68-qa-edexcelgcsebusunit1

68-qa-edexcelgcsebusunit1 - 2010 Edition Spotting a business

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Unformatted text preview: 2010 Edition Spotting a business opportunity...................... 2 Raising finance ................................................ 14 Competitor strengths and weaknesses.... 4 Internal & external finance sources... 16 Understanding customer needs:................. 2 Market mapping ................................................ 3 Short term finance .................................... 14 Long term finance ..................................... 15 Adding value ....................................................... 4 Making the start-up effective ......................... 16 Showing enterprise............................................... 6 The importance of limited liability ......... 18 Start-up options................................................. 5 The importance of location ........................... 5 Customer focus................................................ 16 The marketing mix......................................... 17 What is enterprise? .......................................... 6 Start-up legal and tax issues ...................... 19 Thinking creatively .......................................... 6 Business name ............................................ 19 Asking the right questions ............................ 7 Legal issues .................................................. 19 Invention and innovation .............................. 7 Tax issues...................................................... 19 Taking a calculated risk.................................. 7 Customer satisfaction................................... 20 Objectives when starting up......................... 9 Motivation .................................................... 21 Important enterprise skills ........................... 8 Recruiting, training & motivating staff: 21 Putting a business idea into practice............. 9 Entrepreneurial qualities .............................. 9 Recruitment ................................................. 21 Employment law........................................ 21 Estimating revenues, costs and profits . 10 Understanding the economic context......... 22 Estimating costs......................................... 10 Exchange rates: ............................................... 24 Price................................................................ 10 Estimating revenues ................................ 10 Profit............................................................... 11 Forecasting cash flows................................. 12 Receipts and payments........................... 12 Stock and credit ......................................... 13 1st Edition. First published 2010 © Richard Young. Market demand and supply ....................... 22 Interest rates.................................................... 23 The business cycle ......................................... 25 Business decisions and stakeholders..... 25 Essential formulas.......................................... 26 Unit 1 Glossary ................................................ 27 All rights reserved. The right of Richard Young to be identified as the author of this Work has been asserted in accordance with the Copyright, Designs and Patents Act 1988. | Understanding customer needs: 1 Cash is the amount of money the firm has in notes, coins, and money in the bank . Cash flow is the movement of money in and out of the business. Cash inflows are money the firm receives. Money comes into the business : . Money comes into the eg from , ie ,a from the bank or from the owners business as Money leaves the business Cash outflows are : money the firm pays out to others. . Cash can leave the firm as for eg raw materials and components, wages and salaries, utility bills such as electricity, advertising or interest payments on loans Cash flow and profit are very different. Profit is the income left from sales revenue once all costs are paid. Cash flow is the difference between money coming into the business and money leaving the business, over a period bills and becomes Cash is used to pay bills. A firm that runs out of cash cannot pay its An insolvent business can no longer pay its bills, as it has run out of cash A firm draws up a cash will flow in and out of the business in the future to predict how Creating a cash flow forecast helps a business identify times when it is likely to run out of cash and so avoid insolvency. A cash flow forecast predicts the future flow of cash in and out of the business over a given period of time eg three months. At the beginning of January the business has £1,000 worth of cash. This is the for the month of January The total flow of cash into the business (receipts) for January is expected to be £12,000, while the total outflow from the business (payments) is forecast at £10,000. is the difference between receipts and payments of money over a period. January’s net cash flow is £12,000 from cash in less £10,000 from cash out. This means net cash flow is = £2,000. Given an opening balance of £1,000 and a net cash flow of £2,000 there is a closing balance of £3,000 at the end of January that can be carried forward to February In February cash outflows are greater than cash inflows by £2,000. The firm has received £8,000 in cash but paid out £10,000 cash. 12 Forecasting cash flows | Exports are UK made products sold to overseas buyers . Imports are foreign made products sold to UK buyers Selling UK made products overseas is an opportunity for a business to increase sales and so earn more profit The USA uses American dollars ($). Many countries in Europe use the Euro (€) eg France and Germany UK exports are sold in the USA for US dollars ($). UK exporters need to change their $ earnings into UK money, the pound (£). Similarly American firms want $ for products they sell in the UK for £s . The exchange rate is the amount of one currency another currency can buy. For example if the exchange rate is £1=$2 then one pound buys two dollars The / sign means per. £1/$2 means the exchange rate is two dollars per pound. £1/$2 is often written down as £1 = $2 The exchange rate is £1 = €1.15 that is one pound buys 1 euro and 15 cents The simple way to calculate export prices is to multiply the UK price by the exchange rate. Suppose the UK price of a teddy bear is £25 and the exchange rate is £1=$2. The US price in dollars = 25 x 2 = $50 The simple way to calculate import prices is to divide the overseas price by the exchange rate. Suppose the US price of an MP3 player is $78 and the exchange rate is £1=$1.5. The UK price in pounds = 78 / 1.5 = £52 pound can buy. A pound becomes weaker A become stronger The value of sterling is the amount of foreign currency one The £’s value changes as the exchange rate changes means one pound buys fewer dollars, euros, etc. The means one pound buys more dollars US etc. The pound Export process fall. Eg If the UK price = £40 and the exchange rate is £1=$2, the US price in dollars is 40 x 2 = $80. If the £ loses value and the exchange rate falls to £1= $1.75 then the US price becomes 40 x 1.75 = $70. Import prices rise. Eg If the US price = $40 and the exchange rate is £1=$2, the UK price in £s is 40 / 2 = £20. If the £ loses value and the exchange rate falls to £1= $1.75 then the UK price becomes 40 / 1.75 = £22.86. Exporters suffer because a rise in the value of the pound means export prices rise and so sales fall UK firms competing with foreign rivals benefit because a rise in the value of the pound means import prices increase. Some UK customers will switch to cheaper UK made rival products 24 Exchange rates: | the responsibility for running the day-day-to-day affairs of a business and making decisions when firms communicate with customers an individual or business that is owed money an increase in the amount of goods and services produced by an economy fit for customer needs and causing little difficulty a tax on company profits paid to the government the total amount of money that flows through a business over a given period. Calculated by adding net cash inflows and deducting cash outflows a document stating personal details, qualifications, employment history and referees individuals or organisations that buy a product how customers act when purchasing products buyers the wants and desires of when customers ask a business to supply a product the likes and dislikes that influence a buyer’s selection of a particular product the experience of shoppers when dealing with a business an individual or business that owes money selecting a course of action between several alternatives the intentional creation of new ideas by using a range of thinking techniques eg blue skies and thinking hats the amount of a product customers want to buy the planning behind the manufacture of products the ability to keep trying to achieve something, even when the task becomes difficult 28 Unit 1 Glossary | treating people differently because of their difference eg age, sex or race the share of company profits paid out to shareholders the skill involved in wanting to start and run a business the abilites needed to start and run a business a risk taking individual who organises and manages a business activity the currency used in 16 European Union (EU) countries eg France and Germany the price of a currency in terms of another eg the number of $s one pound can buy when the amount of foreign currency one pound can buy changes UK made products sold to overseas buyers funds raised outside the business eg bank loan a business appoints a new member of staff from outside the organisation selling the debts of the business to another company when one pound buys less foreign currency the amount of money at the disposal of a business a money based target eg big profits or become wealth having enough money to not worry about bills expenses of production that do not change as a firm changes its level of output eg rent. ...
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