As Business Studies Unit 1 Revision Notes

Unit 1 Business- Revision * Enterprise- The ability to handle uncertainty and deal efficiently with change. * Entrepreneur- someone who has a flair for business ideas and has the confidence to take the risks involved in setting up a business. * Successful entrepreneurs: * Passion * Motivate people around them * Determined to succeed * Self-belief * Common characteristics of successful entrepreneurs: * Self-confidence- believe in your ideas; products and be able to motivate others. * Initiative- being prepared to start something. * Hard working- not easy to set up a business. * Creativity- inventing new products, finding new ways to do things. Resilience- be prepared to redesigned and rethink, don’t let setbacks put you off. * Taking risks. * Small Businesses: * Less then 50 employees * Value of sales less then ? 2. 8 million * Value of balance sheet is less then ? 1. 4million * Why do people set up businesses? * Be your own boss * Work from home * Help others * Gap in market * Redundancy * Peruse a hobby * Make money * Risks: * No job security * Loose money * Others could copy idea * May not have regular income * Debt * Competition * Demand for product falls * Rewards: * Enjoy * Personal pride/satisfaction * MAKE MONEY * Satisfied customers Provide employment * Benefit family * Government Support * Financial- grants, subsidies, tax cuts and loans. * Provide info and support- websites e. g. business link * Create enterprise zones * Reduce regulation- red tape * Revenue expenditure is every day expenditure – gas, electricity, paying suppliers for materials, petrol, wavers and salaries. * Capital expenditure is expenditure on assets- car, machinery and equipment. Sources of Finance * Retained profit: * Whatever profits the business makes is ploughed back into the business to make it grow. * Advantages * Doesn’t have to be repaid No interest charges * More the business grows, more of a profit you make * Disadvantages * maybe limited- constrain rate of business expansion * may run out quickly * still have to pay money back * the more profit you put back into the business the less you get to keep * Sale of Assets * Assets are the things the business owns. * Where the business sells things of their own to raise money. * Advantages * Get money but loose an asset * Dispose of unused assets * Get your money back straight away * Finance development without extra borrowing * Disadvantages Costs money to transfer assets * Taxed on capital gains * Grow in value quicker than what the cash can yield elsewhere * Personal Sources (owners funds) * Its money put into the business by the owner * Advantages * Doesn’t have to be repaid * Immediately available and accessible * Disadvantages * If the business fails you’ve lost your own money * Bank Overdraft * Balance of a bank account when funds withdrawn exceed funds deposited * Arranging a flexible loan on which the business can draw as necessary up to an agreed limit * Advan tages Flexible- there when you need it, helps to maintain cash flow and you only borrow what you need. * Quick – Overdrafts are easy and quick to arrange, providing a good cash flow backup with the minimum of fuss * Disadvantages * Cost  Ã¢â‚¬â€œ Overdrafts carry interest and fees; often at much higher rates than loans. This makes them very expensive for long term borrowing. You also face large charges if you go over the agreed overdraft limit. * Recall – Unless specified in the terms and conditions, the bank can recall the entire overdraft at any time.This may happen if you fail to make other payments, or if you have broken terms and conditions; though sometimes the banks simply change their policies. * Security- Overdrafts may need to be secured against your business assets, which put them at risk if you cannot meet repayments. * Trade Credit * Where they can purchase goods and pay at a later date * Advantages * You can buy the stock and pay later when you have sol d the stock and made enough money to pay them back * Eases the cash flow as you can pay after 28-30 days * Disadvantages If you do not pay them back on time you can build up a bad credit history * Only companies with good credit history can be accepted the trade credit grant * Hire Purchase * A business can buy an asset and pay over a period of time with interest. * Advantages * Don’t have to pay it all at once- spreading costs * More money to pay for your own business * Disadvantages * The item you’ve bought could be out of date by the time you’ve finished paying. * Interest could be added. * Leasing * Renting assets * Advantages * Don’t have to pay interest Service & maintenance included * Don’t have to worry about money being withdrawn * Equipment upgraded every few years * Friends and family more willing to lend * Not giving control up * Disadvantages * Money you’ve used for leasing could go else where * The item never belongs to you * B ank Loans * Sum of money lent for a fixed period of time with interest * Advantages * Length of loan can vary * Interest is fixed * Loan guarantees business has money * Bank has no control of business * Disadvantages * Interest rates * Loose possessions due to debt Pay it, even if you’re not earning profit * Venture Capital * Capital invested in a project in which there is a substantial element of risk, typically a new or expanding business. * Advantages * Provide a mentor * Don’t need to repay money back * Helps the business get money externally * Disadvantages * Loose some control of the business * Pay legal & accounting fees * Lengthy process * Share Capital * Any investors that put some money into the business get a share of the profits * Advantages * Helps you start up * Don’t have to pay it back * Business will grow If your bringing extra shareholders in, it will bring in additional expertise’s * Disadvantages * Loose some control of business * Have to give out a share of your profits each year * Business Angel * Is an individual who provides capital for a business start-up usually for business equity * Advantages * have experience from the business angel * good financial start * experiment with ideas * Disadvantages * Give up some of your business * Higher risks of being took * Factors that determine which source of finance to use: * Length of time- short term or long term Control- how much are you willing to give up? * Amount needed * What is the money needed for? * Affordability- can you afford to repay? * Level of risk you are willing to take * Type of business Costs * Expenditures made by a business in order to carry out trading. * Types of costs: * FIXED- those that do not change with levels of output or sales. Also known as indirect cost. * VARIABLE- these that change directly with level of output or sales. Also known as direct cost. * Total costs = Total Costs Fixed Costs Variable Costs Total Costs Fixed Costs Variable Costs * Total Variable Costs OutputTotal Variable Costs Output Average variable cost per unit= * Total Revenue/Turnover * The value of sales over a period of time * Selling price No of Units Sold Selling price No of Units Sold * Total Revenue Total Costs Total Revenue Total Costs Profit- what is left after total costs have been deducted from revenue. * Contribution * not the same as profit- fixed costs are not subtracted * Selling Price per unit Variable Costs per unit Selling Price per unit Variable Costs per unit Goes towards paying your fixed costs, and the left over is profit. * Total Contribution: * you can increase this by: increasing selling price * reduce variable costs per unit Contribution Per unit No of Units Sold Contribution Per unit No of Units Sold * Break-even * Fixed costs of business Contribution per unit Fixed costs of business Contribution per unit The number of products you need to sell or make to cover costs, and not lose anything or make profit. * Break-even Graphs * Margin of safety * Difference between current sales and break-even point * It shows the amount by which demand can fall before the business starts making a loss * What can affect the breakeven point? Action| Effect|Increase fixed costs | Break-even rises, need to make/sell more to break-even| Prices increase| Increase in revenue, break-even point falls| Increase in variable costs| Break-even point rises | Fall in demand | Break-even point is not effected but margin of safety is reduced| Price cut| Break-even increases| * Strengths of Break Even * Simple to understand and useful for ‘what if’ scenarios e. g. what happens if there is a price increase, increase in costs etc. * Helps to estimate future sales or level of output needed to meet objectives in terms of profit * Helps with business decision making e. . to see if a business start-up or new product is viable * Supports applications for finance e. g. loans from the bank * Weaknesses of Break Even * They are predictions for the future, therefore not always reliable due to changes internally and externally in business environment * Assumes all output is sold- not always the case * Only as good as the data on which it is based, therefore inaccurate or poor quality data make it not very useful * Cash Flow Forecasts * What is it? * It’s a prediction showing timings of cash inflows and cash outflows of a business * Its SHORT TERM It shows the impact on a business’ bank balance * NOT THE SAME AS PROFIT * A business may have the potential for profit in the long-term but have short-term cash problems * Purposes: * Forecast when outflows exceed inflows * Plan when and how to finance major items of expenditure * Ensure liquid assets are available to meet payments * Highlight when cash surpluses could be made better use of * Justify to lenders that borrowed funds can be repaid * Benefits * Indicate periods of time where there might be cash flow problems e. g. egative cash flow * Put plans in place to cover periods of negative cash flow e. g. arrange an overdraft or short term loan * If there is significant negative cash flow to identify outflows may be reduced * Review timings and amounts of recipes and payments (e. g. may need to reduce credit terms to customers or extend credit terms with suppliers) * Show to a potential lender or investor e. g. bank of venture capitalist or business angel. * Limitations * Inflows might be inaccurate due to poor market research or incorrect assumption e. g. hat there product will be of higher demand * External factors may affect your forecast e. g. rise in inflation which increases costs, competitors, weather, major event e. g. the Olympic Games * Inexperience- a person new to business has no historical data to base a cash flow on. Their inexperience may also cause them to make inaccurate predictions * Unexpected cost increases e. g. due to inflation or weather * Budgets * A budget is a financial target for the future coveri ng revenue (income) and expenditure * Expenditure budget- allocates money to ‘cost’ areas e. g. alaries, rent, advertising * Income budget- sets out sales revenue target for a department or whole business i. e. how much money they are expected to bring in * Profit budget- sets out target profit for a business or department or individual over a given time period * Why budget? * Help you to not overspend- dependent on good financial control and monitoring * Help with risks- contingencies * Help to motivate staff * Giving financial responsibility * Help with trying to secure funding * Gives you something to monitor against * Help to improve financial efficiency Stages in setting a budget * Benefits of Budgeting * Help motivate staff e. g. given sales targets * Gives people financial responsibility * Helps to control costs * Gives employees financial responsibility * For a new business helps it to assess whether it is viable or not * Can persuade lenders of the viability of the business * Provides clear goals – gives the business something to work towards * Allows monitoring of financial performance against targets * Disadvantages * Time consuming * For a new business there is no historical data * Gathering information can be costly Level of inflation not easy to predict * Can be demotivating for staff if imposed rather than agreed * May be unforeseen changes e. g. in tastes. Supplies, external environment * Inexperience – if you’re not experienced you might make mistakes * Variance Analysis * Measures the difference between forecast budget figures and actual budget figures * A – adverse – negative, not good * F – favourable variance – good ++ * Favourable variance occurs +++ * Where actual profit higher than budgeted * Where actual sales lower than budgeted * Where actual costs lower than budgeted * Adverse variance occurs — Where actual profit lower than budgeted * Where actual sales lower than budgeted * Where actual costs higher than budgeted * Protecting Businesses Rights * Intellectual property * Is property that results from original creative thought, as patents, copyright material and trademarks. * ALL businesses have IP * Your IP is likely to be a valuable asset, it could include * Name of business * Products/services you provide * Written/artistic material you create * Your IP rights can: * Set your business apart from competitors * Be sold or licensed, providing a revenue stream * Offer customers something new or different Form an essential part in your marketing and branding * Be used as security for loans * Patents * A patent is an exclusive right to use a process or produce a product usually for a fixed period of time, up to 20 years * Needed to ensure that competitors cannot copy inventors ideas * This ensures that the inventors can recoup the initial research and development cost * This allows companies to gain an advantage over their competitors and increas e their revenue * Companies can sue other companies that breach these terms and stop them selling the product e. g. Dyson and Hoover * Benefits The patent holder has exclusive commercial rights to use and license the invention * Legal action can be taken against anyone who tries to use this invention without the patent holders consent e. g. competitors * The existence of the patent may be enough to deter would-be infringers * The patent can be sold * Drawbacks * A full description of the invention is published and can be viewed by anyone applying to the appropriate patent administration office. * After the exclusive patent period other people or businesses can freely use the invention without needing permission from or making a payment to the inventor. The cost of the patent may out-weigh the financial advantages of the invention. * Patents take time to create as they need to be very specific * Trademarks * A word, image, sound or smell that enables a business to differentiate itsel f from competitors * Designated by symbols * TM – unregistered trademark GOODS * SM – unregistered service mark SERVICES * R – registered trademark * Advantages * TM and SM can be used to claim ownership without registration * Help owner protect mark from being used by competitors * Once company has trademark ownership it will have exclusive rights worldwide * Disadvantages Owner has to show proof of use at regular intervals – if documents aren’t filed could lose trademark * Weakest IP protection as it protects marketing concepts and not always product itself * Have to pay fee for registration and renewal * Copyright * The protection given to books, plays, films and music * This ensures that people cannot copy or use protected items without the owner’s permission (and usually at a cost) * CR can protect: * Literacy works e. g. ovels, instruction manuals, song lyrics, newspaper articles * Dramatic works e. g. dance or mime * Musical works * A rtistic works e. g. paintings, engravings, photos * Layouts or typographical arrangements used to publish a work e. g. a book * Recordings of a work e. g. sound and film * Broadcasts of work * Advantages * Right to produce and reproduce their work * Right to authorise others to produce or reproduce * Prevents your work from being stolen or misused * Allows copyright holder to sue infringers Disadvantages * Does not allow you to permit others to use your work or to distribute it * You must own the copyright to be able to exercise the rights it grants. Being creator does not always grant ownership * Takes time and costs money * Designs * An industrial design right is an IP right that protects visual designs of objects that are not purely utilitarian (useful) * A recognised design is a legal right which protects the overall visual appearance of a product in the country or countries your register it in. For a designs registration to be valid: * Has to be new * Have individual character * Advantages * Allows owner to control who uses it and how. * Allows author of a creative work to profit from it by charging for its use or by selling or licensing the rights * Gives owner exclusive rights to the use of the property * Deters others from misusing it * Allows owner to take legal action more easily against anyone who uses the design without permission * Compensation for misuse * Disadvantages * Registration can to expensive Not all designs can be registered * Have to be renewed after 25 years * Franchising * A franchise is a business structure in which the owner of a business idea (the franchisor) sells the right to use that idea to another person (the franchisee) usually in return for a fee and a share in any profit the franchisee makes. * A franchisee is a person or company who has paid to become part of an established franchise business e. g. subway or Specsavers * A franchisor is the owner of the holding company and franchise * FRANCHISOR Advantages| Disadvantages| Franchisor can expand business quickly | * Potential loss of control over how the product/service is presented| * Franchisor earns revenue from the franchisees turnover | * Difficult to control quality as franchise network expands | * Risk is shared- much of the cost is met by the franchisee| * Co-ordination and communication problems may increase as it grows | * Franchisee may have good entrepreneurial skills which will earn the franchiser revenue | * Some franchisees become powerful as they acquire a number of franchises | * FRANCHISEE Advantages| Disadvantages| Franchisee able to sell an already recognised and successful product/service| * Proportion of revenue is paid to franchisor | * Take advantage of central services such as marketing, purchasing, training, stock control and accounting systems and admin provided by franchisor | * Franchisee may not fell that business is his/her own. And may not benefit from the personal rewards of entrepreneurship | * Franchisor may have exp erience in the market that the franchisee can benefit from | * Right to operate franchise could be withdrawn | * OVERALL FRANCHISE Advantages| Disadvantages| Existing business format| * Business format already set out | * Banks more likely to lend to a franchise then to a new business | * Still an element of risk involved in buying a franchise, no guarantee of success | * Less risk then new business | * Other franchisees may give the brand a bad reputation| * Already established business | * Maybe difficult to sell the franchise | * There’s thing you need to research before buying a franchise: * Is there any upfront costs? * Any fees need to plan? May need to lease property or equipment from franchisor * How is franchisor making money? Regional protection – guarantees franchisor isn’t going to sell other franchises or open up outlets nearby * How many franchises fail in a year? * Value of a re-sold franchise, is it a profitable investment? * Legal Factors * Publ ic Limited Company (PLC) * Is owned by shareholders and shares can be bought and sold publicly. Advantages| Disadvantages| * Access of funds | * Flotation can be expensive to process| * Many investors| * Company must have ? 50,000 in shares capital and have 25% in shareholders before trading. | * Bankers and lenders see stable business| * Not possible to keep control| * | * Nothing topping competitors buying shares| * | * The owner is not in control. | * Partnership * is more than one person in business together without having a company Advantages| Disadvantages| * few steps to follow to become a partnership| * loss of control| * additional skills | * no liability, can lose possessions | * more capital | * got to be able to trust partner| * share strain| * legally bounded| * different skills | * | * Processes: * Formal documents have to be written * All partners have to agree to and sign the 1980 partnership act * Have to draw up a deed of partnership Private Limited Company (LTD) * Is that the owners are shareholders and their ownership of the business is determined by the proportion of the total shares each person holds. Advantages| Disadvantages| * Access to funds through shares | * Bankers may see business as a risk | * Can’t lose control | * More complicated setup | * Stable structure | * Lenders may see limited liability as a risk| * Limited liability | * | * When shareholders die/resign the business doesn’t stop| * | * Processes: * Have to keep detailed record once trading * Complicated process to setup Sole trader * Is the most common and simplest form of business organisation, it is one person operating a business alone. Advantages| Disadvantages| * Simple and quick to setup | * Unlimited liability | * Inexpensive to setup | * Difficult to raise additional finance | * Any profit made is the owners to keep or reinvest | * All decisions rest with owner| * Owner has complete control| * Drive comes from the owner | * Close relationship betwe en the business and customer can be built up| * | * Hours of work can be tailed to suit entrepreneur| * | * Processes: Very little needed to setup * When up and running must keep basic records for tax, national insurance and VAT purposes. * Not-for-profit businesses – social enterprise * A charitable company that doesn’t keep profits. Advantages| Disadvantages| * Entrepreneurs can earn a living doing something valuable | * Profits and social aims may conflict – difficult choices | * The more successful the more society benefits| * The entrepreneur will always have to accept a lower return than with a profit making business, because a proportion of the profit will go towards the social aim. * Customers may be more willing to buy from a social enterprise | * | * Easier to recruit, motivate and retain employees | * | * Grants or other forms of finance are available | * | * Unlimited Liability- the debts of the business are the owners responsibility * Unincorporated business- owner and business have no separate legal identity. * Added Value * â€Å"the difference in value between the price of the finished product and the cost of materials used† * it is the value of the process of transformation of INPUTS into OUTPUTS * Inputs- also known as the factors of production raw materials i. e. cotton and wheat * labour * land e. g. building and rooms * capital * enterprise * Outputs- is the product or service or benefit to the customer * Business is a process where INPUTS are processed to produce OUTPUTS * At each stage of the process VALUE is ADDED so that the finished product is greater than the sum of value of all the inputs * Adding value you could: * Branding * Quality * Design * Unique features – unique selling point * Size * Reputation * Range of products * Packaging * Celebrity endorsement * Good service * Offers * Location * Additional services Qualifications of staff * Transformation process * This refers to the process or proc esses that factors of production go through in order to produce goods and services. How business activity is classified: * Benefits of adding value * You can charge more * It differentiates you from the competition * Reduces the sensitivity of demand to changes in price * Higher profit margins * Can target product or service at a different marker segment * Business Plan * Is a document setting out the business idea and showing how it is to be financed, marketed and put into practice.It is likely to be crucial part of an attempt to raise finance from outside sources such as a bank. * A detailed document that looks at the workings of a new business. * Structure of a Business Plan 1. Introduction/summary/overview 2. Details of product/service 3. The market- who your customers are 4. Marketing plan – how are you going to attract customers? 5. Staffing plan- employ who? 6. Operational plan- logistics of business e. g. how customers will pay, where you will source things from†¦ 7. Financial plan 8. The future – long term plans, growth and expansion * Benefits Essential planning tool – makes the business think carefully about all aspects of the business * Set objectives against which the business can then measure progress and performance * To support application for finance/funding * Identify any problems or pitfalls e. g. lack of expertise in the business * A written down plan enables continuity, for example, if the owner becomes ill or unable to work in the business for a period of time * Helps assess the viability of a business – is it likely to succeed * Disadvantages Time consuming to research and draw up * Lack of expertise – first time entrepreneur may not have knowledge needed * Forecasts may not happen e. g. sales might not be as predicted * Can be too rigid if owner tries to stick to the plan – needs to be flexible * Market Research * Gathers info about consumers, competitors and distributors within a firms tar get market * Primary Research- data collected by the entrepreneur, or paid to be collected, which does not already exist. Pro’s| Con’s| Aim directly at your objectives | * Expensive,? 10,000 per survey| * Latest info | * Risk of it being bias e. g. interviews and questionnaires | * Assess psychology of customer | * Research findings may only be useable if comparable back data exists. | * Methods: * Observation * Focus groups * Test marketing * Questionnaire – telephone, face to face and email * Secondary Research – data already in existence that has not been collected specifically for the purposes of the entrepreneur. Pro’s| Con’s| Often obtained without cost | * Not updated regularly | * Good overview of a market| * Not tailored to you | * Based on actual sales figures, or research on large samples| * Expensive to buy reports on many different market places | * Sampling * the entrepreneur does not have the resources/time/skills to research everyone so a choice has to be made to select a proportion of those that could be researched * Random sample * Not haphazard * Computers used to generate random lists of people * Quota sample * Characteristics of marker Can be cheaper and accurate * Collected on street corner * Stratified sample * Randomly chosen from a sub-group * Sample size * How many people you want to interview? * Consideration * Cost, time, target market * Quantative Data: * Data in numerical form. An example is ‘8 out of 10 owners who expressed a preference said their cats preferred Whiskers’. * Quantative data is usually collected from larger scale research in order to generate statistically reliable results. * Good for establishing key info about a business and its market * Numerical information * Focuses on what is happening. Techniques * Online survey * Telephone survey * Questionnaire * Qualitative Data: * Data about opinions, attitudes and feelings. It is usually expressed in terms of why p eople feel or behave the way they do. * Difficult and expensive to collect * More revealing and useful * Information about attitudes, feelings and opinions * Focuses why it is happening * Techniques * In-depth interviews * Group discussions * Exam Tips: * When asked to analyse market research carried out, consider the following * Reliability of the research e. g. was it up-to-date? How representative was the research e. g. was the sample representative of the target market. * Sample size – was it large enough to be valid and reliable? * Response rate * Questions – were the right questions asked? * Bias – is the research likely to be bias? Who was asked? Was the method appropriate? E. g. questionnaires often produce bias results. * Market Share, Size and Growth * Market Share – * This is the proportion of a total market accounted for by one Product Company. * Market share can either be expressed as a % or as a value of the overall market * X 100X 100 Compa ny Value Company Value Total value of the market Total value of the market * Market size- * The total sales for a whole market e. g. pet food – expressed in the terms of value (? s) or units. ( don’t know how to calculate it, no specific formula) * Market Growth- * Change in Size Change in Size Measures the percentage change in sales (volume or value) over a period of time. X 100 X 100 Previous Market Size Previous Market Size * To calculate the change is: * New Market Size – Previous Market Size * Understating the Market Market- anyone willing and with the financial ability to buy a product or service. * 2 types: * Electronic market * Does not have a physical presence, but exists in terms of a virtual presence via the internet. * Many businesses have gone from ‘brick to click’ * In fact there are business which exist to help other business create an online presence (e. g. shopcreator. com ) Advantages of Virtual Presence| Disadvantages of Virtual P resence | * All customers are equally near from the business so distribution costs are reasonably constant. * Price transparency| * The world is the market| * Might get a lot of ‘hits’ doesn’t mean people are buying| * Less expensive – marketing & distribution| * No sales staff to encourage & advise| * 24/7 opening, no need to close| * Website crashes| * No requirement for an expensive location. | * Security issues| * Start-up costs lower| * Some people like to go to a shop and browse| * Business can react quicker to customer requests| * Lack of help and support. | Factors Affecting Demand * Price- some products/services have a demand which is very sensitive to price changes. Competition- the actions of competition particularly in relation their prices, or the features of their products will affect demand. * Incomes- some products/services have a demand which is very sensitive to changes in people’s income. * Marketing – there is a relationsh ip between the amount of money spent on marketing and the demand for the product. * External Factors- such as seasonality will also affect demand and possibly price. Market Segmentation. A technique where a whole market is broken down into smaller sections to identify groups of consumers with similar characteristics. * Segmentation characteristics: * AGE * CULTURE * GENDER SOCIAL CLASS * LIFE – CYCLES * INTERESTS/ LIFE STYLE * INCOME * Benefits: * Help them to know customers and suit their needs * Increase sales * Make more profit * Retain more customers * Increase market share * Improve marketing. * Limitations: * Need a good knowledge of the market – a small business start-up may not have this. * Can be difficult to predict customer behaviour – they don’t always behave like predicted. Location * Location is the place where a firm decides to site its operations. * Location decisions can have a big impact on costs and revenues. * E. G. * Skilled labour av ailable * Low land cost * Low rent * Close to customers High unemployment * Low unemployment * Close to raw materials * Close to suppliers * Cheap labour * Government assistance e. g. grants * Room to expand * Within the EU trade area * Low corporation tax * Access to ports * Excellent road networks * Low transport costs * Quantative factors – those that have a numerical value attached to them e. g. low rent * Qualitative factors – other factors associate with, for example, quality of the infrastructure or labour available. * Infrastructure – the fundamental facilities and systems serving a county, city or area, such as transportation and communication systems, power plants and schools.Employing People * Staffing options * Full-time – a member of staff who works in excess of 30 hours per week. Benefits| Drawbacks| * Available all the time to handle unexpected events. | * High cost. | * Able to build up better working relationships with each other- spendin g a lot of time together. | * Might not give the business flexibility in terms of an ability to increase capacity. | * Build up relationships with customers or suppliers. | * | * More loyal and committed. | * | * Take advantage of training opportunities. | * | Part-time – a member of staff who generally works fewer than 30 hours per week or a fraction of a full-time contract. They have the same employment rights as full-time employees. Benefits| Drawbacks| * Flexibility | * Difficult to access training| * Can be used when there are busy periods of trade| * Difficult to communicate between part-time staff| * Extend trading & production periods| * Less able to build close relationships with customers| * Allows people to manage work alongside other commitments, such as family| * Cost of employing and managing people on a part-time basis may not be much lower than full-time. * Job share – wider range of skills and talents| | * Small business- starting point, allow small bu sinesses to build slowly| | * If someone doesn’t want to work full-time they can become part-time and the business still has valuable experienced staff. | | * Temporary- employees who are employed for fixed periods of time, often seasonal workers, can be part-time or full-time. Benefits| Drawbacks| * If the volume of business may be uneven or uncertain the entrepreneur can keep the level of staff very flexible. | * May not know the working of the business or its culture. * Specific tasks or jobs may need doing which may have a finite time period. | * Not as motivated as permanent. | * Business could lack certain skills which are only needed for specific period of times| * Make communication difficult. | * Help a business through a period of short term staff shortage- e. g. maternity cover. | * Customers may not like a constantly changing workforce e. g. service businesses. | * May eventually become permanent. | | * Consultants & Advisors- * Businesses or individuals who provi de professional advice or services over a specific period of time for a fee. Small businesses often use consultants for advice on specific issues as it is more cost effective than employing a permanent member of staff e. g. for advice on marketing, human resources etc. Benefits| Drawbacks| * Bring in skills and expertise. | * Can be expensive. | * More cost effective. | * Not know business as well as employees. | * Adjust size of work-force up or down quickly. | * May not be motivated to work hard. | * Assessing Business Start-ups In order to be able to assess the success of a business you have to look at the original objectives. Business objectives: * Objectives are quantifiable targets set by an organisation against which they can measure their success. * Clearly defined targets for a business to achieve over a certain time period. * Possible objectives: * Profit maximisations- tying to earn as much profit as possible – but this might conflict with other objectives. * Profi t satisfying – making enough profit without risking too much stress or loss of control through employment of too many professional managers. * Survival- primary objective in the first few years of any new business. Sales growth- the owners try to make as many sales as possible. * Social objectives- the main objective would be to correct on of society’s problems but there may be a financial requirement to at least break even too. * Benefits- * Give direction and focus to the owners and the people who work in the business. * Create a well-defined target so the owners can make appropriate plans to achieve these targets. * Inform lenders and investors of the aims of the business. * Give a guideline for assessing the performance of the business overtime. * Must be SMART: Specific- clearly related to only that business * Measurable- putting a value to an objective helps when assessing performance * Agreed- by all those involved in trying to achieve the objective. Increase mo tivational impact. * Realistic – should be challenging but not impossible. * Time specific- should have a time limit so performance can be assessed effectively. * Why new business fail * Insufficient capital * Poor management skills/ lack of experience * Poor location * Lack of planning * Poor market research * Over-expansion * External factors – e. g. price increases, competitors. Niche MarketsA small and clearly identifiable segment of a market. E. g. specialist sports cars, gluten-free food, vinyl, bespoke furniture, tailor-made clothing. Characteristics: * Relatively few customers, therefore small volume of sales. * Premium priced, therefore good potential for profitability. * Product is often highly differentiated. * Usually too small to attract larger businesses, therefore attractive to smaller businesses. Advantages| Disadvantages| * Little competition – easy to gain market share. | * Tend to have higher fixed costs as they are spread across relatively sm all volumes of output/sales. * Can charge premium prices – potential for higher profit. | * Degree of specialisation makes niche markets vulnerable to changes in market conditions. | * Can focus on needs of individual customers and respond quickly to changes in these needs. | * Successful niche may attract interest of larger firms – small firms may find it difficult to compete. | * Allow small firms to compete effectively. | | * Gain â€Å"first mover advantage† i. e. first in the market, can establish brand/image. | | * Can target market more effectively e. g. have a more personalised service. | |