1: Introduction to a business Flashcards
What is an organisation?
A social arrangement for the controlled performance of collective goals, which has a boundary separating it from its environment
Types of organisations
Profit-oriented
Not-for-profit
Why do organisations exist?
- Let people specialise in what they do best
- Save time as people can work together
- Accumulate shared knowledge
- Let people pool their expertise
- Enable synergy
How do organisations differ?
- Ownership (public or private)
- Control
- Activity (what they do)
- Size
- Profit-oriented or not-for-profit
- Legal status
- Sources of finance
- Technology
Differences in what organisations do
Differs by activity depending on their industry (e.g Agriculture, Manufacturing, Technology, etc.)
What is a business?
An organisation that is oriented towards making a profit for its owners so as to maximise their wealth and that can be regarded as an entity seperate from its owners
It is the primary objective of the organisation that determines whether or not it is a business
Examples of not-for-profit organisations
- charities
- clubs and associations
- trade unions
- professional bodies and institutes such as ICAEW
- government
- governmental agencies
- local authorities
- hospitals
- schools, colleges and universities
Stakeholder
Literally a person or group of persons who has a stake in an organisation
This means they have an interest to protect in respect of what the organisation does and how it performs
Companies primary stakeholders
Shareholders.
It is their money, invested in the business, which is literally ‘at stake’
Primary stakeholders in a business, what is at stake, what do they typically expect of the business?
Shareholders (or partners or propreitor)
Money invested
A return on their investment so that their wealth increases
Secondary stakeholders in a business
Directors/managers, customers, suppliers, lenders, governments, analysts, the natural environment
The hierarchy of business objectives
‘What are the business’ objectives?’ : making as much profit as possible as to increase shareholder wealth.
- Primary objectives
- Secondary/subordinate objectives
Examples of secondary business objectives
- Acheiveing a higher market position
- Product development
- Technology
- Employees and mangement
What is an entrepreneur?
Person who has put their money at stake and is in full managerial control of the business
We often assume that wealth maximisation is the primary objective of the entrepreneur
Revenue maximisation
A business may act to maximise revenue (not neccessarily profit or wealth) in order to maintain or increase its market share, ensure survival, and discourage competition
Environmental, social and governance (ESG) + ethics
Environmental:
- relating to quality and functioning of the natural environment
Social:
- Issues relating to the rights, wellbeing and interests of people and communities
Governance:
- issues relating to governance of companies and other investee entities
Ethics:
- doing the right thing from a moral perspective
Planning and control system of businesses
Businesses need to direct their activities by:
- deciding what they want to do and achieve as their primary objective
- deciding how and when to do it (plan)
- checking that they achieve what they want by monitoring
- taking control action to correct any deviation
What is the mission of a business?
The business’ basic function in society expressed in terms of how it satisfies its various stakeholders
The overall direction of a business is set out by its mission
What is a goal?
A desired end result
What are the two types of goal?
Non-operational aims / qualitative goals
Operational objectives / quantitative goals
What are SMART objectives?
- Specific
- Measurable
- Achievable
- Relevant
- Time-bound
What are business plans?
State what should be done to achieve operational objectives
Standards and targets specify a desired level of performance
What is sustainability?
Meeting the needs of the present without compromising the ability of future generations to meet their own needs
Factors to consider regarding sustainability
Sustainable development
Natural capital
Ecosystem services
Abiotic services
Biodiversity
Differences between impacts and dependenices and who they are useful towards
Impacts:
- generally useful for broader stakeholders
Dependencies
- generally more useful for investors
Social, evironmental and economic (SEE) framework
Sustainability can be considered under social, evironmental and economic factors (SEE)
What is triple bottom line?
Profits, planet, people
Net Zero
Refers to the global reduction of greenhouse gas emissions to net zero by 2050 and is the action required to limit temperature rise to 1.5 degrees Celsius
What are the UN Sustainable Development Goals?
- No poverty
- Zero hunger
- Good health and wellbeing
- Quality education
- Gender equality
- Clean water and sanitation
- Affordable and clean energy
- Decent work and economic growth
- Industry, innovation and infrastructure
- Reduced inequality
- Sustainable cities and communities
- Responsible consumption and production
- Climate action
- Life below water
- Life on land
- Peace, justice and strong institutions
- Partnerships for the goals
Impact of environment on business
Physical risks:
- evironmental degredation such as storms, extreme temperatures, wildfires and flooding
Transition risk:
- social and economic shifts and environmentally sustainable economy such as changes to policy, regulation, technology and market
The Rs of recycling
Reduce
Reuse
Recycle
Replace
What are the environmental mitigation hierarchies?
- Eliminate
- Reduce
- Substitute
- Compensate
What is the role of accountants in sustainability and climate change?
The role of the accountant is to manage their sustainability activities and their response to climate change
