Topic 1 1 Understanding customer needs What the

Topic 1. 1: Understanding customer needs What the syllabus says… • Customer needs are central to starting a business • How to collect and interpret primary and secondary market research in the context of starting a new business • The difference between qualitative and quantitative research data 2. Understanding Customer Needs • The value of market knowledge through direct customer contact

Understanding Customer Needs Customer focus is crucial

Topic 1. 1: Market Mapping What the syllabus says… - How to analyse customer buying habits and preferences - How businesses can identify market segments - How businesses can map their market to set out the key features of the market they are planning to operate in and identify a market gap

Market Mapping Segmentation

Topic 1. 1: Analysing the competition What the syllabus says… - That initial planning to set up a business will require an analysis of the competitors in the market - How to analyse competitor strengths and weaknesses - Comparing a business offering with that of its rivals enables an entrepreneur to spot further opportunities

Competition What do they have/do better than you? ? • Product Range • Quality • Design • Selling experience • After-sales service • Price • Brand image • Suppliers

Topic 1. 1: Adding Value What the syllabus says… - The meaning of the term ‘added value’ - Its importance in business survival and success. - The main sources of added value * Convenience * Speed * Branding * Quality * Design, * Unique selling point

Added Value Sources of added value: • Quality • Design and formula • Convenience • Speed and quality of service • Branding • Unique selling point Adding value = Business survival & success

Topic 1. 1: Franchises What the syllabus says… The principles of franchising as it applies to small business start-up. - The advantages and disadvantages of using a franchise as a means of starting a new business. - Assess franchising against other business start-up options. - How to identify a suitable startup location

FRANCHISEE FRANCHISOR FRANCHISING

What is Enterprise? “A willingness by an individual or a business to take risks, show initiative, and undertake new ventures”

Topic 1. 2 – What is Enterprise? What the syllabus says… - Enterprise involves: - Taking risks, - Showing initiative - Willingness to undertake new ventures - The difference between providing goods or a service

Thinking Creatively = Examples of competitive advantage: • Have a better product • Better way of producing = lower costs/quality • Give customers better service • Better at selling • Idea that is unique

Topic 1. 2: Thinking creatively What the syllabus says… - Why thinking creatively is important in developing both competitive advantage and a new business - The role of lateral thinking and deliberate creativity in developing new business ideas - Edward De Bono’s Six Thinking Hats also works well for assessing new business ideas

What questions do Entrepreneurs ask?

Topic 1. 2: What questions do Entrepreneurs ask? What the syllabus says… • The important questions to ask when coming up with new • Business ideas such as Why? Why not? What if? • The concept of looking beyond the obvious, asking ‘What if? ’ • Judging the value of outcomes.

Innovation and Invention

Topic 1. 2: Innovation & Invention What the syllabus says… • How new business ideas come about • Understand the difference between innovation and invention • Innovation means bringing a new idea to the market • Explain steps an entrepreneur can take to protect their idea through patents and copyright

Taking a calculated risk EXAMPLE: What is the risk of a child getting burned from a cooking activity? ANSWER: If a 2 year old is allowed to use the cooker = very high i. e. 50% chance, if the cooker is in a separate room and children are not allowed in there = 0% chance

Topic 1. 2: Taking a calculated risk What the syllabus says… • Understand the principle of taking a calculated risk • Understand that weighing up the risks and the rewards of a new business idea is an important part of the process of judging outcome and viability of a startup • To see mistakes as part of the process of learning to succeed • The idea is to encourage thought about the downsides and upsides, as well as the chances of them occurring. ‘Dragon’ venture capital investors may look for huge potential upsides, whereas many entrepreneurs want a safe way of making a living, not a fortune.

Important Enterprise skills There are many skills that an entrepreneur needs to be successful. 4 of them are: Seeing opportunities Effective planning Thinking ahead Making connections Drive and determination

Topic 1. 2: Other Enterprise Skills What the syllabus says… - Explain the importance of: - Planning - Thinking ahead - Seeing opportunities, - Having drive and determination - Making connections, using mind maps to collect thoughts and see opportunities

Objectives When starting up

Topic 1. 3: Objectives when starting up What the syllabus says… • financial objectives: the range of motives for wanting to start a business including profit or income, financial security and wealth • Non-financial objectives: personal satisfaction, challenge, to help others (starting a charity)

Qualities shown by entrepreneurs - Determination Initiative Willingness to take risks Decision making The ability to plan Persuasion Leadership Being lucky

Topic 1. 3: Entrepreneur Qualities What the syllabus says… • Determination and initiative • The willingness to take risks and make decisions • The ability to plan and persuade • Showing leadership • The role of luck in business success/failure

Revenue, Costs & Profits

Revenue, Costs & Profits Profit = Revenue – Costs Examples of fixed costs: • Loan repayments • Salaries of permanent workers • Website maintenance • Insurance • Rent of premises Examples of variable costs: • Fuel • Raw materials • Staff wages (paid by hour) • Electric (if used to make product) Total revenue = Price per unit X Quantity sold TOTAL COSTS FORMULA: Fixed costs + Variable costs

1. 3: Revenue, costs and profit What the syllabus says… • How businesses forecast sales volumes and selling prices to estimate revenue • How to determine fixed and variable costs • Understand the difference between price and cost and the concept of profit • Explain how profit is the difference between the total revenue generated over a period and the total costs • The impact of profits and losses on a business and its owners

Forecasting Cash Flow Jan Inflows: - own money - Loan - sales Capital Sales Total Inflows: - Wages - Equipment - Gas, electricity - Interest of loans Payments/Outflows Supplies Mortgage Electricity Equipment Other expenses Total Outflows Net Cash Flow (= Inflow – outflow) Factors that can affect cash flow: Opening Balance • • Closing Balance Number of sales a business makes Costs can change Credit terms can change Stock levels (stock sat on shelves is called “dead money” until it is sold) (= balance at start of month) (= net cash flow + balance at start of month) 0

1. 3: Forecasting cash flow What the syllabus says… • Understand the role and importance of cash to the operation of a business and to its long-term success • How to estimate monthly cash inflows and outflows to determine net and cumulative cash flows • How cash flows are affected by stock levels and credit terms • Explain how cash flow problems can lead to business failure (insolvency) • Appreciate the role and importance of a business plan in minimising the risk involved

The Business Plan A business plan is a written document that describes your business. It covers objectives, strategies, sales, marketing and financial forecasts. A business plan helps you to: • clarify your business idea • spot potential problems • set out your goals • measure your progress

Obtaining Finance

Topic 1. 3 – Obtaining Finance What the syllabus says… • Explain the main sources of finance for a small business start-up • Long-term sources, such as: – loans, – personal savings, – profit, – venture capital – share capital in the context of a private limited company • Short-term sources such as - overdrafts - trade credit

Customer Focus and the Marketing Mix Identifying needs Anticipating needs Meeting customer needs

1. 4 Customer focus and the marketing mix What the syllabus says… Customer focus: • Understand that a business must anticipate, identify and meet customer needs if it is to be successful The marketing mix: • Understand that a business will have to consider price, product, promotion and place as important elements to meet the business opportunity • Understand that different businesses will place different emphasis on the elements of the mix and that the mix can be amended to meet changing consumer needs

Limited Liability Differences Risk Control Profits Privacy Liability = legally responsible for debts

Topic 1. 4: Limited Liability What the syllabus says… • Explain the principle of limited and unlimited liability • Understand the implications of this in making a choice on the status of the business • The differences between sole trader and private limited company status • The focus should be on the different aims and implications of limited versus unlimited structures, highlighting the personal risk of unlimited liability.

Start up legal and tax issues Value Added Tax Corporation tax NI Contributions Income Tax Keeping business records

Topic 1. 4 Start up legal and tax issues What the syllabus says… • Understand the need to establish a unique trading and business name • Understand the need to keep careful records. • The implications for the business of: – VAT, – Income tax – National Insurance – Corporation Tax • The need to register a new business with HM Revenue and Customs. • The key is the need for record keeping rather than extensive details on types of tax.

Recruiting, training and motivating staff There are laws that protect workers from unfair practices by employers, a few are not to be discriminated against: • Health and safety • Holiday pay • Unfair dismissal protection • Working hours

Topic 1. 4: Recruiting, training and motivating staff What the syllabus says… • The basic processes involved in recruiting staff to work in a small business • The importance of skill versus attitude when recruiting and training staff • Understand the importance of treating staff fairly and a simple understanding of the impact of relevant legislation, e. g. relating to age, sex, race and disability discrimination Topic 1. 4: Recruitment, training and motivating

Customer satisfaction Customer service – The experience that a customer gets when dealing with a business and the extent to which that experiences meets and exceeds their needs and expectations. - Fulfilling customer orders on-time Dealing with complaints Customer satisfaction – a measure of how much products meet customers expectations.

Topic 1. 4: Effective on-time delivery and customer satisfaction What the syllabus says… • Explain how effective customer service includes fulfilling customer orders accurately and on-time and dealing with complaints. • Recognise the importance of customer satisfaction in the success of a business • The importance of repeat purchase for a business

Market Demand Supply COMMODITIES = Raw materials GOODS MARKET = Everyday products ENERGY COSTS

Topic 1. 5: Demand Supply What the syllabus says… • The prices of commodity markets (raw materials) are determined by the balance between supply and demand • The difference between commodity markets (raw materials and normal markets (goods market – everyday products) • The effect on small firms of price changes in raw materials and energy costs

Interest Rates Impact on borrowing? Bank of England sets the base rate – they decide what rate they will charge to lend money to other banks, which then impacts on what rates are charged to consumers. Impact on savings? Type of interest rate

Topic 1. 5: Interest Rates What the syllabus says… • How changing interest rates affect small firms which tend to rely on overdrafts and loans for finance • The impact of changing interest rates on consumer spending

Exchange Rates “The price of buying a foreign currency” £

Topic 1. 5: Exchange rates What the syllabus says… • Explain what exchange rates are • How changes in the £/$ or £/€ affect small firms that trade abroad or face competition from abroad • The impact of changing exchange rates on the price of imported and exported goods • How to calculate exchange rates on product prices (Questions will look only at £/$ and £/€)

The Business Cycle Economic activity – the amount of buying and selling that takes place in a period of time. The Economy – the economic activity carried out by people and businesses in a country. Economic growth – Rises in the rate of economic growth. Measured by value of sales (GDP) Gross Domestic Product (GDP) – the value of finished goods and services

Topic 1. 5: The business cycle What the syllabus says… • Understand that economic activity tends to rise and fall and that • Changes in the level of economic activity can have serious effects on small businesses

What effect do business decisions have on stakeholders? Stakeholder – anyone interested in or affected by the actions of a business. Conflicting objectives? - Do they all want the same thing?

Topic 1. 5: Stakeholders What the syllabus says… • That stakeholders are those groups or individuals with an interest in a business • Recognise that business decisions have different effects on different stakeholders • Problems a business may face in meeting the demands of all stakeholders