finance: 4 business coud seek financial help rom others in or0er fo increase ts Feces ‘duting peroas of poce cash flow. his could be inthe ion ct a bank overdraft excel GCSE Business 1880 ~ Section 15 a SOURCES OF BUSINESS FINANCE All businesses need finance whether they are just starting-up or whether they are well established. Businesses need finance to expand the business, invest in new products and technologies as well as for paying for everyday expenses. ‘Short-term sources of fmance ae oeneraly used when a business needs io rae small amounts Cf finance or when they can be repaid back very quicky, Thy are usec for things tke purchasing “Bock or rezchwng a short crm cash low problem. Sources include ‘Overdraft: An overdrafts an agreement with the bank hat lows 2 business io spend more than they have in ther bark account up toan agreed lit. This must be repaid to the bark. “Trade credit: Trade credits otter when a business receives goods from a supplier bu doesn't ‘actualy have to pay for hem unt atte an agreed amount of ume (eg. 28 d3y5 Long-term sources of finance 21 generally used when a business ques 3 lige amount of ‘nance over a long petiod of time. for example when a busress is expanding, Scurces include: Personal savings: Ihe owners of ols tracers and partnerships may choose toinves their wn funds nto the business. A Benefit of thi that ost not nas to Be rep bua toes mean that the owner won't have the turds avalabe for anything ee. Venture capital: Venture capital is france rated ficen successful entrepreneurs, banks and Frivate equty companies in return fora share ofthe business, which means the owner lntes come control However 2 business may benef from the experience ofthe verture captalst. ‘Share capital: Share capital : france raze frorn cclling zhares in the business. hie mean that ‘some controls lost Only imc companiae can rice finance in this aay. his metho alow large amaunis to be rasec. [Loans A business wil borrow money trom a bank, They wil rake monthly repayments Back to the tank, which wilinciude intarest. Retained profit: Pict made thats then relested backinto the business. Using retained profit could redice costs and recuce cash inflows snce no interest has to be paidto barks, but they wil ‘ro longer have thete func for cther need ‘Crowd funding: Crowd funding involves business rraking an online appeal 0 Kwestors WhO ‘cach invest ama amounts of money, order to rasa a large srount overall Ifthe target amcunt of finance inet reached, the busness does nct get the money and thoi reputation may be hated 26 Cexmavise Gibbs Bakery Ltd isa family run bakery that has been producing high quality breads and confectionery produce since 1872. ‘The business pres ico onthe qual of their produce. Their breack and cakes ae baked daly using traaitonal recipes that have been nanded down from generation 10 generation. Precucts are made without the use of additives or afl preservatives, by a decicated tearm of bakers whe haves wealth of experience inthe industry Robert Gibbs the current carer, 5 proud of their reputation for procuring top quality goods ands pleased that they are one ofthe market leaders inthe area tor artisan bakery. ‘The folowing financial information relates to Robert's busines: + Variabie cost of making each tern: £040 + average seling price ofthe nakery Proqucs Sols: £165 + Fred costs per day: £1.250 | Number of products ald per day 1,500 + Daly break even level of output 1,000, ‘The bekery has a shop in the vilage of Mere situated on the Wiltshire border As well as this, the bakery deivers thei breads and confection: al over Wichire, Dorset and Somarcet. ‘Their vans take fresh procure te shops andlocal businesses across the region (on adaty bast in crder to keen shelves stocked withthe mighest ae ——— Moce and more retail outiets are requesting daly deliveries from (Gibb: In order to meet this demand, Hebert has decided to ae purchase anew fleet of vans. To fund this venture, ne {ooking to raise a substantial amount of finance. Attn, Robert exarances high demand for ie goods, often galing aut before the end ofthe day Fsoicol GCSE Busines ABSO ~ Section 13 EXAMINATION PRACTICE Wihichione of te folowing would be Gassed as varabie cost fora busress? A=Revatting B= Insurance C-Rawratersis 2 —Satanies 2 Which twa ofthe following ae classed 2s non financial objectives of = husinaes? A-Challenge 8 — Personal stacton C-Proft D-Saler £-Sunmal 5. plain ene cazon why curva ic 2 panicuary important abjactve for new srt-up businessos. 4. Explain one reason why cach simportart to business 5. The granh below shows a monthly break even diagram for a busines. Using this information, calculate the break even level if fad coms wens fo Reweaee 0 £2250 per month, output For the following questions you must refer tothe case study on the previous page. ©, Sie one nrancial coecine that Ronen might nave for Gos Ba vy. Caculre the pron at Ginns Hakery makes each ay. 8. Catculte tne rarain of sexy for Gods Bakery 9. Totinarce ine inesimert, Robert is considering two options + Option 1 Using retained pct + Option 2: Using a bark oan Justty which ofthe two options (its Hatery should choose 10, Fvoluste the mos affective method that Gltbs akery could use to ereace prot. You should uss the infcrmaticn provided as wells your knowledge of business. ClourRevise 2 LIABILITY AND OWNERSHIP ‘When an entrepreneur decides to start up a business, they have a number of different options for its formation. Each option will have an impact on the legal status of the business. mm Its business owner (ertroprenci) has unlimited liability then they ard the busines: ar ceen 35 ne sare legal erty. Insis known as an unincorporated busress. Ary debis that the buses has, willie the total responsibilty ofthe owner. If the business cannot pay the debts of, then the owuner ey have to eal personal paceacsicn® to cleat themn Ian erereprerer ha limited Liability then they are seen as separate tom the busressin the eyes ofthe law. hiss called incorporation, where the deb's O the business are not regarded as personal debts ofthe owned The entrepransur is ent lable for the amount of money thet they have percoraly invested, Typetotowmership Partnership [An unincorporated business which has two or more owners Ea — ‘Advantages ‘An unincorporated business ‘which has onty one owner > Each partnes coud cortricute finance, + Each partner can bring dass: + Quick and earyto set up. + Sole trader keepe athe profs 1 Sole radar aks all the decisions. + Busnes francia information s Rept pvt [An incorporated business which is onned by shareholders Shares can ony be cold pinatay usually to fence anc tary Fdescet GCSF Business 1880 ~ Section 1.8 FRANCHISING An entrepreneur has the option to set up as an independent business or set up asa franchise. A franchisee is licensed to sell the products or services of an already established business, known as the franchisor. Cmte Ihe teence gen by the franchisor allows the new oivner to trade using the narne, products and equipment of the trancrisor, whist remaining independert. However, tne tranchsot wil charge a fecin return, as well as taking a share of the business’ revenues, known as a royally. By setting unas franchise atner than an independent business. the new owner i hoping 19 recuce te rss faced when staring a DUSTSS. Rbk Fecuces Because ote Following reasons: + Brand name is already established: [hs il con that customers wll recognise the business ame and ts products, so may be move lkaly purchase products, Ihe bucinass wil aeady rave an estabisned custcrner base + Access to ortablished products and processes: !Vo! cry wil he franchisas beable to sel Proc. that customers already krow about. they will also gan access tothe tranchsors Processes and equpment + Franchisor provides training: |e frarchsr wil rovile ongoing suppor for the franchise Thsis because isin ther terest hat the Business & Success teo. + Franchisor undertakes advertising and promotion: Vhs mers that theres one lessthing for franchise fo do. Ie iranchsor can aford to undertake expensive advertsing th the incvcual Cari may not beable to pay for they were competely independent BUSINESS LOCATION ‘The location that a business chooses can have a huge impact on the success of a new start-up. There are various factors that will determine which location is best. These vary in importance depending on the nature of the business, | Proximity tomarket ‘Some businesses ray require large bulky ‘an meteias suchas timber, tobe bie tepredice tei procuct Tarcporing the supplies to ine business may be expense, 0 10 keep coms down businesses may ‘hence ta lecate clote to wre they can fexsly access Une mates they nee For some busnassas, being cose 10 whore tecustomers are wilde tre most moortant factoc By doing this. itcan tase awareness the Dugnese and help fio eceme etantcned This is puriculaty irponan fora buseesses ia 1 conte impertnt hat there ae sffcent avalable workers clos by Who have ie sas tat # business cee, ausness nee to lneate wwnere pec 0 wing andaole 10 work. Some businesses wil choose 1 locate far _3uay from th corptitorso that thay {ate the only suppber OF a good or sere n tat brea Others may chacacto locate close to tei fae athe ie where custonners aly tobe For example, a shepping ml Edexcel GCSE Busines 1850 ~ Section L4 re THE MARKETING MIX ‘The marketing mix is a combination of four factors ~ ‘the four Ps’ (product, price, place and promotion) which a business uses in order to persuade ‘customers to buy their product. The mix will change over time and each element has an influence on the others. ‘Ausness must set a pice that enables ito makea proft. Ihercicre, tisimportant that an ‘entrepreneur ic aware cf all the costs imoived ‘Anew start-up wilctten selther proucts {at alow price in order to attract people 10 purchase ther products. Aproduct thats fa superior quality may De priced ign ‘compared to compettor products ‘A busress neods to promote tue to tase ‘custorner awaranees ofthe products that are avalabe. his helps to crease sales arch Dull a brand image there are many for ct promotion which nclude advertising pec fers and publ relatos “The competitive environment: If 2 competitor ic seling 3 cmilar product at lower price. then 2 ‘Ausiness must thnk atout asibution. Disbution concems how 2 product fevertualy ete tothe customer from 3 producer Within this element. busnesses have to deciae whether to sel drecly tothe custome, ether by having a physical cation Cris the Internet, oF they could choces to use ‘wholesalers and retaiers ‘ter conducting market research a business will now the needs of their customers. ‘Ihe product, through is features, desan ‘and functon should meet tnese needs. the business needs to consider what wil make its reduc deren rom aiherson the market. buisness may have to decrease the pice hey charge They may a0 have to develop new products has introduce ther own, newer ard better precucts onto the market. “Technology: New tecrnoiogy nas enables busnesses to develop more innovative products, paricuely in technology maricts It has 2 alloned businesze= to lncertake promotion via dgtal communicatons. such ‘associal meda stes. Deveoomentsn te use cf ne Internet has alowed ecommerce to grow. Businesses {re now choosing to all products online ther than having a physeal sore CleaRaviee BUSINESS PLANS A business plan is a working document that details the objectives that a business wants to achieve and how it will set about achieving them. It looks at all aspects of the business so that risk is reduced, giving the business a greater chance to succeed. A business plan wl deta what the idea of the busines i. It giver the ertrepreneur 3 gute to folow arc gues other stakenolers 2 clear vision: It wilinolve al aspects of the business, therefore forcing the enireprentur to think carefuly about the opprtuny For eampla,itwilnalp to entty + The business tea 4+ The business sims and objectives + Ihe target market ofthe busrese + The business marketing plan + Forecasted revenues, costs and pront + Casto predictions + How tha business «to be financed | Where the business plane to locate + Vow the producti tobe produced or the service provided + Inemarieang mx [Minimising risk Producing a busines plan cannot guarantee that 2 — business wil be successhl. There val atways be the isk Vat someting unioreseen could happen which ‘could negatively impact en the business However, by preducing a business plan, an entrepreneur wil be thinlorg abut lat of afferent scenarios and how {he business could deal wtn them. Inereiore they will be prepared fo lt of evertuaies ‘Obtaining finance Ary potentat investor wil want to know that ner iments as secure as possible. Athough risk ‘cannct be aleminated, by producing 2 busress plan, an entrepreneur can show potential muestors that ‘every aspect of the business nas been theught about ‘and rat cosy msiakes vl De avoed -Eguacel GCSE Business 1850 ~ Section 14 Graham Munroe started Woodkit Lida few years ago. It isa family run business with strong values. They are a major internet retailer and wholesaler of many international brands of wooden planes, tanks, boats and accessories. The business has the UK's widest product range selling over 4,000 exquisite, precision-made items to markets at home ‘and abroad. They sel both vintage and contemporary models, catering forall needs, ‘tastes and budgets. [At Woodlit Graham places a considerable amount of value on making customers happy. They. have large number of repeat custome, parucularty inose who are enthusiastic colectors Graham encourages custometsto getin touch regarding any qucries that they may have. They Go keep customer raquary informed about wht the Business & up to through a regular ‘e-newsletter Signing up fo the e-nevisetter gives customers access to al the business

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