1) The Purpose Of Business Flashcards
What is the purpose of a business?
To supply goods and services and serve customers needs/ wants.
What are the 4 reasons why a business is set up?
- To benefit society
- A gap in the market has been spotted
- To distribute goods
- To make a profit
What are the 3 sectors of the economy?
- Primary
- Secondary
- Tertiary
What does the primary sector involve?
Extracting and producing raw materials which will later be used to make products.
What does the secondary sector involve?
Manufacturing goods and turning the raw materials into functional products.
What does the tertiary sector involve?
Retailing and selling goods or providing services.
What are the 2 definitions of ENTERPRISE?
- A business or organisation
- The qualities that allow an entrepreneur to take advantage of business opportunities.
What are the main 2 qualities that an entrepreneur must have?
- Identifying business opportunities
- Taking risks
What are the 4 constantly changing environments that affect a business?
- Technological advancements
- The economy
- Legislation
- Environmental expectations
What are the 3 risks that come with starting a business?
- Risk of failure
- Financial loss
- Lack of security
What are 4 reasons why someone may decide to become an entrepreneur?
- Financial reward
- Dissatisfaction with current job
- Be their own boss (flexible hours)
- To pursue an interest
What are the 4 characteristics someone must have to be an entrepreneur?
- Willing to take risks
- Organised
- Hardworking
- Innovative
What are the 4 factors of production?
- Land
- Labour
- Capital
- Enterprise
What is the “Land” factor of production?
The natural resources that are available for production
What is the “Labour” factor of production?
The people who contribute to produce the natural, raw materials into products
What is the “Capital” factor of production?
The equipment, factories and offices that help to supply the goods/ services. (MANMADE)
What is the “Enterprise” factor of production?
The people who take risks and create a business using the other factors of production.
What is Opportunity Cost?
The “next best alternative” that is missed out on when a decision is made.
What are the 4 types of business ownership?
- Sole trader
- Partnership
- Public Limited Company (PLC)
- Private Limited Company (LTD)
What is a sole trader?
A sole trader is a single person who is the exclusive owner of a business.
What are 4 advantages of a sole trader business?
- They are the easiest type of business to set up.
- The sole trader gets to be their own boss.
- The sole trader decides what to do with the profit.
- It is easy to change the legal structure if circumstances change.
What are 3 disadvantages of a sole trader business?
- Unlimited Liability
- Hard to raise finance (banks see them as riskier)
- No ideas and skills of others available to make important decisions.
What is a partnership?
Partnerships are businesses that are owned by 2 or more partners.
What are 3 advantages of a partnership?
- More experience, skills and ideas as there are more people in charge
- Easier to raise money
- Better employee retention (they know they have a chance of being promoted to a partner)
What are 3 disadvantages of a partnership?
- Less profits (they are shared)
- Unlimited Liability
- May disagree about important decisions
What are “Limited Companies”?
Businesses that are owned by shareholders
What is a Private Limited Company (LTD)?
Private limited companies (LTDs) are companies where ownership of shares is restricted
What are 3 advantages of a Private Limited Company?
- Limited Liability
- Ownership is restricted
- Easier than sole traders and partnerships to get a loan and raise finance.
What are 2 disadvantages to Private Limited Companies?
- Finance is needed to incorporate a business
- The company is legally obliged to publish their accounts each year and competitors may use these to become more competitive.
What is a Public Limited Company (PLC)?
Public limited companies sell shares on the stock exchange. This means that anybody over 18 can buy shares
What are 3 advantages to Public Limited Companies (PLCs)?
- Selling shares on the stock market allows for finance to be raised easier
- Much easier to get a loan
- Limited Liability
What are 3 disadvantages to Public Limited Companies (PLCs)?
- Owners have little say of how a business is run
- Anyone is able to buy the company if they have enough money
- The companies accounts must be made public
What is a Not-For-Profit Organisation?
A business where any profit made is reinvested into the business. Any profit cannot be taken by the owners. (E.g. Charities)
What is the definition of an aim?
An aim is an ultimate purpose
What is the definition of an objective?
An objective is a goal that is sought in order to achieve an aim
What are 3 business objectives?
- Maximize shareholder value
- Social and ethical objectives
- Customer Satisfaction
What are the 3 factors that influence a firms objectives?
- Size of the business
- Level of competition
- Type of business - e.g. not-for-profit
What are the 5 reasons why business objectives and aims change overtime?
- Stage of business life
- New legislation
- Changes in economy
- Changes in society
- Changes in technology
What are the 5 main stakeholders within a business?
- Owners
- Suppliers
- Customers
- Local Community
- Employees
What are the 5 main factors that influences where a business locates?
- Availability of raw materials
- Labour skill in an area
- Labour costs internationally
- Competition
- Rent
What is the calculation for revenue?
Revenue = number of sales x sales price
What is the calculation for profit?
Profit = Revenue - Total Costs
What is the calculation for average unit cost?
Average Unit Cost = Total Cost / Output (number of units produced)
What are the 4 key reasons why a business will make a business plan?
- New business to clarify thoughts and find investor
- Raise finance
- Setting objectives
- Business Organisation
What are the 7 main parts of a business plan?
- Executive summary (complete overview)
- Mission statement (what the business wants to achieve)
- Description of products/ services and USP
- Market analysis (of competitors and customer)
- Organisational structure
- Production Details
- Finance
What are the 3 advantages of a business plan?
- Can help lay out and set targets
- Can compare to previous business plans and measure progress
- Can be used as a benchmark against outflows such as cashflow
What is economies of scale?
When business benefit from a fall in the average unit cost due to mass production/ purchasing
What is diseconomies of scale?
When business grows so large that the average unit cost increases due to poor communication / coordination
What is a takeover?
When one company buys another. This could be buying a majority of the shares, or buying the company outright.
What is a merger?
When 2 companies agree to join together - both sets of owners keep some ownership
What is forwards vertical expansion?
When a business merges /takes over a business CLOSER to the customer. (e.g. a manufacturer buying a retailer who sells their goods)
What is backwards vertical expansion?
When a business merges /takes over a business further away from the customer. (e.g. a retailer buying a manufacturer which supplies them with goods)
What is horizontal expansion?
When a business integrates with a business who operate in the same market as them, at the same stage of production. (e.g. like 2 car manufacturers such as Jaguar and Land Rover)
What is lateral expansion?
When a business integrates with a business who operates in a different market, possibly at a different stage of production
What is outsourcing?
Paying another company to do some of your work for you, or perform certain jobs for u
What is Franchising?
When a Franchisor allows other companies (Franchisees) to use your name, logo, products, in exchange for an annual fee and share of revenue.
