INTERACTIVE GLOSSARY OF KEY TERMS
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RO61: Introduction to Business
Cambridge National in Business and Enterprise
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Lo1: Understand business ownership
Lo2: Understand business objectives
Lo3: Understand key functional areas
Lo4: Understand how external factors impact on businesses
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View by learning outcome
Lo1: Understand business ownership
Lo2: Understand business objectives
Lo3: Understand key functional areas Finance Marketing Production and operations Human resource management
Lo4: Understand how external factors impact on businesses
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Lo1: Understand business ownership
Sole trader Partnership Private limited company (lt
d) Public limited company (pl
c) Unlimited liability Limited liability Capital Asset Debt Deed of partnership Sleeping partners
Shareholders Dividends Incorporation Memorandum of associatio
n Articles of association Stock exchange Flotation
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Lo2: Understand business objectives
Business objectives SMART objectives Profit Social benefit Sales Market share Effective service Survival Growth Ethical Sustainable Business planning
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Lo3: Understand key functional areasFinance
Raising finance Bank loan Overdraft Mortgage Interest rate Friends and family Grants Fixed costs Variable costs Total costs Revenues Profit Loss Cash flow Cash in Cash out
Cash flow statements Opening balance Closing balance Net cash flow Receipts Payments Credit Sales Credit purchases Break even point Break even charts Contribution Contribution per unit
www.time2resources.co.uk ABC123
Lo3: Understand key functional areasMarketing
Marketing Market Segmentation Demographic segmentation Geographic segmentation Socio-economic group Market mapping Market research Primary market research Secondary market research Questionnaires Focus groups Survey Supplier feedback Customer feedback Internet research
Marketing mix Product Price Promotion Place Unique selling point Product portfolio Demand Price skimming Penetration pricing Psychological pricing Loss leader Promotional mix Wholesaler Retailer
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Lo3: Understand key functional areasProduction and operations
Job production Batch production Flow production Factors of production Specialisation Division of labour Quality control Quality Quality assurance Quality standards Total quality management Resource control Logistics
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Lo3: Understand key functional areasHuman resource management
Human resource management
Recruitment Full-time employee Part-time employee Internal recruitment External recruitment Personal recommendation Advertising Interview
Training On the job training Off the job training Induction training Retention Pay Working conditions Performance management
www.time2resources.co.uk ABC123
Lo4: Understand how external factors impact on businesses
Social factors Demographics Technological factors Environmental factors Green working practices Green consumerism Ethical factors Carbon footprint Corporate social responsibi
lity Political factors
Legislation Health and safety Minimum wage Copyright Patent Trade marks Economic factors Employment Interest rate Inflation Exchange rates Recession Recovery
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View by Formula
Break even pointClosing balanceContributionContribution per unitLossMarket shareNet cash flowOpening balanceProfitRevenueTotal cost
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A and B
Advertising Articles of association Asset
Bank loan Batch production Break even charts Break even point Business objectives Business planning
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C and D
Capital Carbon footprint Cash flow Cash flow statements Cash in Cash out Closing balance Contribution Contribution per unit Copyright Corporate social responsibi
lity Credit purchases Credit Sales Customer feedback
Debt Deed of partnership Demand Demographic segmentation
Demographics Dividends Division of labour
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E and F
Economic factors Effective service Employment Environmental factors Ethical Ethical factors Exchange rates External recruitment
Factors of production Fixed costs Flotation Flow production Focus groups Friends and family Full-time employee
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G and H
Geographic segmentation Grants Green consumerism Green working practices Growth
Health and safety Human resource managem
ent
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I, J and K
Incorporation Induction training Inflation Interest rate Internal recruitment Internet research Interview
Job production
There are no words beginning with K
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L and M
Legislation Limited liability Logistics Loss Loss leader
Market mapping Market research Market Segmentation Market share Marketing Marketing mix Memorandum of associatio
n Minimum wage Mortgage
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N and O
Net cash flow Off the job training On the job training Opening balance Overdraft
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P
Partnership Part-time employee Patent Pay Payments Penetration pricing Performance management Personal recommendation Political factors Price skimming Primary market research
Private limited company (ltd)
Product portfolio Product Price Promotion Place Profit Promotional mix Psychological pricing Public limited company (plc
)
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Q and R
Quality Quality assurance Quality control Quality standards Questionnaires
Raising finance Receipts Recession Recovery Recruitment Resource control Retailer Retention Revenues
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S
Sales Secondary market research Shareholders Sleeping partners SMART objectives Social benefit Social factors Socio-economic group
Sole trader Specialisation Stock exchange Supplier feedback Survey Survival Sustainable
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T and U
Technological factors Total costs Total quality management Trade marks Training
Unique selling point Unlimited liability
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V, W, X, Y and Z
Variable costs Wholesaler Working conditions
There are no words with X,Y and Z
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Advertising
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Within recruitment a method used to attract potential candidates to apply for a vacant position within a business
Media used may be wide ranging from local newspapers and specialist magazines to notices in shop windows or on a staff board
Within marketing advertising also refers to a promotional method that involves the use of media to communicate with existing and potential consumers
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Related words:Recruitment Personal recommendation Interview
Articles of association
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A formal documentation which outlines the rules and regulations to be followed when a company is formed
Outlines: The responsibility of the directors Nature of the business Rights of shareholders
Is completed with the memorandum of association to form a company
ABC123
Related words:Memorandum of association
Private limited company Public limited company
Asset
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Anything that is owned by the businessCan be long term assets that will stay in the
business for longer than a year e.g. premises, vehicles and machinery
Or short term assets that will change on a regular basis e.g. stock, cash and debtors (customers who owe money)
A sole trader’s personal assets can be used to pay off the businesses debts
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Related words:Sole trader Unlimited liability Debt
Bank loan
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A set amount of money provided to a business to be repaid, with interest, over a predetermined period of time
An external source of finance
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Related words:Raising finance Overdraft Mortgage Interest rate
Batch production
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Identical items are produced in groups (batches), each item passing through the production process at the same time
Allows for cheaper and quicker production of individual items
More uniform products Variation can be achieved in different batchesRequires a mix of capital (machinery) and
labour resources
ABC123
Related words:Job production Flow production Factors of production
Break even charts
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A visual representation of total costs and total revenues identifying the point at which break even is achieved i.e. where the TC line and the TR line cross
Break even point is read in units off the horizontal axis
Can be used to read the loss or profit of a business at given levels of output
ABC123
Related words:Total costs Revenues Break even point
Break even point
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The level of output at which the business is making neither a profit nor a loss, the point at which TC=TR
Selling Price – Variable Cost (per unit) = Contribution (per unit)
Fixed Costs / Contribution (per unit) = Break even output
Can be read off the horizontal axis on a break even chart
ABC123
Related words:Total costs Revenues Break even chart
Business objectives
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A target that a business wants to achieve within a set period of time
For new businesses an objective may be one of survival before profit and then growth
Other objectives include market share, effective service, sales and social benefit
Objectives should be SMART
ABC123
Related words:SMART objectives Survival Profit Growth Social benefit
Sales Market share Effective service
Business planning
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The steps an entrepreneur goes through before setting up a business, effective planning is important for short term survival and long term success
The process of planning will include: Setting objectives Raising finance Cash flow forecast Calculating break even
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Related words:Business objectives SMART objectives Survival
Capital
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The money invested in a business
Initially this will be used to cover start-up expenses such as premises and vehicles
Can be raised from a number of sources including personal investments and bank loans
ABC123
Related words:Raising finance Asset Shareholders
Carbon footprint
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The total amount of negative emissions e.g. greenhouse gases emitted by a business as a result of their operations
A business with an objective to be environmentally friendly will take steps to reduce their carbon footprint
Actions may include less packaging, sourcing materials locally and energy efficient sources
ABC123
Related words:Ethical factors Corporate social responsibility
Environmental factors
Cash flow
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The movement of cash into and out of a business over a period of time
The relationship between cash inflows and cash outflows
Cash flow can be crucial to the survival of a business
ABC123
Related words:Cash in Cash out Cash flow statement Net cash flow
Cash flow statements
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A financial document that shows the cash flowing into and out of a business over a period of time
Will show the closing balance at the end of each period (e.g. a month) to highlight any concerns such as a negative balance
Is included in the accounts to report on the businesses actions and performance to shareholders and other stakeholders
ABC123
Related words:Cash in Cash out Cash flow Net cash flow
Cash in
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The receipt of cash into a business Shown on a cash flow statementExamples of cash inflows include:
Sale of goods Payment by debtors Loans received Sale of assets
ABC123
Related words:Cash flow Cash out Receipts Credit sales
Cash out
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The transfer of cash from a businessShown on a cash flow statementExamples of cash outflows include:
Buying materials Paying expenses Repaying loans Buying capital equipment
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Related words:Cash flow Cash in Payments Credit purchases
Closing balance
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The closing balance on a cash flow is the amount of money/cash left at the end of a period
Opening balance + cash inflows – cash outflows = closing balance
One month’s closing balance becomes the opening balance of the next period
ABC123
Related words:Cash flow Cash flow statement Net cash flow Opening balance
Contribution (Total)
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The total amount of money contributed first towards fixed costs and then profit from all goods sold
Sales Revenue – Total Variable Costs = Total Contribution
Can also be calculated as: Contribution per unit x number of units
ABC123
Related words:Contribution per unit Fixed costs Break even point
Contribution per unit
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The amount of money each unit sold contributes towards fixed costs and once breakeven has been achieved then contributes to profit
Selling Price – Variable Cost (per unit) = Contribution per unit
Contribution can be used to calculate the break even point
ABC123
Related words:Contribution Fixed costs Break even point
Copyright
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Copyright is a legal protection for anyone that has produced work in a range of areas, these include: Literature Drama Music Art Recordings Broadcasts
It is illegal to use copyrighted work without the permission of the owner
ABC123
Related words:Legislation Patent Trademark
Corporate social responsibility
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CSR is a firm’s decision to accept responsibility to its stakeholders for its social, environmental and ethical actions
A firm will produce a Corporate Social Report to set targets that will be used to meet its social responsibilities and to assess how far it has met previous targets
ABC123
Related words:Ethical factors Carbon footprint Green working practices
Credit purchases
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Purchases made by a business where they pay the supplier at a later date e.g. 30 days credit terms
Credit purchases appear in the cash flow not in the month the goods are received but in the month the cash actually flows out of the business
ABC123
Related words:Cash out Cash flow Cash flow statement Payments
Credit sales
Credit sales
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Sales made by a business where the customer’s payment is after the date of the sale e.g. they buy now but pay later
Credit sales appear in the cash flow not in the month the sale is made but in the month when the cash actually flows into the business
ABC123
Related words:Cash in Cash flow Cash flow statement Receipts
Credit purchases
Customer feedback
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A form of primary market research that involves collecting opinions directly from the customer
Methods of collection include: Customer satisfaction survey Comment forms Data collection with registering a product e.g.
warranty
ABC123
Related words:Market research Primary market research Survey
Focus group
Debt
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The total value of money owed by a businessForms of debt include bank loans, overdraft
and trade credit (money owed to suppliers)If a business can not cover its debts it may be
forced to sell its assetsA sole trader may be forced to sell personal
assets to cover the businesses debts
ABC123
Related words:Unlimited liability Asset Sole trader Capital
Deed of partnership
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A legally binding agreement between two or more people who are in business together
It describes how the partnership will be run and the rights and duties of the partners
States basic information such as the business name and the names of the partners, the type of business and business address
The deed will also set out money invested and how profits will be shared
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Related words:Partnership Sleeping partner Limited liability
Demand
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Demand shows the amount of goods or services that a consumer is willing and able to buy at a given price over a period of time. For a normal good as price falls demand will rise and vice versa
Factors affecting demand include price, competitors’ actions, consumer incomes, the success of the firm’s marketing and seasonal factors
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Related words:Marketing Price Product
Demographic segmentation
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Demographic segmentation looks at the social and economic characteristics of customers and subgroups of the population
Market researchers will then attempt to create a clear picture of the type of consumer that will make up these segments
Examples might include age, sex or income
ABC123
Related words:Market segmentation Geographic segmentation
Socio-economic group Demographics
Demographics
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Demography is the statistical study of human populations and demographic factors are those that influence these populations
Firms will have to take into account population trends. These include: An increase in the global population size An increase in the average age of UK society Falling EU birth rates
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Related words:Social factors Demographic segmentation Socio-economic group
Dividends
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A percentage of profit paid to a share holder as a reward for their investment
Ordinary shareholders are only paid a dividend if the business can afford it
Higher dividends are paid to ordinary shareholders when the business has performed well
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Related words:Private limited company Public limited company Shareholders
Profit
Division of labour
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Work is broken into small tasks and each employee is given responsibility for a single or limited number of tasks
The employees become specialised in their task(s)
Can be monotonous
Often associated with flow production
ABC123
Related words:Factors of production Specialisation Flow production
Economic factors
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The economic environment consists of the key economic factors that influence the behaviour of businesses and their customers. These include: Interest Rates Exchange Rates Inflation Unemployment Economic Growth
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Related words:Recession Recovery Employment Interest rate Inflation
Exchange rate
Effective service
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Customer service involves meeting or exceeding customer expectations
Providing an effective service can be a business objective in its own right
It will also help achieve other objectives such as sales and market share as satisfied customers are likely to return and spread positive word of mouth
ABC123
Related words: Business objectives SMART objectives Survival Profit
Growth Social benefit Sales Market share
Employment
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The number of people who are actively engaged in work
Employment creates wealth in the economyIf employment is high more people have jobs
and therefore money which is good for the demand of goods and services
People, of working age, without jobs are classed as unemployed
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Related words:Economic factors Recession Recovery Interest rate Inflation
Exchange rate
Environmental factors
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The variety of factors that impact on the environment due to the operations of organisations
This will include how they impact on: The natural environment – the natural resources that firms exploit
to produce goods and services The built environment – the man-made surroundings that provide
the setting for the production of goods and services
Issues include sources of energy, waste management, the use of eco-friendly products and organic produce
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Related words:Green consumerism Green working practices Carbon footprint
Corporate social responsibility
Ethical
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The moral principles that support the decision making process for an entrepreneur and within the business
Being ethical might mean that a business will have to pay more for its supplies and turn down profitable contracts
However, it can act as a USP helping to attract customers
A business may set an objective of behaving in an ethical way
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Related words:Business objectives Sustainable Ethical factors
Ethical factors
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The variety of factors that impact on the ethical behaviour of organisations
Ethical factors are often influenced by the attitudes of society
Factors include: Treating stakeholders fairly e.g. Employees, suppliers,
customers Respecting the environment Supporting good causes
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Related words:Carbon footprint Corporate social responsibility Ethical
Exchange rates
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The value of a currency in terms of another e.g. £ : $
If a country is experiencing a strong exchange rate e.g. the £ is strong, then imports will be cheap and exports expensive SPICED (strong pound: imports cheaper, exports dearer)
If a country is experiencing a weak exchange rate e.g. the £ is weak, then imports will be expensive and exports cheap WPIDEC (weak pound: imports dearer, exports cheaper)
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Related words:Economic factors Recession Recovery Employment
Interest rate Inflation
External recruitment
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External recruitment occurs when candidates for a position are recruited from outside of the organisation
This increases the talent available and provides new ideas
However, it increases recruitment costs and can upset internal candidates
ABC123
Related words:Recruitment Internal recruitment Advertising
Personal recommendations
Factors of production
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The inputs that go into creating goods and services
The four factors of production are: Capital Entrepreneurial skill Land Labour
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Related words:Job production Batch production Flow production
Fixed costs
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Costs to a business that stay the same regardless of output
Fixed costs include rent & rates, salaries and interest payments
Fixed costs are shown as a horizontal line on a break- even chart
ABC123
Related words:Variable costs Total costs Contribution Contribution per unit
Flotation
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The process of becoming a public limited company by issues shares on a stock market
Involves selling of a percentage of the business
Benefits include access to capital and raising the business’ profile
There are also additional responsibilities and costs
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Related words:Incorporation Shareholders Stock exchange
Public limited company
Flow production
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A capital intensive production technique in which items flow along a production line in a continuous process
Suitable for mass production Large scale Identical items
Uses specialist machineryWorkers are each responsible for a small step
along the process, this involves: Specialisation and Division of Labour
ABC123
Related words:Job production Batch production Factors of production
Focus groups
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A method of primary market research in which a group of people are asked about their views, opinions and reactions towards an aspect of a business e.g. a product or service, advertisement, idea or packaging
Allows the business to collect detailed feedback
Questions are asked in a group environment where participants are able to share opinions
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Related words:Market research Primary market research Customer feedback
Friends and family
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A potential source of finance for small business
May be a loan which is to be repaid or investment to help a new business cover start-up costs
The money comes from a friend of the entrepreneur or family member
Money available is likely to be limited
ABC123
Related words:Raising finance Sole trader Capital Unlimited liability
Full-time employee
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A person who is contracted to work over 30 hours per week for a business
Full-time employees may be more committed towards their jobs and better able to take advantage of training and promotion opportunities
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Related words:Recruitment Part-time employees Retention
Geographic segmentation
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Defines market categories based on where people live e.g. regions, cities or neighbourhoods
People in different geographical areas display different characteristics
Many small businesses and business start-ups will target one geographical area at first and, if successful, expand into other areas
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Related words:Market segmentation Demographic segmentation
Socio-economic group
Grants
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Financial support offered, normally by the Government, to entrepreneurs to ease the costs associated with start-ups
Grants will normally be awarded to help fund a specific project or aspect of start-up
Grants often do not need to be repaid and may be more accessible to not-for-profit or social enterprises
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Related words:Raising finance Sole trader Capital
Green consumerism
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Actions taken by customers to consider ethical and environmental factors when making buying decisions
Actions can be positive e.g. Favouring organic produce or buying fair trade
Or negative e.g. avoiding businesses involved in child labour or with poor environmental records
ABC123
Related words:Green working practices Environmental factors Ethical factors
Green working practices
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Actions taken by businesses to behave in an environmental and socially responsible manner
Actions may include: Reducing carbon footprint Recycling waste materials Sustainable energy sources Reduced packaging
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Related words:Green consumerism Environmental factors Ethical factors
Growth
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A business objective often set for the medium to long term
After a business has achieved survival and profit it may then set an objective of growth
Growth can be measured by a number of factors including: Market share Market size Profit Number of employees
ABC123
Related words:Business objectives
SMART objectives Survival ProfitSocial benefit Sales Market share
Effective service
Health and safety
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Legislation that looks after the well being (Health &Safety) of employees in the workplace
There are significant costs associated with H&S e.g. safety inspections and training
Accidents in the workplace have been substantially reduced due to H&S Laws
Laws include: 1974 Health and Safety at Work Act; 1981 Health and Safety Regulations;
1996 Health and Safety Regulations
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Related words:Legislation Working conditions Minimum wage
Human resource management
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The function within a business that relates to the management and strategies involved in dealing with individuals that make up the workforce
HRM must ensure that there are enough employees with the required skills to maintain the running of the business on a day to day basis
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Related words:Recruitment Retention Pay Training Working conditions
Performance management
Incorporation
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A business with a separate legal identity from its owners
The business can own assets, have liabilities and make legally binding contracts in its own right
Incorporated businesses include private and public limited companies
Incorporation is the process of becoming incorporated
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Related words:Private limited company Public limited company Flotation
Limited liability Shareholders
Induction training
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Introductory training for employees new to an organisation
It provides staff with information that helps them to settle in and to understand the culture of a firm
However, it will increase initial cost and is often less personal than training from immediate colleagues or supervisors
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Related words:Training On the job Off the job Human resource management
Inflation
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A general rise in prices or a fall in the value of money
There are two main types of inflation:o Cost push – an increase in input prices e.g. raw materials
and wageso Demand pull – an increase in demand allowing firms to
raise pricesThere are two main measurements:
o Retail Price Index (RPI) – a measurement of a ‘basket’ of goods and services representative of what people buy in the UK
o Consumer Price Index (CPI) – similar to RPI but it excludes housing costs. The Government has set a target of 2% for CPI
ABC123
Related words:Economic factors Recession Recovery Employment
Interest rate Exchange rate
Interest rate
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The cost of borrowing or reward for saving money
Banks will charge businesses interest on bank loans and overdrafts
High interest rates may encourage saving and discourage spending
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Related words:Economic factors Recession Recovery Employment
Inflation Exchange rate
Internal recruitment
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Internal recruitment occurs when candidates for a position are recruited from within the organisation
This will lower recruitment costs, improve promotion prospects and entail a quicker process
However, it reduces talent available and limits the number of applicants available for a position
ABC123
Related words:Recruitment External recruitment Advertising
Personal recommendations
Internet research
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The use of the world wide web to collect primary or secondary data
Secondary sources could include the census for demographic data, company accounts of competitors or market intelligence reports
Primary sources could include social network blogs for customer feedback or online surveys
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Related words:Market research Secondary market research Demographics
Interview
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This entails a question (and answer) session with a candidate, normally using the same questions for each candidate
It is the most commonly used method of selecting an employee for a job
Should be a two way process allowing the candidate to find out about the business and job as well as the employer assessing the suitability of the candidate
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Related words:Recruitment Advertising Human resource management
Job production
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The production of one off items to meet the needs of each individual customer
Cheap and easy to set up, but more expensive to produce
Often a specialist service and therefore may be able to charge a premium price
Time consuming to produce; tend to be labour intensive
Meet specific needs of customers
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Related words:Batch production Flow production Factors of production
Legislation
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Involves creating and enacting laws in order to protect individuals, firms and society as a whole
Laws are passed through UK Acts of Parliament and the UK is also subject to EU law
Legislation affecting businesses includes: Health and Safety Employment Law e.g. Minimum wage Copyright, trademarks and patents
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Related words:Health and safety Minimum wage Copyright Patent
Trademark
Limited liability
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An investor’s liability/financial commitment is limited to the total amount invested or promised in share capital
An investor’s personal belongings (assets) are protected
This is one of the advantages of being a company rather than a sole trader
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Related words:Private limited company Public limited company
Unlimited liability Asset Incorporation
Logistics
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The process of coordinating resources: Moving materials to the right place at the right time
to meet production targets Moving finished goods to the right place at the right
time to meet customer demandsImportant aspect of operational efficiency
both during the production process and at the end to distribute goods
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Related words:Factors of production Resource control Effective service
Loss
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The deficit experienced by a business when total costs exceed total revenue
A firm making a loss is likely to take action to try and reduce this, including raising prices or reducing costs
Loss = Total Revenue – Total Costs (where TR<TC)
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Related words:Revenue Total costs Profit Break even chart
Loss leader
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A pricing tactic that involves selling products at or below the cost of making the product
Loss leaders are commonplace in retailing. The idea is to entice the customer into the store in the hope that they will spend on other, full priced products
Loss leaders are likely to be heavily advertised so that potential customers are aware of the low price
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Related words:Price Price skimming Penetration pricing Psychological pricing
Market mapping
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Plotting the key variables that differentiate products within the market against each other
A variety of market conditions might be represented on the map to identify trends and the relationship between consumers and products e.g. the price of the product versus the quality of the product
This can help a business identify problem areas or gaps in the product range that it produces
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Related words:Marketing Market segmentation Product portfolio
Market research
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The collection, collation and analysis of data and information regarding a particular market
It can include both primary and secondary research
It is very important in order to inform an organisation regarding their marketing mix
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Related words:Primary market research Secondary market research
Questionnaires Focus groups Survey Supplier feedback Customer feedback
Internet research
Market segmentation
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Market segmentation is the splitting of customers into categories in order to identify different types of consumer e.g. by age, gender, location or income
Understanding of market segmentation allows a business to better target its marketing mix to meet the needs of its customers
ABC123
Related words:Geographic segmentation Demographic segmentation
Socio-economic group
Market share
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The proportion of total market sales that a particular firm has
Calculated as: Sales of firm / Total market sales x 100
A business with an objective of growth may take actions to increase market share e.g. increase promotion, change price, improve the product
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Related words:Business objective SMART objective Marketing
Marketing
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The management process that allows a firm to identify, satisfy and revisit the requirements of the customer (normally at a profit)
Marketing involves carrying out market research, designing an integrated marketing mix and reviewing the competitiveness of the business
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Related words:Market segmentation Market research Marketing mix
Marketing mix
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The combination of the 4ps of marketing through which a firm achieves its marketing objectives
The mix is the integration of: Product Price Place Promotion
To be effective a marketing mix must be integrated i.e. each component must complement the others
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Related words:Product Price Place Promotion
Memorandum of association
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A formal document required to form a company and become incorporated
Outlines details of the company’s activities and shareholders
Is registered at Companies’ House
ABC123
Related words:Articles of association
Private limited company Public limited company
Minimum wage
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The lowest amount of money a business can legally pay an employee
From October 2012 the minimum wage in the UK is: £6.19 - the main rate for workers aged 21 and over £4.98 - the 18-20 rate £3.68 - the 16-17 rate for workers above school
leaving age but under 18 £2.65 - the apprentice rate, for apprentices under 19
or 19 or over and in the first year of their apprenticeship
Source: http://www.direct.gov.uk
ABC123
Related words:Legislation Pay Retention Working conditions
Mortgage
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A long term source of finance where the loan is secured against a specific asset such as a house or building
A mortgage is paid back with interest over a set period of time e.g. 25 years
Failure to make payments can result in the secured asset being repossessed by the lender
ABC123
Related words:Raising finance Bank loan Overdraft Capital Interest rate
Net cash flow
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The balance of one month’s total cash inflows in relation to that month’s total cash outflows
Cash Inflows – Cash Outflows = Net Cash Flow
Shown on a cash flow forecast and cash flow statement
ABC123
Related words:Cash flow Cash in Cash out Opening balance
Closing balance
Off the job training
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Any form of education, to improve an employee’s performance at work, that takes place away from the workplace
Specialists can deliver a higher quality of training for workers
However, this can be expensive
ABC123
Related words:Training On the job Induction training
Human resource management
On the job training
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Any form of education, to improve an employee’s performance at work, that takes place within the workplace
This can be cost effective, often being delivered by people from within the organisation
Might not be as good quality as external training but will be specific to the business
ABC123
Related words:Training Induction training Off the job
Human resource management
Opening balance
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The opening balance on a cash flow is the amount of money/cash left at the end of the previous period
Opening Balance + Cash Inflows – Cash Outflows = Closing Balance
One month’s closing balance becomes the opening balance of the next period
ABC123
Related words:Cash flow Cash flow statement Net cash flow Closing balance
Overdraft
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The facility to borrow money, normally from a bank, in the short term
An overdraft can be used to help short term cash flow problems
Interest is payable on the amount overdrawn
ABC123
Related words:Raising finance Bank loan Capital Closing balance
Interest rate
Partnership
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When two or more people join together to set up a business as a partnership
Each partner will contribute towards start up costs and be involved in decision making
Each partner would normally have unlimited liability
ABC123
Related words:Unlimited liability Deed of partnership Sleeping partners
Part-time employee
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A person who is contracted to work less than 30 hours per week for a business
Part-time employees can offer greater flexibility to a business and may be a more affordable option for a new business
ABC123
Related words:Human resource management Full-time employees
Working conditions
Patent
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A patent grants the holder, an individual or business, the sole right to use unique features of a new product or process
It gives the holder the right to stop others from making, using, importing or selling the innovation or invention without prior permission
ABC123
Related words:Legislation Copyright Trademark Unique selling point
Pay
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The monetary reward given to employees in return for their services
Pay can serve to motivate employeesPay can be in the form of a wage or salary
and can also include bonuses, performance related pay or commission
In the UK there is a minimum rate of pay known as the minimum wage
ABC123
Related words:Human resource management Retention Working conditions
Minimum wage
Payments
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Any money flowing out of the business to purchase equipment or meet day to day expenses e.g. wages and raw materials
Payments are shown as a cash outflow on a cash flow statement
Payments may be made in cash i.e. at the time of the transaction or on credit i.e. after the transaction
ABC123
Related words:Cash flow Cash flow statements Cash out Credit purchases
Penetration pricing
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Setting a low initial price for a new product in order to get a foothold in the market and gain market share
Once the product has been launched and built up a customer base the firm may raise the price
May be a suitable pricing strategy for entering into a mass market
ABC123
Related words:Price Price skimming Loss leader Psychological pricing
Performance management
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Activities taken by management to measure how effectively employees are carrying out their duties
Performance management or appraisal takes place to look at the performance of staff over a period of time
Management will review performance against agreed targets
Sometimes pay is partly based on performance (Performance Related Pay) Allows the firm to identify problem areas with staff
and take action to reduce these problemsABC123
Related words:Human resource management Working conditions Pay
Retention
Personal recommendation
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A form of recruitment where an existing employee suggests a personal contact for a vacancy
Friends can act as a reference for new employees as they have an insight into the skills or integrity of a potential new recruit
A cheap form of recruitment
ABC123
Related words:Recruitment Internal recruitment External recruitment
Advertising
Place
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The component within the marketing mix that defines both the physical location where a product is available as well as the distribution channel it has travelled through, from manufacturer to consumer
Intermediaries (middle men) within the distribution channel include wholesalers and retailers
ABC123
Related words:Marketing mix Wholesaler Retailer
Political factors
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The political environment consists of the key political factors that influence the behaviour of businesses and their customers. These include:
The provision of products by the Government Government actions
Regulation Taxation Subsidies
Enlargement of the EU
ABC123
Related words:Economic factors Legislation Environmental factors
Price
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The component within the marketing mix that defines the amount of money that is paid for a good or service by the customer
A business may try to compete on price by using tactics such as penetration pricing or loss leader
ABC123
Related words:Loss leader Price skimming Penetration pricing
Psychological pricing Marketing mix
Price skimming
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Setting a high initial price for a new product in order to recoup high development costs
When a firm releases a new product it may charge a high price targeting a segment of the market known as ‘early adopters’, once this market has been ‘skimmed off’ the business may lower price
Firms may base their initial promotional campaign around this idea, trying to create a ‘must have’ mentality amongst their target market
ABC123
Related words:Price Loss leader Penetration pricing Psychological pricing
Primary market research
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Primary market research (field research) involves the collection of first hand data that did not exist before
Therefore it is original data
It is collected for the specific needs of the business
Examples include questionnaires and focus groups
ABC123
Related words:Market research Secondary market research Questionnaire
Focus group Survey
Private limited company (ltd)
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An incorporated business that is owned by shareholders who tend to be family and friends of the entrepreneur (s)
Shareholders in the business have limited liability
The company must have Ltd after its name
ABC123
Related words:Limited liability Public limited company Shareholders
Memorandum of association Articles of association Dividend
Product portfolio
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This looks at the range of products and brands that a firm has under its control
A business may analyse its portfolio to help identify where every single one of its products is positioned in the market
Helps inform future marketing decisions
ABC123
Related words:Marketing Product Unique selling point
Product
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The component of the marketing mix that looks at the goods and services that a firm provides Goods are physical or tangible products, you can touch
them e.g. a car or a television. Services are unphysical or intangible, they cannot be
touched e.g. financial consultancy or teaching
Firms may try to make their products stand out from the competition by having a unique feature (a USP)
ABC123
Related words:Marketing mix Product portfolio Unique selling point
Profit
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The surplus money made by a business when total revenue exceeds total costs
Calculated as: Total Revenue – Total Cost
A firm may attempt to increase profit by: Reducing costs e.g. Find a cheaper supplier Increase revenue e.g. Introduce new promotions or
short term pricing tactics
ABC123
Related words:Business objective Revenue Total cost Loss
Promotion
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This is that part of the marketing mix that informs and persuades customers about the product in order to sell that product
A firm will look at its promotional mix in order to increase the sales of its products
Promotion is designed to create Awareness, Interest, Desire and Action (AIDA)
ABC123
Related words:Marketing mix Promotional mix Demand
Promotional mix
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The combination of promotional activities that a firm uses in order to create consumer awareness and generate sales
The promotional mix includes: Public Relations Branding Sales Promotions e.g. 3 for 2 Direct Selling Advertising
ABC123
Related words:Marketing mix Promotion Demand
Psychological pricing
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A pricing tactic designed to make the consumer think that the product is cheaper than it actually is hence enticing the customer into making a purchase
A common example of psychological pricing is when a firm charges £9.99 rather than £10.00
ABC123
Related words:Price Price skimming Penetration pricing Loss leader
Public limited company (plc)
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An incorporated business that is able to sell shares on the stock exchange
Shareholders in the business have limited liability
The business must have a minimum of £50,000 in share capital and ‘plc’ after its name
ABC123
Related words:Limited liability Private limited company Shareholders
Memorandum of association Articles of association Dividend
Quality
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Quality means the ability of a product or service to meet customers’ expectations
Customers’ interpretation of quality may be influenced by a number of factors including: Price Brand Customer’s personal expectations and experiences Nature of product or service
ABC123
Related words:Quality control Quality assurance Quality standards
Total quality management
Quality assurance
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The checking of a product or service at each stage of its production e.g. as it travels along a production line
Aims to avoid mistakes by getting the product right first time
It is reliant upon self-checking
It can be an expensive process
ABC123
Related words:Quality control Quality Quality standards
Total quality management
Quality control
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The checking of a good or service before it is delivered to a customer i.e. at the end of the production process
It normally relies on an inspection process
As the product is only checked at the end it can lead to a high amount of waste
ABC123
Related words:Quality Quality assurance Quality standards
Total quality management
Quality standards
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A system of accreditation that a firm can use to show that they have procedures in place to achieve a certain level of quality
The emphasis of the standards is on the implementation of quality processes and procedures
Examples include: ISO9000 Kite marks
ABC123
Related words:Quality control Quality assurance Quality
Total quality management
Questionnaires
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A form of primary market research that involves a set of predetermined questions to be answered by the respondent
May include open and closed questions, but primarily closed i.e. choosing from a number of possible answers rather than writing freely
A relatively easy way to collect consumer opinions
ABC123
Related words:Market research Primary market research Survey
Customer feedback
Raising finance
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The options available to a business when seeking to raise funds to support start-up or future growth
Finance may take internal or external forms: Internal sources of finance include: Retained profits
that can be ploughed back into the business External sources of finance include: Bank overdrafts
and loans, family and friends, shareholders, government grants
ABC123
Related words:Bank loan Overdraft Mortgage Friends and family Grants
Receipts
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Any money flowing into the business from the sale of goods or services or from investments
Receipts are shown as a cash inflow on a cash flow statement
Receipts may be received in cash i.e. at the time of the transaction or on credit i.e. after the transaction
ABC123
Related words:Cash flow Cash flow statement Cash in Credit sales
Recession
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• The rate of economic growth starts to fall due to a downturn
• The Government state that recession is officially two quarters of negative economic growth
• Characterised by:o Falling demando Unemployment begins to rise and some firms will go out of
businesso Confidence in the economy is low and most firms will reduce
investment
ABC123
Related words:Economic factors Recovery Employment Interest rate
Inflation Exchange rate
Recovery
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The rate of economic growth starts to rise due to an upturn in economic activity
• Characterised by:o Rising demando Unemployment begins to fallso Confidence in the economy is high and some firms will start
to invest in expansion plans
ABC123
Related words:Economic factors Recession Employment Interest rate
Inflation Exchange rate
Recruitment
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The steps undertaken by a business to identify a vacancy and attract suitable candidates
This can be internal or external recruitment
Effective recruitment is an important aspect of achieving operational efficiency
ABC123
Related words:Internal recruitment External recruitment Advertising
Personal recommendations
Resource control
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The process of ensuring all the factors of production are coordinated effectively to meet operational objectives
Resources include: Labour Equipment Land Stock
ABC123
Related words:Logistics Assets Human resource management
Factors of production
Retailer
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An organisation that sells goods or services to the general public or end user
Retailers are at the end of the channel of distribution
They can act as an intermediary between producers, wholesalers and the consumer
ABC123
Related words:Marketing mix Place Wholesaler
Retention
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The ability to keep workers
High retention means that there is an established workforce who are staying with the business for a long period of time
Because labour turnover is low this saves on recruitment and training costs
ABC123
Related words:Human resource management Recruitment Pay
Working conditions Performance management
Revenues
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The money coming into a business from the sale of goods or services
Calculated as: Selling price x quantity sold
For a business to make a profit total revenue must be higher than total costs
ABC123
Related words:Total costs Profit Loss Break even point Break even charts
Sales
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The process of selling goods and services to customers in exchange for money
Sales generate revenue for a businessA business may set an objective to achieve ‘x’
amount of sales within ‘y’ amount of timeIndividuals within a business may also be set
sales targets
ABC123
Related words:Business objectives SMART objectives Survival Profit
Growth Social benefit Market share Effective service
Secondary market research
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Secondary market research (desk research) is research that has already been undertaken by another organisation and therefore already exists
It may not meet the exact needs of the business but is often more comprehensive than small scale primary research
Examples include business accounts, market intelligence reports and census figures
ABC123
Related words:Market research Primary market research Internet research
Shareholders
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Investors who are part owners of a company
Shareholders will receive a dividend, a share of the profit, in return for their investment
Shareholders have a voting right proportional to the number of shares held
Liability is limited to the sum invested
ABC123
Related words:Limited liability Private limited company Public limited company
Dividend
Sleeping partners
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A person who has invested in a partnership but is not involved in the day to day running of it
May still be involved in major decisions and will enjoy a share of the profits
ABC123
Related words:Partnership Deed of partnership Capital
SMART objectives
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An acronym used to frame the goals of a business
Smart objectives will be: Specific – clearly set out so employees understand
what the objective is Measureable – to know when the objective is achieved Achievable – a belief that objectives are attainable Realistic – employees should be able to carry out tasks
to meet the objective Time-based – setting a target date
ABC123
Related words:Business objectives Survival Profit Growth
Social benefit Sales Market share Effective service
Social benefit
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An objective to provide support for a good cause
This may include: Charity Community Research
A social enterprise will use all profits for social benefit
A profit orientated business may have an objective of supporting a social benefit
ABC123
Related words:Business objectives SMART objectives Survival Profit
Growth Sales Market share Effective service
Social factors
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Changes to the characteristics and attitudes of society over time
A business should be aware of trends in social factors and be able to change the composition of its marketing mix in order to meet the needs of a changing market
Possible changes resulting from social trends include: Ethical trading Sourcing of sustainable materials Demographics Reduction/recycling of packaging Online retailing Retailer purchasing power ABC123
Related words:Demographics
Demographic segmentation Socio-economic group
Socio-economic group
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A way of dividing the population into groups based on the income of the head of the household. This is used for market research purposes A – Higher managerial e.g. company directors B – Intermediate managerial e.g. bank manager C2 – Supervisory and junior management D – Skilled manual e.g. plumbers, electricians etc. E – Dependent on the state e.g. unemployed,
pensioners etc. A way of targeting a market segment based on people’s
lifestyle
ABC123
Related words:Market segmentation Demographic segmentation
Geographic segmentation
Sole trader
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An individual who owns and runs their own business
A sole trader has unlimited liability and is therefore responsible for all the debts of the business
A sole trader is unincorporated i.e. The sole trader and the business have the same legal identity
ABC123
Related words:Unlimited liability Capital Asset Debt Friends and family
Specialisation
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An employee, as a result of division of labour, performs a single or limited number of tasks in which they become experts/specialists
Can result in greater efficiency and hence lower the cost of production
Often associated with flow production
ABC123
Related words:Factors of production Division of labour Flow production
Stock exchange
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The place where shares of companies can be traded, provides a market place for brokers and traders
When a business becomes a PLC it floats its shares on the stock exchange
ABC123
Related words:Public limited company Incorporation Flotation Shareholders
Supplier feedback
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A form of primary market research that involves gathering data from a supplier of goods and services
This may be a retailer, for example, who has dealt directly with the public and can feed back to the manufacturer
ABC123
Related words:Market research Primary market research Customer feedback
Survey
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A form of primary market research that involves a set of predetermined questions to be answered by the respondent
Normally questions are short and closedOften provides respondents with options to
choose fromSurveys can be:
Postal Telephone Face–to-face On-line
ABC123
Related words:Market research
Primary market research Questionnaire
Customer feedback
Survival
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Business objectives focussed on ensuring that a business maintains operations
This is the most important objective for a start-up business
In order to survive a business must maintain a positive cash flow
In the short term a business can survive if making a loss as long as it has a positive cash flow
ABC123
Related words:Business objectives SMART objectives Profit Growth
Social benefit Sales Market share Effective service
Sustainable
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A business objective of behaving in an environmentally and socially responsible manner will include an objective of using sustainable resources i.e. those that will be available for a continued period of time
Sustainable actions are linked to green working practises, for example, this may include using wind or solar power
ABC123
Related words:Business objectives Environmental factors Green consumerism
Ethical factors
Technological factors
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The technological environment consists of the key technological factors that influence the behaviour of businesses and their customers
Technological change will impact on: Marketing opportunities The culture of the business The processes and systems used within the business
Organisations must take into account changes in technology if they are to remain competitive
ABC123
Related words:Social factors Flow production Training
Total costs
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All of the costs associated with the provision of a good or service
Total Costs = Fixed Costs + Variable Costs
In order for a business to achieve a profit total revenue must be higher than total costs
ABC123
Related words:Variable costs Fixed costs Contribution Contribution per unit
Revenue Break even chart Break even point
Total quality management
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TQM is a quality assurance system in which each employee is a link in the chain and treats the next link as if they were an external customer
TQM sees quality as the responsibility of all employees
ABC123
Related words:Quality Quality assurance Quality standards Resource control
Training
Trade marks
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A trademark protects a feature that distinguishes your business from others. It might include: Words Pictures Logos Colours or shapes
It can be used as a marketing tool so that customers can recognise your business and helps build brand loyalty
ABC123
Related words:Legislation Patents Copyright
Training
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The process of equipping employees with the skills and knowledge necessary to carry out their job effectively
Types of training include induction, off-the-job and on-the-job
ABC123
Related words:Induction training On the job Off the job
Human resource management
Unique selling point
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A USP is something that distinguishes a firm’s product from those of its competitors
Firms try to make their product different to the competition by adapting the actual product in some way or by distinguishing the product through advertising and branding
This is known as product differentiation
ABC123
Related words:Marketing Product Product portfolio Patent
Unlimited liability
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The owners of a business are responsible for the total amount of debt of the business
The owner may lose their personal belongings if the value of these is needed to cover the debts of the business
Personal belongings could include car and house
ABC123
Related words:Limited liability Sole trader Partnership Asset Debt
Variable costs
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Costs to a business that change in relation to output
Variable costs include materials, wages and distribution
Variable costs are shown as a diagonal line from the origin on a break even chart
ABC123
Related words:Fixed costs Total costs Contribution Contribution per unit
Wholesaler
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Wholesalers buy large quantities of supplies from producers and sell them on in smaller quantities
They act as an intermediary (middle man) between manufacturers and retailers and consumers in the distribution channels
ABC123
Related words:Marketing Place Retailer
Working conditions
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The characteristics of the environment in which employees work and the way in which they are treated by the employer
Conditions will include: physical considerations e.g. facilities monetary rewards e.g. pay management styles training opportunities
ABC123
Related words:Pay Retention Training Human resource management