1 - Introduction to business Flashcards
What is an ‘enterprise’?
a business
What is an ‘entrepreneur’?
a risk taker who sets up a business (not the same as being self employed)
Characteristics of an entrepreneur?
- energetic and enthusiastic
- comfortable with risk
- has self belief and confidence
- leadership skills
- drive and determination
What are the 4 factors of production?
- land
- labour
- capital
- enterprise
Land?
natural resources from the land itself
Labour?
employees
Capital?
technology and machinery
Enterprise?
bright new ideas and the person who organises the factors
Factors of production
inputs used in the production itself
Added value?
what a business achieves by ensuring that the price of a good is in excess of the cost of inputs
leads to increased profits
What are the 4 functions within the business
- accounting and finance
- operations management and production
- marketing
- human resource management
What are the 3 business sectors?
Primary - extracting; farming, mining, fishing
Secondary - manufacturing; building, factory work
Tertiary - services; retail, banking, teaching
How much does the tertiary sector contribute to the UK?
80%
How much does the secondary sector contribute? and why has this declined?
14% - due to deindustrialisation
How much does the primary sector contribute?
6%
What businesses make up the private sector?
soletrader
partnership
companies; private and public
What businesses make up the public sector?
local government owned
central government owned
these provide a service, not there to make profit
What is the third sector?
charities, community groups etc
motivated by the desire to achieve social goals - any profits are reinvested in order to improve services
Private sector vs Public sector?
businesses owned and run by private individuals vs businesses owned and run by central or local government to provide service, not to make profit
Sole trader
owns and runs their own business
advantages of a sole trader
- keep all profits
- financial state is private
- you are the boss
disadvantages of a sole trader
- fully responsible for all debts (unlimited liability)
- can easily be overworked
- hard to grow and often businesses don’t have the money to invest in expansion
Partnership
two or more people own and run a business
advantages of a partnership
- easy to establish
- losses and wins are shared
- more skills
disadvantages of a partnership
- unlimited liability
- decision making can be slower and disagreements may arise
What are limited liability partnerships? LLPs
combine features of partnerships with limited companies - owners therefore have limited liability and are called members rather than partners - accounts are however, viewed publicly
Private limited company vs Public limited companies
Private: often a family business, shares are sold to family and friends only
Public: large business who sells shares on the stock exchange
What is a cooperative?
a business owned and run by its members (employees and customers) - profits are shared between these people
advantages of a franchise (in the eyes of the franchiser)
- no cost of expansion
- under their control
advantages of a franchise (in the eyes of the franchisee)
- tried and tested brand names, no risk/ greater opportunity for success
- specialist advice and training provided
disadvantages of a franchise (in the eyes of the franchiser)
- control issues and if things go wrong then bad publicity may result, for the whole brand
- possibility of conflict
disadvantages of a franchise (in the eyes of the franchisee)
- continuing royalty payments (percentage of profits)
- less/no control over what is sold and at what prices
advantages of a cooperative
- legally straight forward
- all work towards common goals
- limited liability for members
disadvantages of a cooperative?
- weak management
- slow decision making
When deciding on a businesses size, what two main factors are accounted for? (EU standardised way of deciding a businesses size)
number of employees and turnover/balance sheet value
other than number of employees and turnover.. what other factors are taking into account when deciding a businesses size?
capital employed (total of the businesses assets)
number of shops/offices etc
stock market value
how is share market value calculated?
current share price x the number of shares issued
What factors can effect the size of a business?
- market size
- nature of the product
- personal preference
- ability to expand
a business may want to grow for what type of reasons?
- entrepreneur wants a greater challenge
- owners want a higher return on their investment
- a bigger business, better adapted to fight any economic decline
Organic growth?
growth achieved through increasing sales by selling more to existing customers and finding new customers
Mergers and Acquisitions?
two companies join together to form a bigger company
Joint ventures?
a formal business arrangement in which two businesses agree to work together on a particular project. both invest time and money into it.
Strategic allience?
allience means ‘cooperation’ - similar to a joint venture but less involved
an agreement between two or more parties to pursue a set of agreed upon objectives, while remaining independent organisations. this occurs when two or more organisations join together to pursue mutual benefits.
limited company advantages?
-
limited company advantages?
- access to larger amounts of capital through the ability to issue shares
- limited liability.. and for all shareholders, which encourages people to invest
- continuity - a company is a separate legal entity and so does not come to an end when the original owners die
limited company disadvantages?
- setting up a company can be very expensive
- company accounts are not private so its difficult to keep financial accounts out of the public eye.
- more vulnerable to take over
