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Business Studies > 1 - Business In The Real World > Flashcards

1 - Business In The Real World Flashcards

1
Q

Reasons for starting a business (4)

A
  • Making a good or providing a service that they think customers will want
  • Some people start businesses that distribute goods
  • Some businesses are set up to benefit other people
  • Some people will start a business because they see a business opportunity that they want to fulfill
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2
Q

What is a business?

A

A businesses sells products to customers who are willing to pay for them

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3
Q

Goods

A

Are physical items e.g books or furniture

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4
Q

Services

A

Are actions performed by other people to aid the customer e.g barbers and plumbers

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5
Q

Needs

A

Things that you can’t live without e.g food and water

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6
Q

Wants

A

Things you would like to have, but can survive without e.g holidays and jewellery

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7
Q

What are the 4 factors of production

A
  • Land
  • Labour
  • Capital
  • Enterprise
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8
Q

Factor of production - Land (6)

A

Land includes all the Earth’s natural resources:
• Non-renewable resources e.g natural has, oil and coal
• Renewable resources like wind or tidal power
• Materials extracted by mining (e.g diamonds and gold)
• Water
• Animals

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9
Q

Factor of production - labour (2)

A
  • Is the work done by the people who contribute to the production process
  • Different people have different levels of education, experience or training - these factors can make some people more valuable or productive in the workplace than others
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10
Q

Factor of production - capital (2)

A
  • Is the equipment, factories and schools that help to produce goods or services
  • Capital is different from land because capital has to be made first
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11
Q

Factor of production - Enterprise

A

Enterprise refers to the people (entrepreneurs) who take risks and create things from the other three factors of production

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12
Q

Opportunity cost

A

Is the sacrifice we make whenever we decide to do anything

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13
Q

Primary sector (2)

A
  • Is made up of organisations that are at the first stage of production and use raw materials
  • e.g Farms, oil exploration companies and fishing fleets
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14
Q

Secondary sector (2)

A
  • are made up of organisations in the second stage of production
  • They are involved in using primary resources and converting them into products
  • e.g manufacturers and printers
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15
Q

Tertiary sector (3)

A
  • Is in the final stage of production
  • Made up of organisations that provide services
  • e.g fast food stores, estate agents and delivery companies
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16
Q

Define enterprise (2)

A
  • Is another word for a business
  • Also refers to the skills of people involved in the business to identify business opportunities and bring together resources to meet these opportunities
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17
Q

Define entrepreneur

A

Is someone who is willing to take the risks involved in starting a business

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18
Q

Characteristics of an entrepreneur (4)

A
  • Innovative - good at spotting an opportunity
  • Risk takers -
  • Hard working
  • Organised
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19
Q

Entrepreneur objectives (4)

A
  • Be their own boss and make their own decisions
  • Keep all the profits
  • Change their hobby/interest into a business
  • Prove themselves
  • Flexible working hours
  • Identify a gap in the market
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20
Q

Changes in the business environment (4)

A
  • Technological change
  • Economic change
  • Legal change
  • Environmental expectations
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21
Q

Business environment - technological change (2)

A
  • Technology is changing at a rapid rate

* This creates new markets and products

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22
Q

Business environment - Economic change

A

Involves a range of factors outside the business e.g interest rates, inflation, GDP

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23
Q

Business environment - legal change (2)

A
  • These are new laws and regulations

* This may impact costs e.g minimum wage or preventing tobacco companies to advertise their product

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24
Q

Business environment - Environmental expectations (2)

A
  • Customers and consumers are constantly interested in the impact of a business in the environment e.g materials used, transport uses etc
  • This can influence whether a customer would by from a business
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25
Q

Different legal structures (business ownership)m that businesses adopt (5)

A
  • Sole trader
  • Partnership
  • Private limited company (ltd)
  • Public limited companies (plc)
  • Not-for-profit organisations
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26
Q

What is a sole trader

A

Is someone who sets up their own business

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27
Q

What is a partnership

A

Occurs when two or more people join together in a business enterprise to pursue profit

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28
Q

Advantages of being a sole trader (3)

A
  • Quick and easy to set up
  • You make all the decisions for yourself - decision making can be fast
  • You keep all the profits
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29
Q

Disadvantages of being a sole trader (5)

A
  • Lots of pressure as you have to make all the decisions
  • A sole trader may struggle to handle all the aspects of the business
  • unlimited liability - risk of losing everything you own
  • tremendous amount of work to do so harder to have a holiday and small breaks
  • If the sole trader dies the business dies as well
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30
Q

Advantages of partnerships (4)

A
  • More funds are available as each partner contributes
  • Better decisions made with more people involved
  • Shared workload as each partner can specialise in one particular area of the business
  • Share skills
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31
Q

Disadvantages of partnerships (4)

A
  • May disagree with other partners
  • Unlimited liability
  • Liable for the actions of other partners
  • Shared profits
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32
Q

Advantages of a private limited company (ltd) (4)

A
  • limited liability
  • Companies seem to have more status than a sole trader - good marketing move
  • If business founder dies the business carries on
  • Managers can be employed to run the day-to-day business whilst the owners retain control and the profits are distributed to shareholders
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33
Q

Disadvantages of being a private limited company (ltd) (4)

A
  • Various legal procedures need to be completed - time consuming
  • Business loses privacy because financial accounts must be available to the general public
  • Accounts must be checked by an auditor - additional costs
  • Corporation tax
34
Q

Advantages of public limited company (plc) (3)

A
  • Can advertise its shares to the general public - greater number of potential investors so can raise very large sums of money by selling shares
  • Attract more media coverage - provides a good form of cheap publicity
  • Have more statues compared to ltd - can impress and attract customers
35
Q

Disadvantages of a public limited company (plc) (3)

A
  • Media coverage could be bad - if a plc makes a mistake the media are more likely to cover the story than if the business was a ltd
  • A plc cannot control who buys its shares - so managers may find a competitor buys control and takes over
  • A plc is more regulated than a limited company - has to do more things according to the law which can be expensive as well as give information away to potential competitors and the media
36
Q

Not-for-profit organisations (3)

A
  • are set up to achieve objectives other than profit e.g a charity may be set up to help the homeless
  • Raise funds and invest just like companies
  • set social objectives
37
Q

Unlimited liability (2)

A
  • Means that the personal possessions of the owners of a business are at risk if there are any problems
  • There is no limit to the amount of money the owners may have to pay out
38
Q

Limited liability

A

Shareholders only lose what they have put in

39
Q

Aim

A

Is a general goal of all businesses

40
Q

Objective

A

Is a specific target that is set for a business to achieve

41
Q

What are the main aims and objectives for businesses (7)

A
  • Survival
  • Profit maximisation
  • Growth
  • Market share
  • Customer satisfaction
  • Social and ethical objectives
  • Shareholder value
42
Q

What is the purpose of setting objectives (4)

A
  • Helps with decision-making and with establishing priorities
  • Helps investors to understand the direction in which the business is heading
  • Provides a target so that everyone can compare the actual results with the planned results to decide how successful the business has been
  • Can motivate everyone connected with the business because they know what they are trying to do and how they can measure their success
43
Q

How can a business measure success other than looking at profit (2)

A
  • A business could count the number of employees it has to see if its met its growth objectives
  • A business could look at the value of its shares on the stock market to see if it meets shareholder value objectives
44
Q

How and why do objectives differ between business - size of business (2)

A
  • many small, local businesses depend on word of mouth to survive so a major objective for them might be customer satisfaction. They may be more concerned with survival and growth rather than increasing market share
  • Larger businesses get more attention from the public, so they might set objectives about acting ethically and protecting the environment to avoid bad publicity
45
Q

How and why do objectives differ between business - level of competition (2)

A
  • If a business is in a highly competitive market, it might focus on customers satisfaction so that it can attract customers
  • If a business does not face much competition, its objectives may focus on growth and maximising profits
46
Q

How and why do objectives differ between business - type of business

A

Not-for-profit organisations are more likely to focus on social or ethical objectives, rather than growth or profit

47
Q

How and why do a businesses objectives evolve over time (2)

A
  • When it starts up it will focus on survival - once its stable, objectives might be centred around growth and maximising profits - if it becomes a large/established business it might aim to have a larger market share or to expand into other countries
  • Business need to keep up with changes in legislation, economy, technology and environmental expectations
48
Q

How can new legislation impact a business’ objectives

A

E.g 2016, a new living wage was introduced - this affected many companies’ profit objectives, as they had to pay higher wages

49
Q

How can changes in economy impact a business’ objectives

A

E.g if there was a recession, a company’s growth might be put on hold while concentrates on survival

50
Q

How can changes in technology impact a business’ objectives (2)

A
  • Businesses need to keep up to date with new technology, especially if their competitors are using it
  • They might need to alter their objectives so they spend more money on getting new equipment and training staff rather than investing in growth
51
Q

How can environmental expectations impact a business’ objectives

A

Objectives related to environmental impact have become more important for many companies to avoid losing customers

52
Q

Stakeholder

A

Is an individual or organisation that affects an is affected by the activities of a organisation

53
Q

Who are the main stakeholders of a business (6)

A
  • Employees
  • Shareholders
  • Customers
  • Community
  • Suppliers
  • The Government
54
Q

Stakeholders’ main objectives (4)

A
  • Owners - may want to maximise their returns e.g high dividends
  • Employees - may want earn more as a reward for their efforts and may also want the business to grow so they can have promotion opportunities
  • Community - may want the business to behave responsibly - therefore set a target in areas such as recycling, noise, waste reduction and even try to employ local people
  • Customers - affect what constitutes a realistic objective for a business in terms of the likely sales and profit
55
Q

How stakeholders can influence a business (4)

A
  • Negotiation - employees may negotiate for better pay or suppliers may demand better terms and conditions
  • Direct action - Customers can stop buying products if they are unhappy or employees can go on strike
  • Refusal to co-operate - local councils can refuse to co-operate with a business if they don’t like its behaviour
  • Voting - The owners of a business can make their views clear and can vote on what the organisation should do next
56
Q

Factors that influence the location of a business (8)

A
  • Type of business
  • The proximity to the market
  • Competitors
  • Availability of raw materials
  • Availability and cost of labour
  • Transport links
  • Technology
  • Costs
57
Q

The purpose of business planning (4)

A
  • help set up a business successfully - by anticipating problems
  • raise finance - a business plan is useful to show possible investors
  • Set objectives - a plan will set out what a business wants to achieve helps provide a clear target
  • Co-ordinate actions - a plan should set out how an objective is going to be achieved
58
Q

Main sections of a business plan (6)

A
  • Background information on the founders and investors and their previous experience
  • An analysis of the market and the firm’s position expected within it - includes a detailed analysis of the customers targeted
  • Firm’s objectives
  • Details of the price it will set and expected sales
  • An explanation of how the business will compete against its rivals
  • An analysis of the financial position of the business
59
Q

Drawbacks of business planning (3)

A
  • Uncertainty - plans might not be totally accurate
  • Lack of experience - people starting up their own business may not have the necessary skills to plan ahead effectively
  • Change - need to be changed regularly as the conditions are always changing e,g laws
60
Q

Variable costs

A

Are the costs that vary directly with the business’s level of output

61
Q

Fixed costs

A

Are those costs that do not change when a business changes its output

62
Q

Total costs

A

Are fixed costs plus variable costs

63
Q

Revenue

A

Is the income that a firm receives from selling its goods or services

64
Q

Costs

A

The spending that is necessary to set up and run a business

65
Q

Loss

A

The amount by which a business’s costs are larger than its revenue from all sales

66
Q

Profit

A

Measures the difference between the values of a business’s revenue and its total costs

67
Q

Advantages of franchise - internal growth (3)

A
  • Can grow quickly
  • Franchisee provides some of the finance
  • Franchisees motivated as they are running their own businesses
68
Q

Disadvantages of selling a franchise - internal growth (3)

A
  • Lose some control
  • Dangers of problems with one franchisee affecting the whole brand
  • Have to share profits
69
Q

Methods of expansion (2)

A
  • Internal growth (also called organic growth) occurs when a business gets bigger by selling more of its products
  • External growth (also know as integration) occurs when a business gets bigger by joining or buying other businesses
70
Q

E-commerce - internal growth (3)

A
  • E-commerce can allow a business to access customers across the globe 24 hours a day
  • However, customers may stop buying in stores
  • E.g Asos have been very successful at generating sales without physical stores
71
Q

Outsourcing - internal growth (2)

A
  • Occurs when a business uses other organisations to produce its product for it - enabling a business to grow quickly because it does not have to invest in expanding its own facilities
  • However, it does mean it has to be careful to control the quality and it may cost more than producing the items themselves
72
Q

Mergers - external growth

A

Occurs when two or more firms join together and create another joint business

73
Q

Takeover - external growth

A

Occurs when one business buys control of another one

74
Q

Advantages of business expansion (4)

A
  • It can lead to economies of scale, which are benefits that come with a larger size
  • It can lead to more power in the market e.g retailers to be more willing to stock the products of a well-known brand
  • Big firms have more status and the people in charge will feel more important - easier to launch future products
  • Big firms reduce the risk of a takeover as they are more expensive to do so
75
Q

Disadvantages of business expansion (3)

A
  • Decision-making becomes slower because there are so many people to consult in a big business - communication becomes difficult due to increased levels of hierarchy
  • Employees may feel isolated because there are so many of them and they no longer feel special and an important part of the business - this can mean they become demotivated
  • Controlling and co-ordinating a business that has many clients or products and that is possibly based in many different places can be difficult and less efficient
76
Q

Economies of scale

A

Occur when a business’s unit costs of production fall as its output rises and the business expands

77
Q

Diseconomies of scale

A

Occur when the cost per unit increases as a business expands

78
Q

Equation to calculate unit costs

A

Unit cost = total costs/output

79
Q

Example of purchasing economies of scale (2)

A

Bulk buying:

• Allows a business to negotiate better prices with suppliers - keeping unit costs down

80
Q

Example of technical economies of scale

A

• Occurs when large-scale production enables a business to make efficient use of technology e.g a production line

Business Studies (13 decks)

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