1. Understanding business activity

Question 1

What are needs and wants?

Answer 1

• Needs: goods or services that are essential to living
• Wants: good or services which people would like, but not essential for living

Question 2

What are needs and wants?

Answer 2

When there are not enough goods and services to meet the wants of the population

Question 3

What is opportunity cost?

Answer 3

The benefit that could have been gained from an alternative use of the same resource

Question 4

What is specialisation and why is it important? Examples?

Answer 4

Specialisation: the focus on specific tasks and activities. It can lead to increased production levels, and result as over-concentration on particular activities and products.
- It is important because this means that the business is efficient and it reduces costs of production.
Types of specialisation:
* Specialisation by region / country
* Specialisation by factors of production
* Specialisation by businesses

Question 5

Name the advantages and disadvantages of specialisation

Answer 5

Ads:
* Resources can be focused on their most productive lines.
* Focusing on a set task enables an individual, company, region or country to become more productive in that task.
* Larger outputs can be produced at lower
unit costs
* Concentration of specialists enables the sharing knowledge and skills between specialists

Disads:
* Over-reliance on a set task or product -> specialists become redundant
* Specialists spend all their time doing the same or similar things with little opportunity for variety
* Lack flexibility
* Delays or holdups in one area can slow down the whole process

Question 6

What is added value and how can it be increased?

Answer 6

Added value: when a business tries to add value at every stage of the production process so that they can sell the product or service to customers at a greater price.
How to add value?
* Branding
* Adding special features
* Provide excellent service
* Conveniency

Question 7

What is the purpose of business activity?

Answer 7

To create products and services

Question 8

What are the three sectors in which business activity is broken down into?

Answer 8

• Primary industry: concerned with using natural resources. They include farming, mining and oil drilling; sometimes produce raw materials like iron ore and oil.
• Secondary industry: concerned with making and assembling products;
  manufacturers use raw materials and parts from other industries.
• Tertiary sector: give something of value to people, but are not physical goods like cinema, or a lesson. Other examples include banks keeping your money safe, public transport carrying people around etc.

Question 9

What is a mixed economy?

Answer 9

What is a mixed economy?

Question 10

What is a private enterprise?

Answer 10

• Private sector: the part of the economy where the resources are owned and controlled by both the private and public sectors.
• Involves risk -> entrepreneur
• If the business succeeds, the entrepreneur makes a profit.
• If it fails, he or she will be responsible for the losses (sell personal possessions to meet business’ debts)

Question 11

What is a public enterprise?

Answer 11

• Public sectors: the part of the economy that is owned and controlled by the state or government.
• In many countries, the government is a major employer. Governments employ public sector workers to carry out work on their behalf, such as providing a police force, education and health service.
• Goal: provide an essential economic service for the nation.
• Often funded by taxpayers’ money, so they need to look after the taxpayers’ interests by providing the best possible value for money.

Question 12

What are the reasons for changing importance of business classification?

Answer 12

The size of a country’s different sectors of business activity often indicates if it has a developing or developed economy.

Question 13

What are the characteristics of a successful entrepreneur?

Answer 13

• Innovative
• Self motivated and determined
• Self confident
• Multi-skilled
• Leadership qualities
• Initiative
• Results driven
• Risk taker
• Good communicator
• Hard-working, committed, determined
• Tough

Question 14

What is a business plan? What does it contain? How does it assist entrepreneurs?

Answer 14

• Business plan: a complete description of a business and its plans for the next one to three years; explains what the business does, who will buy the product or service and why; provides financial forecasts demonstrating overall viability; indicates the finance available and explains the financial requirements.

Contents:
* Executive summary - brief summary of the key features of the business and the business plan.
* The owner - educational background and what they have done.
* The business - name and address of the business and detailed description of the product or service being offered; how and where it will be produced, who is likely to buy it, and in what quantities.
* The market - describe the market research that has been carried out, what it has revealed and details of prospective customers and competitors.
* Advertising and promotion - how the business will be publicised to potential customers and details of likely costs.
* Premises and equipment - details of planning regulations, costs of premises and the need for equipment.
* Business organisation - whether the enterprise will take the form of sole trader, partnership, company or cooperative.
* Costings - indication of the cost of producing the product or service, the prices it proposes to charge.
* Finance - how much will come from savings? How much will come from borrowed?
* Cash flow - income and outgoings over the first year.
* Expansion - indication of future plans

Question 15

Why does the government support business start-ups?

Answer 15

• Employ large numbers of people
• Account for a large component of employment growth in countries
• Account for a substantial component of the production of goods and services in economies
• Enable equitable growth - provide good opportunities often for the poorer members of society
• Exports
• Encourage new ideas and technologies

Question 16

How does the government support start-up enterprises?

Answer 16

• By providing support with the startup process
• By providing direct financial (grants and loans) and other forms of help (research and product development centres)
• Removing obstacles (lower taxes, simplification of laws to increase the ease of doing business)
• Provide free or subsidised training for workers
• Rent free premises for a certain period of time

Question 17

What are the methods of measuring business size? What are the limitations of these methods?

Answer 17

• Number of people employed
• Value of output
• Capital employed
• Market share
  Limitations:
  Many methods are not as straightforward as it seems, this is because the methods can produce different results so more than one method should be used in measuring the size of the business.

Question 18

Why is business growth beneficial? What are some methods of business growth?

Answer 18

• Business growth: able to cut costs and win a greater share of the market; develop new products or sell to new markets; can be external or internal.
• Internal growth: investing in new products or selling more of existing products.
• External growth: involves the takeover of another business or merger with another business.
• > sell shares
• > merge - when two business combine to form a single company
• > acquisition - when one business gains control of part of another business

Question 19

What are the problems concerned with business growth?

Answer 19

• More difficult to control staff
• Lack of funds
• Lack of expertise
• Diseconomies of scale

Question 20

Why do some businesses remain small?

Answer 20

• Flexibility, quick decisions made
• Greater control
• Direct interface with customers
• Understand the market more fully
• Reduced level of stress

Question 21

Why do some businesses fail?

Answer 21

• Not having enough cash to pay outstanding bills
• Low profit margins
• Failure to meet requirements of customers
• Changes in the external environment
• > The level of competition
• > Changes in laws and regulations
• > Changes in consumer preferences and tastes
• Poor selling of products
• Relying too much on a single customer
• Poor management
• Lack of planning
• Trying to grow too quickly

Question 22

Why are new businesses are at a greater risk of failing?

Answer 22

• Less experience
• New to the market
• Not a lot of sales yet
• Don’t have a lot of money to support the business vet

Question 23

What is a ‘sole trader’?

Answer 23

A business that is owned and controlled by just one person who takes all of the risks and receives all of the profits.

Question 24

Name the advantages and disadvantages of a sole trader.

Answer 24

Ads:
* Quick and easy to set up
* Makes all the decisions
* Has complete control
* Keeps the profit

Disads:
* Unlimited liability
* May not be able to raise funds to expand the business
* Maybe have to work long hours
* Difficult to compete with larger rival firms
* May not have the business skills to run a business

Question 25

What is a ‘partnership’?

Answer 25

A business formed by two or more people who will usually share responsibility for the day-to-day running of the business

Question 26

Name the advantages and disadvantages of a partnership.

Answer 26

Ads: * Easy to set up a deed of partnership * Partners invest in the business so greater access to funds * Shared decision making * Shared management and workload Disads: * Unlimited liability * Share the profits * Business ceases to exist if one partner leaves * Decisions binding on all partners * Difficult to raise finance

Question 27

What are private limited companies?

Answer 27

Often a small to medium-sized company, owned by shareholders who have limited liability. The company cannot sell its shares to the general public

Question 28

What are the features of private limited companies?

Answer 28

* Usually a very small number of shareholders * Fairly small * Can only be sold privately * Often difficult to raise finance * Limited liability * Profit belongs to shareholders * Legal documents must be completed when setting up the business * Continues even if one or more shareholders die * Vote on major decisions

Question 29

What are public limited companies?

Answer 29

Often a large company; owned by shareholders who have limited liability. They can sell its shares to the general public.

Question 30

What are the features of public limited companies?

Answer 30

* Usually a large number of shareholders * Most common form of organisation for very large companies * Shares can be offered to the public and other organisations * Ownership and control are separated * Setting up is very costly * At risk of takeovers * Legal requirements are stricter than for private limited companies * Often successful in rising capital

Question 31

What is a franchise?

Answer 31

A business system where entrepreneurs buy the right to use to the name, logo and product of an existing business

Question 32

Name the advantages and disadvantages of franchises.

Answer 32

Ads: * Less chance of failure * Franchises often provides advice and training to the franchisee * Franchisors finance the promotion of the brand through national advertising * The franchisor would have already checked the quality of suppliers Disads: * Initial cost of buying into a franchise can be very expensive * The franchisor will take a percentage of the revenue of profits made by the franchisee each year * There are very strict controls over what the franchisee is allowed to do with the product pricing and store layout * The franchisee doesn't gain any personal recognition, they only gain recognition because of the existing brand

Question 33

What is a joint venture?

Answer 33

Two or more businesses agree to work together on a project and set up a separate business for this purpose

Question 34

Name the advantages and disadvantages of joint ventures

Answer 34

Ads: * Reduces risks for each business and cuts COsts * Each business brings different expertise to the joint venture * Market and product knowledge can be shared Disads: * Any mistakes made may damage the reputation of all firms in the joint venture * The businesses may have different business cultures of styles of leadership, making decision-making difficult

Question 35

What is the difference between unincorporated businesses and limited companies?

Answer 35

An unincorporated business does not have a separate legal identity from its owners, whereas an incorporated business does.

Question 36

What is the difference in risks, and ownership between types of business organisations?

Answer 36

Unincorporated business have a greater legal and financial risk than incorporated business because: * Owners and the business have the same legal identity * Owners have unlimited liability for business debts

Question 37

What is limited liability?

Answer 37

When the owner is not personally responsible for the business’ debts

Question 38

What is unlimited liability?

Answer 38

When the owner is personally responsible for the business’ debts.

Question 39

What are the types of organisations in the public sector?

Answer 39

Public corporations

Question 40

What are the main features of public corporations?

Answer 40

* Are owned and controlled by the state * Are financed mainly through taxation * Most of the times, their objectives are social rather profit * The services provided are often free or at a very low price

Question 41

What is a need?

Answer 41

A need is a good or service essential for living.

Question 42

What is a want?

Answer 42

A want is a good or service which people would like to have, but which is not essential for living. People’s wants are unlimited.

Question 43

What is an economic problem?

Answer 43

There exist unlimited wants but limited resources to produce the goods and services to satisfy those wants. This creates scarcity.

Question 44

The government decides to try to ‘solve’ problems by printing more bank notes, doubling everyone’s incomes. Why is this not good?

Answer 44

Printing more money does not produce more goods and services, it will just lead to inflation so more goods cannot be afforded.

Question 45

Define factors of production.

Answer 45

Factors of production are those resources needed to produce goods or services.

Question 46

There are four factors of production and they are in limited supply: Name them?

Answer 46

There are four factors of production and they are in limited supply: Land, labour, capital and enterprise.

Question 47

There are four factors of production: Define land.

Answer 47

This term is used to cover all of the natural resources provided by nature.

Question 48

Give some examples to natural resources provided by nature?

Answer 48

Fields and forests, oil, gas, metals and other mineral resources.

Question 49

There are four factors of production: Define labour.

Answer 49

This is the number of people available to make products.

Question 50

There are four factors of production: Define labour.

Answer 50

This is the number of people available to make products.

Question 51

There are four factors of production: Define capital.

Answer 51

This is the finance, machinery and equipment needed for the manufacture of goods.

Question 52

There are four factors of production: Define enterprise.

Answer 52

This is the skill and risk-taking ability of the person who brings the other resources or factors of production together to produce a good or service.

Question 53

What is an entrepreneur?

Answer 53

An entrepreneur is an owner of a business.

Question 54

State the word diagram for the real cause of the economic problem.

Answer 54

Unlimited wants + limited resources = scarcity.

Question 55

Define opportunity cost.

Answer 55

Opportunity cost is the next best alternative given up by choosing another item.

Question 56

For example, I have to choose between a holiday or a car and I choose the holiday, what is the opportunity cost?

Answer 56

If I choose the holiday, the car becomes the opportunity cost.

Question 57

For example, I have to choose between machine a or a machine b and I choose machine a, what is the opportunity cost?

Answer 57

If I choose machine a, machine b becomes the opportunity cost.

Question 58

State the economic problem revision summary equation.

Answer 58

Land + Labour + Capital + Enterprise = Limited resources = ECONOMIC PROBLEM = unlimited wants = scarcity = choice is necessary = leads to opportunity cost.

Question 59

Define specialisation.

Answer 59

Specialisation occurs when people and businesses concentrate on what they are best at.

Question 60

Specialisation is now very common because:

Answer 60

Specialisation is now very common because: Specialised machinery and technologies are now widely available. Increasing competition means that businesses have to keep costs low. Most people recognise that higher living standards can result from being specialised.

Question 61

Define division of labour (it is a form of specialisation).

Answer 61

Division of labour is when the production process is split up into different tasks and each worker preforms one of these tasks.

Question 62

List the three advantages of division of labour:

Answer 62

Increases efficiency and output. Less time is wasted moving from one workbench to another. Quicker and cheaper to train workers.

Question 63

List the two disadvantages of division of labour:

Answer 63

Workers can become bored doing just one job - efficiency might fall. If one worker is absent and no one else can do the job, production might be stopped.

Question 64

Fill in the missing spaces: - People have ______ ______. * The four factors of production - ___ _________ ______ __ ____ _____ - are in _______ supply. * Scarcity results from _______ ________ and _________ _____. * ______ is necessary when resources are scarce. This leads to ___________ ____. * ______________ improves the _________ use of resources.

Answer 64

People have unlimited wants. The four factors of production - the resources needed to make goods - are in limited supply. Scarcity results from limited resources and unlimited wants. Choice is necessary when resources are scarce. This leads to opportunity cost. Specialisation improves the efficient use of resources.

Question 65

What is the purpose of businesses?

Answer 65

The purpose of all businesses is to combine the factors of production to make products which will satisfy people’s wants.

Question 66

Businesses produce products; these products can either be two things. Name them.

Answer 66

These products can either be goods, such as cars and shoes, or they can be services, such as insurance, tourism or banking.

Question 67

Business activity does three things for people lives: Name them.

Answer 67

Combines scares factors of production to produce goods or services. Produces goods or services which are needed to satisfy the needs and wants. Employs people as workers and pays them wages.

Question 68

What is added value?

Answer 68

Added value is the difference between the selling price of a product and the cost of bought in materials and components.

Question 69

Why is added value important?

Answer 69

Added value is important because sales revenue is greater than the cost of materials bought in by the business.

Question 70

All businesses attempt to add value. If value is not added to the materials and components that a business buys in, then:

Answer 70

All businesses attempt to add value. If value is not added to the materials and components that a business buys in, then: * Other costs cannot be paid for. * No profit will be made.

Question 71

Added value is important because sales revenue is greater than the cost of materials bought in by the business. This means the business:

Answer 71

This means the business: * Can pay other costs such as labour costs, management expenses, advertising and power. * May be able to make a profit if these other costs come to a total that is less than the added value.

Question 72

How could a business increase added value?

Answer 72

a) Increase selling price but keep the costs of materials the same. b) Reduce the cost of materials but keep the price the same.

Question 73

Increase selling price but keep the costs of materials the same. How can this be possible?

Answer 73

This might be possible if the business tries to create a higher-quality image for its product or service.

Question 74

Increase selling price but keep the costs of materials the same. This might be possible if the business tries to create a higher-quality image for its product or service. What happens if consumers are convinced by this?

Answer 74

If consumers are convinced by this then they might be prepared to pay higher prices and buy the same quantity as before the price rise.

Question 75

Reduce the cost of materials but keep the price the same. How can a higher added value be possible?

Answer 75

If the price charged to customers stays the same but the cost of materials is reduced then a higher added value will be made.

Question 76

Name the three Stages of economic activity.

Answer 76

Primary Sector. Secondary Sector. Tertiary Sector.

Question 77

What is the primary sector?

Answer 77

The primary sector of industry extracts and uses the natural resources of Earth to produce raw materials used by other businesses.

Question 78

Give three examples of the primary sector of industry.

Answer 78

Activities in the primary sector of industry include: Farming, fishing, forestry and the extraction of natural materials, such as oil and copper ore.

Question 79

What is the secondary sector?

Answer 79

The secondary sector of industry manufactures goods using the raw materials provided by the primary sector.

Question 80

Give three examples of the secondary sector of industry.

Answer 80

Activities in the secondary sector of industry include building and construction, aircraft and car manufacturing, computer assembly, bread baking.

Question 81

What is the tertiary sector?

Answer 81

The tertiary sector of industry provides services to consumers and the other sectors of industry.

Question 82

What is the tertiary sector?

Answer 82

The tertiary sector of industry provides services to consumers and the other sectors of industry.

Question 83

Give three examples of the tertiary sector.

Answer 83

Activities in the tertiary sector of industry include transport, banking, retail, insurance, hotels, and hairdressing.

Question 84

Which sector of industry do you think the following fall under: Insurance. Forestry. Computer assembly.

Answer 84

Insurance = tertiary sector of industry. Forestry = primary sector of industry. Computer assembly = secondary sector of industry.

Question 85

Usually, the three sectors of the economy are compared by: Name them.

Answer 85

Percentage of the country’s total number of workers employed in each sector OR Value of output of goods and services and the proportion this is of total national output.

Question 86

What is de-industrialization?

Answer 86

De- industrialization occurs when there is a decline in the importance of the secondary, manufacturing sector of industry in a country.

Question 87

There are several reasons for changes in the relative importance of the three sectors over time: Name regarding primary products.

Answer 87

Sources of some primary products, such as timber, oil and gas, become depleted.

Question 88

There are several reasons for changes in the relative importance of the three sectors over time: Regarding newly industrialized countries?

Answer 88

Most developed economies are losing competitiveness in manufacturing to newly industrialized countries such as Brazil, India and China.

Question 89

There are several reasons for changes in the relative importance of the three sectors over time: Regarding consumer’s incomes?

Answer 89

As a country’s total wealth increases and living standards rise, consumers tend to spend a higher proportion of their incomes on services such as travel than on manufactured products produced from primary products.

Question 90

What is a mixed economy?

Answer 90

A mixed economy has both a private sector and a public sector.

Question 91

What are private sector businesses?

Answer 91

Private sector businesses are businesses not owned by the government.

Question 92

Private sector businesses are businesses not owned by the government. What type of decisions do private sector businesses make?

Answer 92

These businesses will make their own decisions about what to produce, how it should be produced, and what price should be charged for it.

Question 93

What do most businesses in the private sector aim to make?

Answer 93

Most businesses in the private sector will aim to make a profit.

Question 94

What are public sector businesses?

Answer 94

Public sector businesses are businesses that are government (or state) owned and controlled businesses and organizations.

Question 95

What type of decisions do public sector businesses make?

Answer 95

The government, or other public sector authority, makes decisions about what to produce and how much to charge consumers.

Question 96

Some goods and services are provided free of charge to the consumer, such as_____.

Answer 96

Some goods and services are provided free of charge to the consumer, such as state health and education services.

Question 97

The free-of-charge services and goods that the public sector businesses provide are paid for by?

Answer 97

The money for these free goods or services some not from the user but from the taxpayer.

Question 98

Which business activities are usually in the public sector? Name 6.

Answer 98

Health. Education. Defense. Public transport. Water supply. Electricity supply.

Question 99

What is privatisation?

Answer 99

Privatization describes the process by which a business goes from being owned by the government to being privately owned by being sold.

Question 100

Why have governments privatised businesses?

Answer 100

Private sector businesses are more efficient than public sector businesses because their main objective is to make a profit and therefore costs must be controlled.

Question 101

Give another reason as to why a government might privatise a business?

Answer 101

Private-sector owners might invest more capital in business than the government can afford and competition between private sector businesses can help to improve product quality.

Question 102

Define capital.

Answer 102

Capital is the money invested into a business by the owners.

Question 103

Name two disadvantages of private sector businesses.

Answer 103

A business in the private sector might make more workers unemployed than a public sector business in order to cut costs. Private sector business is also less likely to focus on social objectives.

Question 104

What is an entrepreneur?

Answer 104

Entrepreneur is a person who organises, operates and takes the risk for a new business venture.

Question 105

Name 5 benefits of being an entrepreneur.

Answer 105

* Independence. * Able to put own ideas into practice. * May become famous and successful. * Able to make use of personal interests and skills. * May be profitable and income might be higher.

Question 106

Name the 4 disadvantages of being an entrepreneur.

Answer 106

* Risk; many new entrepreneurs businesses fail, especially with poor planning. * Capital; entrepreneurs have to put their own money into the business. * Lack of knowledge and experience in starting and operating a business. * Opportunity cost; lost income from not being an employee of another business.

Question 107

Name 2 Zimabwean entrepreneurs. Use the names of these entrepreneurs in essays

Answer 107

* Strive Masiyiwa (Zimbabwean) - Econet (Telecommunications services). * Divine Ndhlukula (Zimbabwean) - Securico (Security service).

Question 108

Name the 10 characteristics of successful entrepreneurs.

Answer 108

Hard worker. Risk-taker. Creative. Optimistic. Self-confident. Innovative. Independent. Effective communicator. Adaptable. Motivated.

Question 109

What is a business plan?

Answer 109

A business plan is a document containing the business objectives and important detail about the operations, finance, and owners of the new business.

Question 110

What are the contents of a business plan?

Answer 110

* Description of the business. * Products and services. * The market. * Business location and how products will reach customers. * Organization structure and management. * Financial information. * Business strategy.

Question 111

What will happen if you do not have a detailed business plan (bank)?

Answer 111

Without a detailed business plan, the bank will be reluctant to lend money to the business.

Question 112

Why do governments support business start-ups?

Answer 112

* To reduce unemployment. * To increase competition. * To benefit society. * To increase output.

Question 113

What do business start-ups need?

Answer 113

* Business idea and help. * Premises. * Finance. * Labor. * Research.

Question 114

Who would find it useful to compare the size of a business?

Answer 114

Investors. Governments. Competitors. Workers. Banks.

Question 115

What is capital employed?

Answer 115

Capital employed is the total value of capital used in the business.

Question 116

How can business size be measured?

Answer 116

* Number of people employed. * Value of output. * Value of sales. * Value of capital employed.

Question 117

What are the limitations of the number of people employed (business size measurement)?

Answer 117

Some firms use production methods that employ very few people but produce high output levels.

Question 118

What are the limitations of the value of output (business size measurement)?

Answer 118

A high level of output does not mean that a business is large when using other methods of measurement.

Question 119

What are the limitations of the value of sales (business size measurement)?

Answer 119

It could be misleading to use this measure when comparing the size of a business that sells very different products.

Question 120

Why would business owners want to expand the business (4 ways)?

Answer 120

* Possibility of higher profits. * More status and prestige for the owners and managers. * Lower average costs. * Larger share of its market.

Question 121

How can a business grow (5 ways)?

Answer 121

* Internal growth. * External growth. * Horizontal merger or horizontal intergration. * Vertical merger or vertical intergration. * Conglomerate merger or conglomerate integration or diversification.

Question 122

What is internal growth?

Answer 122

occurs when a business expands its existing operations.

Question 123

What is external growth?

Answer 123

When a business takes over or merges with another business.

Question 124

What is a takeover or acquisition?

Answer 124

A takeover is when a business buys out the owners of another business.

Question 125

What is a merger?

Answer 125

A merger is when the owners of two businesses agree to join their businesses together to make one business.

Question 125

What is a merger?

Answer 125

A merger is when the owners of two businesses agree to join their businesses together to make one business.

Question 126

What is horizontal integration?

Answer 126

Horizontal integration is when one business merges with or takes over another one in the same industry at the same stage of production.

Question 127

What is vertical integration?

Answer 127

Vertical integration is when one business merges with or takes over another one in the same industry at a different stage of production.

Question 128

What is backward vertical integration?

Answer 128

When a business integrates with another business at an earlier stage of production.

Question 129

What is forward vertical integration?

Answer 129

When a business integrates with another business at a later stage of production.

Question 130

What is conglomerate integration?

Answer 130

Conglomerate integration is when one business merges with or takes over a business in a completely different industry.

Question 131

Name 3 benefits of horizontal integration.

Answer 131

The merger reduces the number of competitors in the industry. There are opportunities for economies of scale. The combined business will have a bigger share of the total market than either business before the integration.

Question 132

Name 3 benefits of forward vertical integration.

Answer 132

The merger gives an assured outlet for its product. The profit margin made by the retailer is absorbed by the expanded business. Information about consumer needs and preferences can now be obtained directly by the manufacturer.

Question 133

Name 4 benefits of backward vertical integration.

Answer 133

The merger gives an assured supply of important components. The profit margin of the supplier is absorbed by the expanded business. The supplier could be prevented from supplying other manufacturers. Costs of components and supplies for the manufacturer could be controlled.

Question 134

Name 2 benefits of conglomerate integration.

Answer 134

The business now has activities in more than one industry. There might be a transfer of ideas between the different sections of the business even though they operate in different industries.

Question 135

Give one example of each of the following: Horizontal Intergration. Forward Vertical Integration. Backward Vertical Integration. Conglomerate Interagration.

Answer 135

Horizontal Intergration = Coca-Cola and Pepsi. Forward Vertical Integration = a copper wire maker merges with a copper mine and with an electrical product manufacturer. Backward Vertical Integration = A copper wire maker merges with a copper mine. Conglomerate Integration = Microsoft Corporation and Toyota Motors.

Question 136

List problems that can result from business growth or expansion.

Answer 136

Larger business is difficult to control. Larger business leads to poor communication. Expansion costs so much that business is short of finance. Integrating with another business is more difficult than expected.

Question 137

How do you overcome the following problems linked with business growth or expansion: - Larger business is difficult to control.

Answer 137

Operate the business in small units - this is a form of decentralisation.

Question 138

How do you overcome the following problems linked with business growth or expansion: - Larger business leads to poor communication.

Answer 138

Operate the business in smaller units or use latest IT equipment and telecommunications.

Question 139

How do you overcome the following problems linked with business growth or expansion: - Expansion costs so much that business is short of finance.

Answer 139

Expand more slowly to allow the use of profits from slowly expanding business to pay for further growth. Ensure sufficient long-term finance is available.

Question 140

How do you overcome the following problems linked with business growth or expansion: - Integrating with another business is more difficult than expected.

Answer 140

Introducing a different style of management requires good communication with the workforce- they will need to understand the reasons for the change.

Question 141

Why is integrating with another business more difficult than expected? Give some examples of this statement.

Answer 141

For example: Pay rates for employees differ. Carrying over liabilities. Choice of suppliers. Leadership styles. Quality control. Fair share of say. Protocols differ. Operations differ.

Question 142

Give 3 reasons as to why some businesses remain small.

Answer 142

The type of industry they operate in. The market size. The owners’ objectives.

Question 143

Name some industries where most businesses remain small.

Answer 143

Here are some examples of industries where most businesses remain small: Hairdressing. Car repairs. Window cleaning. Convenience stores. Plumbers. Catering.

Question 144

Why do you think a hairdressing business would remain small?

Answer 144

Business in these industries offer personal services or specialised products, if they were to grow too large they would find it difficult to offer close and personal service demanded by customers.

Question 145

Explain why a business would remain small using the market size reason.

Answer 145

If the market - that is, the total number of customers - is small, the businesses are likely to remain small.

Question 146

If the market - that is, the total number of customers - is small, the businesses are likely to remain small. Who is this true for?

Answer 146

This is true for businesses, such as shops, which operate in rural areas far away from cities, and for businesses that appeal to only a limited number of consumers like very luxurious cars or expensive fashion clothing.

Question 147

Explain why a business would remain small using the owners’ objectives reason.

Answer 147

Some business owners perfer to keep their business small to avoid stress and worry, perhaps they could be more interested in keeping control of a small business, knowing all their staff and customers, than running a much larger business.

Question 148

What are the main reasons as to why some businesses fail include the following:

Answer 148

The main reasons why some businesses fail include the following: Lack of management skills. Changes in the business environment. Liquidity problems or poor financial management. Over-expansion.

Question 149

How can family businesses fail?

Answer 149

Family business can fail becuase the sons and daughters of the founders of a business do not necessarily make good managers and they might be reluctant to recruit professional managers.

Question 150

How can a lack of management skills cause a business to fail?

Answer 150

Lack of experience can lead to bad decisions.

Question 151

What are some factors that can lead to business failures if they are not responded to effectively?

Answer 151

New technology, powerful new competitors and major economic changes are just some factors that can lead to business failures if they are not responded to effectively.

Question 152

How can changes in the business environment cause a business to fail?

Answer 152

Failure to plan for a change adds to the risk and uncertainty of operating a business.

Question 153

How can liquidity problems cause a business to fail?

Answer 153

Shortage of cash or liquidity means that workers, suppliers, landlords and government cannot be paid what they are owed.

Question 154

How can poor financial management lead to a business failing?

Answer 154

Failure to plan or forecast cash flows can lead to this problem and is a major cause of businesses of all sizes failing.

Question 155

Explain why a business could fail because of over-expansion?

Answer 155

When a business expands too quickly it can lead to big problems of management and finance.

Question 156

Why are new businesses at a greater risk of failing?

Answer 156

Many new businesses fail due to lack of finance and other resources, poor planning, inadequate research, lack of experience and decision making skills.

Question 157

There are six main forms of business organisation of the private sector. These are:

Answer 157

There are several main forms of business organisation of the private sector. These are: * Sole traders. * Partnerships. * Private limited companies. * Public limited companies. * Franchises. * Joint ventures.

Question 158

What is a sole trader?

Answer 158

Sole trader is a business owned by one person.

Question 159

Why is a sole trader business a common form of organization?

Answer 159

One of the reasons it is such a common form of organisation is because there are so few legal requirements to set it up.

Question 160

There are only a few legal regulations which must be followed for sole trader business: Name them

Answer 160

There are only a few legal regulations that must be followed for sole trader business: * The owner must register with, and send annual accounts to, the Government Tax Office. * The name of the business is significant and must be registered with the Registrar of Business Names. * The sole trader must observe laws that apply to all businesses in that industry.

Question 161

Name the 6 benefits of being a sole trader.

Answer 161

* There are few legal regulations to worry about when the business is set up. * You can be your own boss. * You have the freedom to choose your own holidays, hours of work, prices to be charged, and whom to employ. * Close contact with your own customers. * You have an incentive to work hard because you are able to keep all of the profits. * You do not have to give information about your business to anyone else.

Question 162

Define limited liability.

Answer 162

Limited liability means that the liability of shareholders in a company is limited to only the amount they invested.

Question 163

Define unlimited liability.

Answer 163

Unlimited liability means that the owners of a business can be held responsible for the debts of the business they own.

Question 164

Name the 6 disadvantages of being a sole trader.

Answer 164

* You have no one to discuss business matters with. * You are fully responsible for any debts that the business may have. * The sources of finance for a sole trader are limited to the owner's savings, profits made by the business, and small bank loans. * The business will not benefit from economies of scale. * The business is likely to remain small because capital for expansion is so restricted. * If you are ill there is no one who will take control of the business for you and there is no continuity of the business after the death of the owner.

Question 165

Who do you recommend a sole trader structure to (3)?

Answer 165

* Someone setting up a new business. * Do not need much capital to get the business going. * Will be dealing mainly with the public, for example, hairdressing - personal and direct contact between the customer and the owner is often very important for the success of these businesses.

Question 166

What is a partnership?

Answer 166

Partnership is a form of business in which two or more people agree to jointly own a business.

Question 167

What is a partnership agreement?

Answer 167

A partnership agreement is a written and legal agreement between business partners.

Question 168

Why is it recommended to have a partnership agreement or a deed of partnership?

Answer 168

Without this document, partners may disagree on who put most capital into the business or who is entitled to more of the profits. A written agreement will settle these matters.

Question 169

Partnerships can be set up very easily. Name one way you can set a partnership.

Answer 169

You could ask someone you know to become your partner in your business and this is called verbal agreement.

Question 170

What 5 things does a partnership agreement contain?

Answer 170

* The amount of capital invested in the business by each partner. * The tasks to be undertaken by each partner. * The way in which the profits would be shared out. * How long the partnership would last. * Arrangements for absence, retirement, and how new partners could be admitted.

Question 171

What are the 4 advantages of partnership?

Answer 171

* More capital could now be invested into the business. * The responsibilities of running the business were now shared. * Both partners were motivated to work hard because they would both benefit from the profits. * Any losses made by the business would now be shared by the partners.

Question 172

What is an unincorporated business?

Answer 172

An unincorporated business is one that does not have a separate legal identity. Sole traders are partnerships are unincorporated businesses.

Question 173

What are the 5 disadvantages of a partnership?

Answer 173

* The partners did not have limited liability. * The business did not have a separate legal identity. * Partners can disagree on business decisions and consulting all partners takes time. * If one of the partners is very inefficient or actually dishonest, then the other partners could suffer by losing money in the business. * Most countries limit the number of partners meaning that the business growth would be limited by the amount of capital people could invest.

Question 174

Partnerships are very suitable in certain situations, such as:

Answer 174

Partnerships are very suitable in certain situations, such as: * When people wished to form a business with others but wanted to avoid legal complications. * Where the professional body, only allowed professional people to form a partnership, not a company. * Where the partners are well known to each other, possibly in the same family, and want a simple means of involving several of them in the running of the business.

Question 175

What is a Limited Liability Partnership (LLP)?

Answer 175

It offers partners limited liability but shares in such businesses cannot be bought and sold. This type of partnership is a separate legal unit that still exists after a partner’s death.

Question 176

Define Incorporated businesses.

Answer 176

Incorporated businesses are companies that have separate legal status from their owners.

Question 177

Define shareholders.

Answer 177

Shareholders are the owners of a limited company. They buy shares which represent part-ownership of the company.

Question 178

Define private limited companies.

Answer 178

Private limited companies are businesses owned by shareholders but they cannot sell shares to the public.

Question 179

A company is a separate legal unit from its owners - it is an incorporated business. This means 3 things:

Answer 179

A company is a separate legal unit from its owners - it is an incorporated business. This means that: * A company exists separately from the owners and will continue to exist if one of the owners should die. * A company can make contacts or legal agreements. * Company accounts are kept separate from the accounts of the owners.

Question 180

What are the 4 advantages of private limited companies?

Answer 180

* Shares can be sold to a large number of people (friends and relatives). * Limited liability for shareholders. * Separate legal identity. * The people who started the company are able to keep control of it as long as they do not sell too many shares to other people.

Question 181

Shares of a private limited company can be sold to large numbers of people. Why would this be a benefit?

Answer 181

The sale of shares could lead to much larger sums of capital to invest in the business than the two original partners could manage to raise themselves meaning the business could therefore expand more rapidly.

Question 182

Limited liability for shareholders of private limited companies. Why would this be considered a benefit?

Answer 182

It means that if the company failed with debts owing to creditors, the shareholders could not be forced to sell their possessions to pay the debts, the shareholders could only lose their original investment in the shares.

Question 183

Why does limited liability encourage people to buy shares?

Answer 183

Limited liability encourages people to buy shares, knowing that the amount they pay is the maximum they could lose if the business is unsuccessful.

Question 184

What are the 4 disadvantages of private limited companies?

Answer 184

Not easy to transfer shares. Legal formalities. Accounts are available for the public to see. Cannot sell shares to the public.

Question 185

There are significant legal matters which have to be dealt with before the company can be formed. In particular, two important forms or documents have to be sent to the Registrar of Companies: Name them.

Answer 185

The Articles of Association - this contains the rules under which the company will be managed. The Memorandum of Association - This contains very important information about the company and the directors.

Question 186

What are the documents from Private Limited Companies intended for?

Answer 186

Companies are correctly run. Purpose and structure of the company.

Question 187

The shares in a private limited company cannot be sold or transferred to anyone else without the agreement of the other shareholders. What is the disadvantage of this rule?

Answer 187

This rule can make some people reluctant to invest in such a company because they may not be able to sell their shares quickly if they require their investment back.

Question 188

Most importantly for rapidly expanding businesses, the company cannot offer its shares to the general public. What is the disadvantage of this?

Answer 188

Therefore it will not be possible to raise really large sums of capital to invest back into the business.

Question 189

Private Limited Companies were very suitable in certain situations, such as:

Answer 189

Private Limited Companies were very suitable in certain situations, such as:

Question 190

Define public limited companies.

Answer 190

Public limited companies are businesses owned by shareholders but they can sell shares to the public and their shares are tradeable on the Stock Exchange.

Question 191

What is one thing you should remember for public limited companies?

Answer 191

Public limited companies are not in the public sector of industry. They are not owned by the government but by private individuals and as a result, they are in the private sector.

Question 192

What are the five advantages of public limited companies?

Answer 192

* This form of business organization still offers limited liability to shareholders. * It is an incorporated business and has a separate legal identity to the owners or shareholders. * There is now the opportunity to raise very large capital sums to invest in the business. * There is no restriction on the buying, selling, or transfer of shares. * A business trading as a public limited company usually has high status and should find it easier to attract suppliers prepared to sell goods on credit and banks willing to lend to it than other types of businesses.

Question 193

It is an incorporated business and has a separate legal identity to the owners or shareholders. Expand further on this point.

Answer 193

Its accounts are kept separate from those of the owners and there is no continuity should one of the shareholders die.

Question 194

There is now the opportunity to raise very large capital sums to invest in the business. Why?

Answer 194

There is no limit to the number of shareholders a public limited company can have.

Question 195

What are the four disadvantages of a public limited company?

Answer 195

* The legal formalities of forming such a company are quite complicated and time-consuming. * There are many more regulations and controls over public limited companies in order to try to protect the interest of the shareholders. * Selling shares to the public is expensive. * There is the very real danger that although the original owners of the business might become rich by selling shares in their business, they may lose control over it when it ‘goes public’.

Question 196

There are many more regulations and controls over public limited companies in order to try to protect the interest of the shareholders. Give an example.

Answer 196

These include the publication of accounts, which anyone can ask to see.

Question 197

What is an Annual General Meeting (AGM)?

Answer 197

An Annual General Meeting is a legal requirement for all companies. Shareholders may attend and vote on who they want to be on the Board of Directors for the coming year.

Question 198

State the ‘equation’ for an AGM regarding ownership and control.

Answer 198

shareholders (Ownership) ➡ may attend the AGM (few do). ↓ Vote for Board of Directors who take all important decisions (control). ↓ appoint managers for day-to-day business decisions (control).

Question 199

What is called the divorce between ownership and control?

Answer 199

The shareholders own, but the directors and managers control.

Question 200

Define dividends.

Answer 200

Dividends are payments made to shareholders from the profits (after tax) of a company. They are the return to shareholders for investing in the company.

Question 201

Two types of private sector business organisations exist: Name them.

Answer 201

A franchise and a joint venture.

Question 202

What is a franchise?

Answer 202

A franchise is a business based up the use of brand names, promotional logos and trading methods of an existing successful business.

Question 203

What is a franchisor and what does a franchisee do?

Answer 203

The franchisor is a business with a product or service that it does not want to sell to consumers directly. Instead, it appoints franchisees to use the idea or product and to sell it to consumers.

Question 204

What are the four advantages to the franchisor.

Answer 204

The franchisee buys a license from the franchisor to use the brand name. The management of the outlets is the responsibility of the franchisees. All products sold must be obtained from the franchisor. Expansion of the franchised business is much faster than if the franchisor had to finance all new outlets.

Question 205

What are three disadvantages to the franchisor?

Answer 205

Poor management of one franchised outlet could lead to a bad reputation for the whole business. The franchisee keeps profits from the outlet.

Question 206

What are the three disadvantages to the franchisee?

Answer 206

Less independence than with operating a non-franchised business. Licence fee must be paid to the franchisor and possibly a percentage of the annual turnover. May be unable to make decisions that would suit the local area.

Question 207

What are the six advantages to the franchisee?

Answer 207

The franchisor pays for advertising. All supplies are obtained from the franchisor. Training for staff and management is provided by the franchisor. Banks are often willing to lend to franchisees due to relatively low risk. The chances of business failure are much reduced because a well-known product is being sold. There are fewer decisions to make than with an independent business - prices, store layout, range of products will have been decided by the franchisor.

Question 208

What is a joint venture?

Answer 208

A joint venture is where two or more businesses start a new project together sharing capital, risks and profits.

Question 209

What are the three advantages of a joint venture?

Answer 209

Sharing of costs. Risks are shared. Local knowledge when joint venture company is already based in the country.

Question 210

What are the three disadvantages of a joint venture?

Answer 210

Disagreements over important decisions might occur. If the new project is successful, then the profits have to be shared with the joint venture partner. The two joint venture partners might have different ways of running a business - different cultures.

Question 211

Define the public sector.

Answer 211

The public sector includes all businesses owned by the government/state and local government and public services such as hospitals, fire services, and government departments.

Question 212

What is a public corporation?

Answer 212

A public corporation is a business in the public sector that is owned and controlled by the state/government.

Question 213

What is nationalization?

Answer 213

This means that the businesses were once owned by private individuals, but were purchased by the government (for examples water supply and rail services).

Question 214

What are the four advantages of public corporations?

Answer 214

* Some industries are considered so important that government ownership is thought to be essential (water supply and electricity generation). * If industries are controlled by monopolies because it would be wasteful to have competitors then these natural monopolies are often owned by the government. * If an important business is failing and likely to collapse, the government can step in to nationalize it, keeping the business open and securing jobs. * Important public services, such as TV and radio broadcasting, are often in the public sector. Non-profitable but important programs can still be made available to the public.

Question 215

What are the four disadvantages of public corporations?

Answer 215

* There are no private shareholders to insist on high profits and efficiency. * Governments can use these businesses for political reasons and this prevents the public corporations from being operated like other profit-making businesses. * Often there is no close competition to the public corporations. * Governments’ subsidies can lead to inefficiency as managers will always think that the government will help them if the business makes a loss.

Question 216

Often there is no close competition to the public corporations. There is therefore _.

Answer 216

There is therefore a lack of incentive to increase consumer choice, increase efficiency or even improve customer service.

Question 217

Local governments and municipalities usually operate some trading activities. Who are these paid by and give two examples?

Answer 217

Some of these services are free to the user and paid for out of local taxes, such as street lighting and school.

Question 218

Other services are chared for and expected to break even at least.

Answer 218

These might include street markets, swimming pools, and theatres.

Question 219

What purpose do businesses serve

Answer 219

Goods, physical product Services, non physical actions

Question 220

What are “Needs”

Answer 220

What a person requires to survive such as water, and clothes

Question 221

What are “Wants”

Answer 221

Products that will make us happy, a desire for it, would not need these to survive, e.g jewellery, cars, electronic devices

Question 222

Why do businesses set up?

Answer 222

When business see a gap in the market and earn a profit, have a passion for the market

Question 223

What are Opportunity costs

Answer 223

The next best alternative given up by choosing another item

Question 224

What is scarcity

Answer 224

The lack of sufficient products to fulfil the total wants of the population

Question 225

Factors of production definition

Answer 225

These are those resources needed to produce goods or services * labour * capital * enterprise * land

Question 226

Added value and examples

Answer 226

an improvement or addition to something that makes a product worth more New Packaging Sustainable packaging New colour New features

Question 227

What is specialisation

Answer 227

When someone is good at a specific task, concentrating on and becoming an expert in a particular subject or skill.

Question 228

Division of labour

Answer 228

Dividing the workforce to specific individuals to specific tasks, Division of labour is a form of specialisation

Question 229

Advantages of specialisation

Answer 229

Better productivity reduced mistakes, less wastage Less supervision as they are good at there job Better quality

Question 230

Disadvantages of specialisation

Answer 230

Cost more because of training or paying more workers No back up if someone is sick (lack of flexibility) Increase boredom, unmotivated

Question 231

Primary sector

Answer 231

Produces raw materials by extracting and using natural resources , eg:oil

Question 232

Secondary sectors

Answer 232

Manufacturing the goods turning raw materials into finished goods

Question 233

Tertiary sector

Answer 233

Provides services to consumers and other sectors of the industry

Question 234

Public sector

Answer 234

When a business is formed by the government and share their shares to the public

Question 235

Private sector

Answer 235

When the business is driven by profit maximisation and cant sell shares to the public

Question 236

What is an Enterprise

Answer 236

A business or organisation that makes money

Question 237

What is an Entrepreneur

Answer 237

A person who sets up a business or businesses, taking on financial risks in the hope of profit.

Question 238

Risks of starting a business

Answer 238

Financial loss Lack of security Risk of failure Managing cash flow

Question 239

Rewards of starting a business (if its successful)

Answer 239

Pursue an interest Financial reward/gain Get to be there own boss Flexible hours

Question 240

Features of entrepreneur

Answer 240

Hard working Organised Being able to adapted Willing to take risks Innovative

Question 241

Why do governments support business start ups

Answer 241

To reduce unemployment To increase competition, this reduces prices and adds more variety To benefit society, business may create social enterprises Can grow further, this can make business grow larger and more important In the future

Question 242

Capital employed

Answer 242

The total value of capital used in a business

Question 243

Why are new business are at a greater risk of failing

Answer 243

Due to the lack of finance Poor planning Lack of experience/ decision making skills Inadequate research

Question 244

Social enterprise

Answer 244

Social enterprises seek to maximise benefits to society and the environment, and the profits are principally used to fund social programs the main objective is to have a social impact rather than make a profit for their owners or shareholders.

Question 245

How to measure business size

Answer 245

Number of people employed Value of output Value of sales Value of capital employed

Question 246

Limitations to measuring business size

Answer 246

Using automation (less workers) Firms selling more expensive items May not sell the same amount of goods each year

Question 247

What is an aim

Answer 247

The overall target or goal of the business

Question 248

What is Objective and examples of it

Answer 248

A goal to help you reach/achieve your aim (the steps a business needs to take to meet its overall aims) survival, growth, profit and market share

Question 249

What is Mission statement

Answer 249

A general description of the overall aim (summary of the aims and values in the business)

Question 250

What is SMART

Answer 250

Specific Measurable Achievable Real/realistic Time based to set reasonable objectives

Question 251

The need and importance of having aims and goals

Answer 251

Gives workers and managers clear targets makes them more motivated Accurate decision making as they will be centred around the goal Business managers can compare to see how well they are doing

Question 252

What is market share and the formula for it

Answer 252

Is the percentage of the total market sales held by one brand or business Market share (%) = company sales/total market sales x 100

Question 253

Objectives for social enterprises

Answer 253

Innovate focussing on community or environmental issues. to encourage the employment of women in tech-related fields. Design operations to profit for both social impact and survival of the organization.

Question 254

What is a business plan

Answer 254

A plan that provides important details on your ideas, aims/goals, finance and labour

Question 255

Why is a business plan important

Answer 255

Clarify and organise their ideas Detailed information Setting objectives Makes it easier to get a loan Easier to make decisions

Question 256

Features of a business plan

Answer 256

Executive summary Mission statement Products/ services Market analysis Production details

Question 257

Disadvantages of a business plan

Answer 257

Not very flexible Time consuming Forecast may not be accurate Does not guarantee success

Question 258

Internal growth

Answer 258

When a business expands its existing operations, new products, new stores

Question 259

External growth

Answer 259

When a business expands by combining with another business, (mergers and takeovers)

Question 260

Internal advantages

Answer 260

100% controlled Less risk Builds up the business name

Question 261

Internal disadvantages

Answer 261

Slower Limited growth More competition

Question 262

External advantages

Answer 262

Reduced competition Diversify Rapid expansion

Question 263

External Disadvantages

Answer 263

Complicated Very risky Not in 100% of control Demotivated employees argurements

Question 264

Why would a business want to grow

Answer 264

More money and profit To help their customers Increase market share Survival To benefit of economics of scale

Question 265

Types of external growth and their definitions

Answer 265

Mergers, is when owners from different business decided to combine together Takeovers, is when one business buys the other business Horizontal integration, is when one business merges with another business in the same industry Vertical integration, is when one business merges with another business in the same production line (can be forward or backwards) Diversification, when a business merges/takeovers a business in a completely different industry

Question 266

Benefits for horizontal and vertical integration forward and backward)

Answer 266

Horizontal - reduces competitors in the industry - opportunities for economies of scale - increased market share Vertical (forward) - can set any price it wants (doesn’t have to charge higher prices) - easier to gather information from the customers - the retailer cant sell competing products Vertical (backward) - guarantee supply of goods - supplier cant sell to other competing businesses - cost of components can now be controlled

Question 267

Disadvantages to business growth

Answer 267

Larger business are more difficult to control Poor communication Expansion costs is too high the business doesn’t have enough money to sustain itself Integrating with a another business is difficult as they might have a different work culture

Question 268

Why do business want to remain small

Answer 268

Why do business want to remain small

Question 269

Sole traders

Answer 269

A form of business organisation when only one person runs it

Question 270

Advantages of sole traders

Answer 270

Be your own boss, all the control Easy to set up and not costly to set up due to there being less paper work You keep all the profits

Question 271

Disadvantages of sole trader

Answer 271

Unlimited liability Hard to raise finance Risky More responsibilities

Question 272

Partnership

Answer 272

When two or more people agree to own and run a business together

Question 273

Advantages of partnership

Answer 273

More support Sharing ideas Shared experience More capital can be put in the business

Question 274

Disadvantages of partnerships

Answer 274

Causes conflict Sharing profit Unlimited liability

Question 275

Limited liability

Answer 275

Means the shareholders only lose the money that they invested

Question 276

Unlimited liability

Answer 276

When the owners of the business are responsible too all the debts owed this means that loss of personal possession is possible

Question 277

Joint venture

Answer 277

When two or more businesses agree to start a new project together sharing capital, the risks and the profits

Question 278

Advantages of franchising

Answer 278

Easily expands globally Less work for the franchiser Franchisee does not need to spent money on advertising

Question 279

Disadvantages of franchising

Answer 279

Franchiser does not have complete control If run badly may affect company name Cost money to train the owner Franchisee does not have 100% of the profits

Question 280

What is the differences between franchisee and franchisor

Answer 280

Franchisor is the company in which sells their brand name for money Franchisee is the person who buys the license to use a (usually large) company name

Question 281

What is a franchise

Answer 281

A franchise is a business based upon the use of brand names and promotional logos of an existing successful business

Question 282

Private limited company (LTDS)

Answer 282

Are business owned by shareholders but they cannot sell shares to the public and their main goal is profit maximisation

Question 283

Advantages of LTDS

Answer 283

Shareholders have limited liability Owners can still have control

Question 284

Disadvantages of LTDS

Answer 284

Legally obliged to publish their accounts meaning competitors become more competitive Harder to set up and more costly

Question 285

Public limited company

Answer 285

Often a large company, owned by shareholders who have limited liability. The company can sell its shares to the general public

Question 286

Internal stakeholders and examples

Answer 286

People interested in the business that are in the business

Question 287

External Stakeholders

Answer 287

Stakeholders that are not in the business

Question 288

Internal stakeholders examples

Answer 288

Employees Managers Owners Managing director

Question 289

External stakeholders examples

Answer 289

Customers Government Suppliers Shareholders Community

Question 290

Business.

Answer 290

An organisation, which produces goods and services.

Question 291

Consumer Goods.

Answer 291

Good and services sold to ordinary people (consumers) rather than businesses.

Question 292

Good and services sold to ordinary people (consumers) rather than businesses.

Answer 292

People who take risk and set up businesses.

Question 293

Goods.

Answer 293

Physical products like a mobile phone, packet of crisps or pair of shoes.

Question 294

Needs.

Answer 294

Basic requirements for human survival.

Question 295

Private Sector.

Answer 295

Business organisations owned by individuals or groups of individuals.

Question 296

Producer Goods.

Answer 296

Goods and services produced by one business for another.

Question 297

Public Sector.

Answer 297

Business organisations owned by central or local government.

Question 298

Scarce Resources.

Answer 298

The amount of resources available is limited.

Question 299

Services.

Answer 299

Non-physical products like banking, car washing and waste disposal.

Question 300

Stakeholders.

Answer 300

An individual or group with an interest in the operation of a business.

Question 301

Wants.

Answer 301

Peoples’ desires for goods and services.

Question 302

Mission Statement.

Answer 302

A brief summary of a firm’s aims and objectives.

Question 303

Objectives.

Answer 303

The goals or targets set by a business.

Question 304

Profit Maximisation.

Answer 304

Making as much profit as possible in a given period.

Question 305

Deed of Partnership.

Answer 305

A binding legal document, which states the formal rights of partners.

Question 306

Franchise.

Answer 306

Where a business (the franchisor) allows another operator (the franchisee) to trade under their name.

Question 307

Incorporated Businesses.

Answer 307

Where the business has a separate legal identity from that of its owners.

Question 308

Limited Liability.

Answer 308

Where a business owner is only liable for the original amount invested in the business.

Question 309

Limited Liability Partnership.

Answer 309

A partnership where all partners has limited liability.

Question 310

Limited Partnership.

Answer 310

A partnership where some partners contribute capital and enjoy a share of the profit but do not take part in the running of the business.

Question 311

Partnership.

Answer 311

A business owned by between 2 and 20 people.

Question 312

Sole Trader or Sole Proprietor.

Answer 312

A business owned by a single person.

Question 313

Unincorporated Business.

Answer 313

Those businesses where there is no legal difference between the owner and the business.

Question 314

Unlimited Liability.

Answer 314

Where the owner of a business is personally liable for all business debts.

Question 315

Flotation.

Answer 315

The process of a company ‘going public’.

Question 316

Joint Venture.

Answer 316

Where two or more companies share the cost, responsibility and profits from a business venture.

Question 317

Limited Company.

Answer 317

A business organisation, which has a separate legal identity from that of its owners.

Question 318

Advantages public limited company

Answer 318

Grows faster/ bigger in a short amount of time Easier to raise finance Limited liability

Question 318

Disadvantages of public limited company

Answer 318

Owners have little to say Anyone can takeover company if they buy enough shares Legally obliged to publish their accounts

Question 319

Shareholders

Answer 319

The owners of a limited company they buy shares which represent a part ownership of the company

Question 320

Stock Market.

Answer 320

A market for shares in PLCs.

Question 321

Globalisation.

Answer 321

The growing integration of the World’s economies.

Question 322

Multinational.

Answer 322

A large business with markets and production facilities in several different countries.

Question 323

Repatriation (of Profit).

Answer 323

Where a multinational returns the profits from an overseas venture to the country where it is based.

Question 324

Capital-Intensive Production.

Answer 324

Production methods that make more use of machinery relative to labour.

Question 325

Division of Labour.

Answer 325

Specialisation in specific tasks or skills by an individual.

Question 326

Entrepreneur.

Answer 326

An individual who organises the other factors of production and risks their own money in a business venture.

Question 327

Factors of Production.

Answer 327

The resources used to produce goods and services. They include land, labour, capital and enterprise.

Question 328

Fixed Capital.

Answer 328

The stock of ‘man-made’ resources such as machines and tools used to help make goods and services.

Question 329

Labour.

Answer 329

The people used in production.

Question 330

Labour-Intensive Production.

Answer 330

Production methods that make more use of labour relative to machinery.

Question 331

Production.

Answer 331

The transformation of resources into goods and services.

Question 332

Specialisation.

Answer 332

In business, the production of a limited range of goods.

Question 333

De-Industrialisation.

Answer 333

The decline of manufacturing.

Question 334

Primary Industry.

Answer 334

Production involving the extraction of raw materials from the earth.

Question 335

Secondary Industry.

Answer 335

Production involving the conversion of raw materials into finished and semi-finished goods.

Question 336

Tertiary Industry.

Answer 336

The production of services in the economy.

Question 337

Assisted Areas.

Answer 337

Areas that are designated by the UK or EU as having economic problems and are eligible for support in a variety of forms.

Question 338

Brownfield Site.

Answer 338

Areas of land, which were once used for urban development.

Question 339

Greenfield Areas.

Answer 339

Areas of land, usually on the outskirts of towns and cities, where businesses develop for the first time.

Question 340

Regional Policy.

Answer 340

Measures used by the government to attract businesses to ‘depressed’ areas.

Question 341

Economic Growth.

Answer 341

An increase in income, output and expenditure over a period of time.

Question 342

Fiscal Policy.

Answer 342

Using changes in taxation and government expenditure to manage the economy.

Question 343

Inflation.

Answer 343

A rise in the general price level.

Question 344

Interest.

Answer 344

The price of borrowed money.

Question 345

Monetary Policy.

Answer 345

Using changes in interest rates and the money supply to manage the economy.

Question 346

Monopoly.

Answer 346

Where one business dominates the whole market.

Question 347

Unemployment.

Answer 347

When people are out of work & cannot find a job.

Question 348

Anti-Competitive Practices or Restrictive Trade Practices.

Answer 348

An attempt by firms to prevent or restrict competition.

Question 349

Barriers to Entry.

Answer 349

Obstacles that make it difficult for new firms to enter a market.

Question 350

Barriers to Entry.

Answer 350

Obstacles that make it difficult for new firms to enter a market.

Question 351

Balance of Trade or Visible Balance.

Answer 351

The difference between visible exports and visible imports.

Question 352

Devaluation.

Answer 352

The depreciation or fall in the value of a currency.

Question 353

Exchange Rate.

Answer 353

The price of one currency in terms of another.

Question 354

The price of one currency in terms of another.

Answer 354

Goods and services sold overseas.

Question 355

Free Trade.

Answer 355

Trade between nations that is completely without government restrictions.

Question 356

Imports.

Answer 356

Goods and services bought from overseas.

Question 357

Invisible Trade.

Answer 357

Trade in services.

Question 358

Protectionism.

Answer 358

An approach used by a government to protect domestic producers.

Question 359

Quota.

Answer 359

A physical limit on the quantity of imports allowed into a country.

Question 360

Subsidy.

Answer 360

Financial support given to a domestic producer to help compete with overseas firms.

Question 361

Tariff.

Answer 361

A tax on imports to make them more expensive.

Question 362

Trade Barriers.

Answer 362

Measures designed to restrict trade.

Question 363

Business Ethics.

Answer 363

Ideas in business, about what is morally right or wrong.

Question 364

Pressure Groups.

Answer 364

Groups of people without political power who seek to influence decision makers in politics, society and businesses.

Question 365

Sustainable Development.

Answer 365

The idea that people should satisfy their basic needs and enjoy improved living standards without compromising the quality of life of future generations.

Question 366

Social Audit.

Answer 366

The collection of information and reporting on the impact that a business has on society and the environment.

Question 367

Need

Answer 367

A good or service essential for living.

Question 368

A want

Answer 368

A good or service that people would like to have, but which is not essential for living

Question 369

Economic problem

Answer 369

Unlimited wants but limited resources - this creates scarcity.

Question 370

Scarcity

Answer 370

Lack of sufficient products to satisfy total wants of population

Question 371

Opportunity Cost

Answer 371

The next best item given up by choosing another.

Question 372

Factors of production

Answer 372

Resources needed to produce goods and services

Question 373

Name 4 factors of production

Answer 373

land, labour, capital and enterprise.

Question 374

Business

Answer 374

An organisation that combines factors of production to make goods and services to satisfy people’s wants and needs.

Question 375

Specialisation

Answer 375

People and businesses concentrate on what they are best at.

Question 376

Division of labour

Answer 376

Production is split into separate tasks and each worker specialises in one task.

Question 377

Added value

Answer 377

The difference between a product’s selling price and the cost of bought in materials.

Question 378

Primary sector

Answer 378

Businesses that extract and use natural resources to produce raw materials

Question 379

Secondary sector

Answer 379

Businesses that manufacture goods using the raw materials provided by the primary sector.

Question 380

Tertiary business

Answer 380

Businesses that provide services to consumers and other firms.

Question 381

Deindustrialisation

Answer 381

Decline in the importance of secondary, manufacturing industry.

Question 382

Mixed economy

Answer 382

This has both private sector businesses and public sector businesses.

Question 383

Private sector

Answer 383

Businesses owned by people, not the government/state.

Question 384

Public sector

Answer 384

Businesses owned by the government/state.

Question 385

Privatisation

Answer 385

The sale of public sector businesses to the private sector.

Question 386

Why the importance of sectors changes?

Answer 386

-Primary sector resources get used up -Factory costs (usually wages) are too higher -People spend more on the tertiary sector as they become wealthier

Question 387

Entrepreneur

Answer 387

is a person who organizes, operates and takes risks for a new business venture

Question 388

Business plan

Answer 388

The objectives and details of the operations, finance and owners of a new business.

Question 389

Capital employed

Answer 389

The total value of capital used in a business

Question 390

Internal growth

Answer 390

The business expands its existing operations, e.g. a retailer opening more shops

Question 391

External growth

Answer 391

The business expands by merging with or taking over another business.

Question 392

Takeover

Answer 392

A business buys out the owners of another business.

Question 393

Merger

Answer 393

The owners of businesses agree to join their firms together to form one business.

Question 394

Horizontal integration

Answer 394

The business integrates with another in the same industry at the same stage of production - such as two fashion snoos

Question 395

Vertical integration

Answer 395

The business integrates with another in the same industry but at a different stage of production - towards suppliers is backward vertical integration and towards the market/ customer is forward vertical integration.

Question 396

Conglomerate integration

Answer 396

The business integrates with another but in a different industry (also known as diversification) - such as an insurance company merging with a food-processing business.

Question 397

Characteristics of a successful entrepreneur

Answer 397

Hard working Risk taker Creative Self-confident Effective communicator Creative Optimistic innovative independent

Question 398

A business plan includes

Answer 398

* Products and services that you will sell * Costs of your business * Location of the business * What do I need to operate my business

Question 399

How a business plan can assist an entrepreneur?

Answer 399

* Apply for bank loans * Plan business to reduce risk of failure

Question 400

Governments support businesses because:

Answer 400

New businesses creates jobs (reduce unemployment) Increased competition (Businesses competing with each other means prices may be lowered) Business may grow larger and contribute to the country

Question 401

How business support business start-ups

Answer 401

* Loans at low interest rates * Land to set up businesses at low costs * Grants (money) to train employees * Use research facilities at public universities * Business advice from experts

Question 402

How business support business start-ups

Answer 402

Loans at low interest rates Land to set up businesses at low costs Grants (money) to train employees Use research facilities at public universities Business advice from experts

Question 403

Methods of measuring size of a business

Answer 403

Number of employees, value of output, value of sales, Capital employed annotate limitations

Question 404

Why might business want to expand?

Answer 404

Increased chances of higher profit Better status and prestige of the owners and employees Lower average cost (more negotiating power) Increased control of the market (market share)

Question 405

Ways in which businesses can grow

Answer 405

Internal growth External growth

Question 406

Types of merger

Answer 406

Horizontal integration Vertical Integration Conglomerate merger Joint ventures

Question 407

Problems of business growth

Answer 407

-Large businesses are difficult to control. - Costs of expansion are high. Solution - There can be poor communication in large businesses.

Question 408

Why do businesses maintain small

Answer 408

Type of industry Market size Owners objective

Question 409

Why do business fail

Answer 409

Poor management Failure to plan for change Poor financial management Over expansion Startup risk

Question 410

Sole trader

Answer 410

The business is owned by one person

Question 411

Partnership

Answer 411

The business is jointly owned by two or more people.

Question 412

Limited liability

Answer 412

The liability of owners/shareholders is limited to the amount invested. Personal possessions are not at risk.

Question 413

Incorporated business

Answer 413

A business with separate legal identity from its owners, e.g. a limited company.

Question 414

Unincorporated business

Answer 414

A business without separate legal identity from its owners, e.g. a sole trader or partnership.

Question 415

Private limited company

Answer 415

A business owned by shareholders but it cannot sell shares to the public.

Question 416

Public limited company

Answer 416

A business owned by shareholders but it can sell shares to the public and its shares are tradable on the Stock Exchange.

Question 417

Shareholders

Answer 417

The owners of a limited company.

Question 418

Dividends

Answer 418

Payments made to shareholders from the profits (after tax) of a company.

Question 419

Franchise

Answer 419

A business that uses, under licence, the brand name, logo and trading methods of an existing business. The franchisor sells the licence; the franchisee buys the licence.

Question 420

Joint venture

Answer 420

Two or more business’s start a new project together sharing capital, risks and profits.

Question 421

Public corporation

Answer 421

A business, in the public sector, that is owned and controlled by the state (government).

Question 422

Unlimited liability

Answer 422

If the business goes bankrupt, only the owner is responsible

Question 423

Types of business organization

Answer 423

* sole trader * partnership * private limited company * public limited company * franchise * join venture

Question 424

Public sector corporations

Answer 424

Businesses owned by the government, that can sell shares.

Question 425

Business objectives

Answer 425

The aims or targets that a business works towards.

Question 426

Profit

Answer 426

Total income (revenue) of a business less total costs.

Question 427

Market share

Answer 427

The proportion (%) of total market sales held by one brand or business Sales of business / total market sales x 100

Question 428

Social enterprise

Answer 428

An organisation with profit, environmental and social objectives.

Question 429

Stakeholder

Answer 429

Any person or group with a direct interest in the performance and activities of a business,

Question 430

Importance of business objectives

Answer 430

* Act as motivator * Helps with decision-making * Makes the business work over a goal * Acts as a measure of achievement

Question 431

Examples of business objectives can be

Answer 431

Business survival Profit Growth Market share

Question 432

What is the main objective of a social enterprise?

Answer 432

Provide service to society

Question 433

Internal stakeholders

Answer 433

Owners Workers Managers

Question 434

Examples of external stakeholders

Answer 434

Consumers Government Community Bank

Question 435

Private sector objectives

Answer 435

Business survival profit growth returns to shareholders market share return to society

Question 436

Public sector objectives

Answer 436

Provide service to the community increase living standards Increase jobs to lower unemployment

Question 437

What is a want? Give some examples.

Answer 437

a good or service that people would like to have, but is not required for living. Examples include cars and watching movies.

Question 438

What is a need? Give some examples.

Answer 438

a good or service essential for living. Examples include water and food and shelter.

Question 439

What is scarcity? Give an example.

Answer 439

Scarcity is the basic economic problem. It is a situation that exists when there are unlimited wants and limited resources to produce the goods and services to satisfy those wants. For example, we have a limited amount of money but there are a lot of things we would like to buy, using the money.

Question 440

What is opportunity cost?

Answer 440

Opportunity cost is the next best alternative forgone by choosing another item. Due to scarcity, people are often forced to make choices. When choices are made it leads to an opportunity cost

Question 441

Give an example of opportunity cost.

Answer 441

Example: the government has a limited amount of money (scarcity) and must decide on whether to use it to build a road, or construct a hospital (choice). The government chooses to construct the hospital instead of the road. The opportunity cost here are the benefits from the road that they have sacrificed (opportunity cost).

Question 442

What are factors of production?

Answer 442

Factors of Production are resources required to produce goods or services. They are classified into four categories: Land, Labour, Capital and Enterprise.

Question 443

What is land?

Answer 443

the natural resources that can be obtained from nature. This includes minerals, forests, oil and gas. The reward for land is rent.

Question 444

What is labour?

Answer 444

the physical and mental efforts put in by the workers in the production process. The reward for labour is wage/salary

Question 445

What is capital?

Answer 445

the finance, machinery and equipment needed for the production of goods and services. The reward for capital is interest received on the capital

Question 446

What is enterprise?

Answer 446

the risk taking ability of the person who brings the other factors of production together to produce a good or service. The reward for enterprise is profit from the business.

Question 447

What is specialisation occur?

Answer 447

Specialisation means people in business focus on what they do best. A shoe store focuses on selling shoes only, not clothes or food. A transport company may hire a website designer to create their website, as their expertise is in driving and vehicles, not in information technology.

Question 448

What are some advantages of specialisation?

Answer 448

* Workers are trained to do a particular task and specialise in this, thus increasing efficiency * Saves time and energy: production is faster by specialising * Quicker to train labourers: workers only concentrate on a task, they do not have to be trained in all aspects of the production process * Skill development: workers can develop their skills as they do the same tasks repeatedly, mastering it.

Question 449

What is the purpose of business activity?

Answer 449

The purpose of business activity is to satisfy consumers’ wants. A fast-food outlet satisfies consumers desire to eat a hamburger. A social media network satisfies users who want to connect with their friends.

Question 450

What is the concept of adding value?

Answer 450

Added value is the difference between the selling price and the cost price of a good or service . When a good or service is made more appealing, customers will usually be willing to pay more. Therefore, adding value increases the amount of profit that a business can make.

Question 451

How is added value calculated?

Answer 451

Added value is calculated by subtracting the cost of materials from the selling price.

Question 452

How is the cost of materials calculated?

Answer 452

Cost of materials is calculated by adding together the costs of all the different materials to make a product.

Question 453

How can added value be increased?

Answer 453

Value Added can be increased by increasing the selling price or reducing the cost of materials.

Question 454

What could Mac do to justify his increase in price?

Answer 454

Businesses may offer additional features. Mac could add bacon or avocado to the hamburgers they sell. They can also improve the quality of materials. Mac’s could offer organic cheddar cheese in their burgers rather than processed cheese. Branding is crucial in increasing added value. If consumers trust a branded product they will be willing to pay more. If Mac has a positive reputation and builds brand identity he may be able to increase prices for his burgers. Apple can charge high prices for their products due to the strength of its brand image.

Question 455

What three sectors can businesses be classified into?

Answer 455

primary secondary tertiary

Question 456

What is the primary sector?

Answer 456

The primary sector is extracting or growing natural resources to supply raw materials for business. Mining, farming and forestry are all examples.

Question 457

What is the secondary sector?

Answer 457

The secondary sector is manufacturing goods from raw materials. For example, a factory producing furniture. The secondary sector is also known as the manufacturing sector..

Question 458

What is the tertiary sector?

Answer 458

The tertiary sector involves businesses providing services to consumers or other businesses. This could be a barber cutting hair, a shop selling clothes or a bank providing loans to small businesses.

Question 459

What is the importance of business classification?

Answer 459

As countries’ economies grow, the primary sector gets smaller and the secondary and tertiary sectors grow. Between 1978 and 2017 China’s tertiary sector doubled as a percentage of Gross Domestic Product (GDP) from 25% to 50%. The exceptions to this general rule are countries with large reserves of natural resources. Countries in the Middle East continue to have a high proportion of their GDP from the primary sector as oil and gas generates large revenues for their economies.

Question 460

What is the private sector?

Answer 460

The private sector is a part of the economy owned and controlled by private individuals. Any privately owned business is in the private sector. It’s the kind of business organisation people come into contact with most day to day. McDonalds, Apple and small businesses like your local corner store, are all in the private sector.

Question 461

What is the public sector?

Answer 461

The public sector is the part of the economy owned and controlled by the government. Business activity in the public sector varies from country to country. Often health care, postal services and the electricity network are owned and controlled by the government. Example: the Indian Railways is a public sector organization owned by the govt. of India

Question 462

What is a mixed economy?

Answer 462

The mixed economy describes a country with economic activity in both the public sector and private sectors. In reality, nearly all countries have a mixed economy. The variation lies in the balance between the public and private sectors in the overall economy. India has a very small public sector lower than 10% of the total economy. However, in China, estimates put government-owned activity at around 50% of the whole economy.

Question 463

What is an entrepreneur?

Answer 463

An entrepreneur is a person who organizes, operates and takes risks for a new business venture. The entrepreneur brings together the various factors of production to produce goods or services.

Question 464

What are some characteristics of a entrepreneur?

Answer 464

* Risk taker * Creative * Optimistic * Self-confident * Innovative * Independent * Effective communicator * Hard working

Question 465

What is a business plan?

Answer 465

A business plan is a document containing the business objectives and important details about the operations, finance and owners of the new business.

Question 466

What are some of the content in business plans?

Answer 466

* Products and services that you will sell * Costs of your business * Location of the business * What do I need to operate my business e.g. Machines, employees

Question 467

How does a business plan assist entrepreneurs?

Answer 467

Making a business plan before actually starting the business can be very helpful. By documenting the various details about the business, the owners will find it much easier to run it. There is a lesser chance of losing sight of the mission and vision of the business as the objectives have been written down. Moreover, having the objectives of the business set down clearly will help motivate the employees. A new entrepreneur will find it easier to get a loan or overdraft from the bank if they have a business plan.

Question 468

Why do governments want to help new start-ups?

Answer 468

They provide employment to a lot of people They contribute to the growth of the economy They can also, if they grow to be successful, contribute to the exports of the country Start-ups often introduce fresh ideas and technologies into business and industry

Question 469

How do governments support businesses?

Answer 469

Loans at low interest rates Land to set up businesses at low costs Grants (money) to train employees Use research facilities at public universities Business advice from experts

Question 470

What are some methods of measuring business size?

Answer 470

Number of employees: larger firms have larger workforce employed Value of output: larger firms are likely to produce more than smaller ones Value of capital employed: larger businesses are likely to employ much more capital than smaller ones Revenue: the money received from selling items (price x quantity) Market share profit is NOT a method of measuring business size

Question 471

What are the limitations of the ‘number of employees’ as a way of measuring business size?

Answer 471

When using the ‘number of employees’ method to compare business size is not accurate as a capital intensive firm ( one that employs a large amount of capital equipment) can produce large output by employing very little labour (workers). Similarly, value of capital employed is not a reliable measure when comparing a capital-intensive firm with a labour-intensive firm. Output value is also unreliable because some different types of products are valued differently, and the size of the firm doesn’t depend on this.

Question 472

Why do business want to grow?

Answer 472

Profit: is the easiest one to remember. The bigger a company grows, the more products or services it can sell. Therefore, if a business grows there is a greater potential to make profit. Economies of scale: as companies grow larger they can cut costs by buying in bulk, and can afford to invest in technology or machinery that lowers the unit cost of each item they produce, cutting costs and increasing profits. Diversification or spreading risk. As a business grows it can produce different products and it lowers its dependence on one product. For example, a car rental company may expand to also offer van and truck rental. This means if there is a downturn in the car rental market the business can can still rely on revenue from the truck market. Market domination: as companies grow they gain greater market share and greater control of the market. For example, if a coffee shop in a small town has a number of outlets, it can have a large influence over setting prices for of a cup of coffee in that town.

Question 473

What is internal growth?

Answer 473

Internal Growth (or organic growth) is when a company expands by building another outlet or adding another service rather than taking over another business. For example, Ed’s Coffee expands by renting another shop, redecorating, employing staff and starts operating. (the business grows by hiring more staff and equipment to increase its output.)

Question 474

What is external growth?

Answer 474

where a business merges with or takes over another organization. Combining two firms increases the scale of operation.

Question 475

What is horizontal intergration?

Answer 475

Firms in the same industry at the same stage of production merges. e.g. 2 Bakeries merging to form a larger business

Question 476

What is vertical integration and give an advantage?

Answer 476

Business expands by merging with another business in another stage of production. There are 2 types of vertical integration. Backwards and fowards. Backward vertial integration is when a business merges with another business in the previous stage of production for example, Bakery merges with wheat farm. Foward is when a business merges with a business in the next stage of production e.g. Sugar farm merges with candy factory Advantage of vertical integration is to have more control over distribution of goods and services.

Question 477

What is a conglomerate merger?

Answer 477

Two businesses in a completely different industry combine to form a new business. e.g. Insurance company buys an advertising agency.

Question 478

What is a joint venture?

Answer 478

Two or more businesses agree to start a new project together.

Question 479

What are the problems of business growth and some solutions for these problems?

Answer 479

Large businesses are difficult to control. Solution – Operate in business in small parts. Costs of expansion are high. Solution – Expand slowly There can be poor communication in large businesses. Solution – use technology to communicate e.g. email. Operate the business in small parts.

Question 480

Why do some businesses choose to remain small?

Answer 480

Type of industry e.g. hair salons stay small because of the connection with their customers, if they grow too large they won’t be able to offer personal service to their regular customers. Market size Some businesses such as stores in small towns are likely to remain small due to the limited amount of customers. Businesses that produce specialised goods such as brand name clothing or luxury cars are also likely to remain small. Owner’s objective Some owners want to keep their businesses small to keep full control and know all their employees and customers. Running a large business can become stressful.

Question 481

Why do some business fail?

Answer 481

Poor management – Many businesses fail due to poor management from lack of experience by the managers. Failure to plan for change – The business environment is constantly changing, Businesses need to change to keep up with technology. Poor financial management – Shortage of money means that the businesses cannot be operated. Businesses needs to always make sure they have enough money Over expansion – Some businesses expand too quickly and not have enough money to operate. Startup risk – Starting up a new business is always risky, entrepreneurs may lack experience and not be able to compete with larger businesses.

Question 482

Why are new businesses at a greater risk of failure?

Answer 482

Less experience: a lack of experience in the market or in business gets a lot of firms easily pushed out of the market New to the market: they may still not understand the nuances and trends of the market, that existing competitors will have mastered Don’t a lot of sales yet: only by increasing sales, can new firms grow and find their foothold in the market. At a stage when they’re not selling much, they are at a greater risk of failing Don’t have a lot of money to support the business yet: financial issues can quickly get the better of new firms if they aren’t very careful with their cash flows. It is only after they make considerable sales and start making a profit, can they reinvest in the business and support it

Question 483

What is a ‘sole trader’?

Answer 483

A business that is owned and controlled by just one person who takes all of the risks and receives all of the profits.

Question 484

Name the advantages and disadvantages of a sole trader.

Answer 484

Ads: - Quick and easy to set up - Makes all the decisions - Has complete control - Keeps the profit Disads: - Unlimited liability - May not be able to raise funds to expand the business - Maybe have to work long hours - Difficult to compete with larger rival firms - May not have the business skills to run a business

Question 485

What is a partnership?

Answer 485

A business formed by two or more people who will usually share responsibility for the day-to-day running of the business

Question 486

A business formed by two or more people who will usually share responsibility for the day-to-day running of the business

Answer 486

Ads: - Easy to set up a deed of partnership - Partners invest in the business so greater access to funds - Shared decision making - Shared management and workload Disads: - Unlimited liability - Share the profits - Business ceases to exist if one partner leaves - Decisions binding on all partners - Difficult to raise finance

Question 487

What are private limited companies?

Answer 487

Often a small to medium-sized company, owned by shareholders who have limited liability. The company cannot sell its shares to the general public

Question 488

What are the features of private limited companies?

Answer 488

Advantages: Limited Liability to all shareholders Capital can be invested by many shareholders Cheaper to set up than public limited companies Continuity of existence – If the business owner dies, the business still exists. Disadvantages: Slower to startup (many legal documents needs to be signed) Shares can only be sold to family and friends Other shareholders need to agree before shares can be sold

Question 489

What are public limited companies?

Answer 489

Often a large company; owned by shareholders who have limited liability. They can sell its shares to the general public.

Question 490

What are the features of public limited companies?

Answer 490

Advantages: Limited Liability Shares can be sold to the general public without permission (Capital (Money) can be raised quickly) Continuity of existence Company can grow and expand quickly Disadvantages: Complicated legal documents (Wastes money and time) Expensive to start up Company can grow large very quickly which will be difficult to control Original owners of the business may lose control of the company Shareholders may vote who manages the business in AGM (loss of control)

Question 491

What is a franchise?

Answer 491

A business system where entrepreneurs buy the right to use to the name, logo and product of an existing business

Question 492

Name the advantages and disadvantages of franchises.

Answer 492

Advantages: Less chances of failure since the business is well known. Most of the advertisements are paid by the franchisor Less decision making is required from the franchisee e.g. food recipe is already planned from franchisor Staff training may be provided from franchisor Disadvantages: Franchisee won’t be able to make own decisions e.g. come up with own menu Franchisee needs to pay the franchisor to use brand name

Question 493

What is a joint venture?

Answer 493

Two or more businesses agree to work together on a project and set up a separate business for this purpose

Question 494

Name the advantages and disadvantages of joint ventures:

Answer 494

Advantages: Costs can be shared amongst the companies Knowledge and skills from more than one company Risks are shared (If the project fails) Disadvantages: Profit is shared Businesses may disagree with each other.

Question 495

What is an unincorporated business?

Answer 495

A business that does not have a separate legal identity from its owner(s) e.g. If the business is sued, the owner is responsible and may need to cover the cost with their own personal money.

Question 496

What is an incorporated business?

Answer 496

Business that has a separate legal identity from its owner(s) e.g. If the business goes bankrupt, the owners won’t be held responsible and only lose the money they invested.

Question 497

What is unlimited liability?

Answer 497

Owners are held liable for the business. If the business goes in debt, the owner needs to pay back with their own money.

Question 498

What is limited liability?

Answer 498

Opposite of Unlimited liability, If a business fails, the owners only lose what they invested

Question 499

What is the Annual general meeting?

Answer 499

Meeting that must be held every year for shareholders to vote for the company’s next directors.

Question 500

What are shareholders?

Answer 500

Owners of a limited company, they buy shares which represent the percentage they own of the company.

Question 501

What is a public corporation?

Answer 501

Public sector corporations are businesses owned by the government and run by directors appointed by the government. They usually provide essentials services like water, electricity, health services etc. The government provides the capital to run these corporations in the form of subsidies (grants). The UK’s National Health Service (NHS) is an example

Question 502

What do public corporations aim to do?

Answer 502

to keep prices low so everybody can afford the service. to keep people employed. to offer a service to the public everywhere.

Question 503

What are the advantages and disadvantages of public corporations?

Answer 503

Advantages: - Some businesses are considered too important to be owned by an individual. (electricity, water, airline) - Other businesses, considered natural monopolies, are controlled by the government. (electricity, water) - Reduces waste in an industry. (e.g. two railway lines in one city) - Rescue important businesses when they are failing through nationalisation - Provide essential services to the people Drawbacks: - Motivation might not be as high because profit is not an objective - Subsidies lead to inefficiency. It is also considered unfair for private businesses - There is normally no competition to public corporations, so there is no incentive to improve - Businesses could be run for government popularity

Question 504

What is a business objective?

Answer 504

a target that a business works towards.

Question 505

Why are objectives important for a business?

Answer 505

They act as a motivator as they give managers and workers a target to move towards Helps with decision making (managers will know what is better for the business to reach its target) Can make the entire business work toward a goal Managers can see if the business has achieved its goals or not.

Question 506

List some objectives that business may set?

Answer 506

Business survival – This is common for new businesses and businesses in bad economic times Profit – Businesses want to maximise profit. Growth – Businesses may want to grow for various reasons. Common reasons for business growth is to obtain a higher market share, increase jobs etc… Return to shareholders – incorporated businesses (Private and public limited companies) are owned by shareholders. There are 2 main ways to return to share holders 1.Businesses profits can be paid to shareholders as dividends and increasing share price will keep the shareholders happy so managers won’t be voted out. Market share – Businesses want to obtain a higher market share. The advantages of this is to make the business more well known. With a higher market share, the businesses may also be able to negotiate lower costs from suppliers (economies of scale) Providing a service to society – Social enterprises are privately owned businesses that focus on 1. providing a service to society such as providing jobs to disabled or homeless people or 2. Protecting the environment.

Question 507

Will business objective change?

Answer 507

Business objectives are likely to change over time. For example, A new business has survived a few years so the managers decide to change the objective to maximising profit.

Question 508

What is a skateholder?

Answer 508

A person or group with a direct interest in the performance and activities of a business.

Question 509

What are the internal stakeholders?

Answer 509

Owners – These are people who invested and set up the business. Objective = Profit so they make money from the business. Workers – Employees of the business. Objective = Payment for their work, job promotion (increased salary), job security. Managers – Employees that control other workers. Objective = Higher salary, job security, Successful company means better status.

Question 510

What are the main external stakeholders and their objectives?

Answer 510

Consumers – Customers who buy goods and services from the business. Objective = Good products from business, reliable service and maintenance from the company. Government – Responsible for the economy of the country, laws to protect customers and employees. Objective = Successful business means more jobs (less unemployment), Tax paid by the business and the business’ contribution to the country’s output. Community – Interested in how the business affects the local community, e,g, employment, environment. Objective = Jobs for people, environmentally friendly business, safe products for the customers. Bank – Lend money for the business to startup. Objective = Wants the business to have enough money to pay them back.

Question 511

What are some examples of how stakeholders’ different objectives can cause conflict?

Answer 511

Managers of a business want to build a factory in an area however the local community are against this as it may cause pollution and noise in the area. Owners want to use cheaper low-quality materials to lower product costs and increase profits however consumers are against this as the quality of the products they are buying will be lowered.

Question 512

What are the private sector business objectives?

Answer 512

Business survival Profit Growth Returns to shareholders Market share Service to society

Question 513

What are the public sector business objectives?

Answer 513

Provide service to the public Increase living standards of the public e.g. health care, education Increase jobs to lower unemployment in the country

Question 514

What are needs? Give some examples.

Answer 514

Needs are goods or services we need to survive. Examples include food, drink and shelter.

Question 515

What are wants? Give some examples.

Answer 515

Wants are goods and services people or consumers desire but aren’t essential for survival. This could be a holiday stay at a luxury hotel or a PlayStation 5.

Question 516

Why does scarcity occur?

Answer 516

Scarcity occurs as there are not enough resources, goods or services to provide for consumers’ unlimited wants.

Question 517

What is opportunity cost? Explain with an example.

Answer 517

Opportunity Cost is the potential benefit a business misses out on when choosing one alternative over another. A business may have a choice between investing in new machinery or an advertising campaign. If the business chooses the new machinery, the opportunity cost of the decision to buy machinery will be that it can’t benefit from the advertising campaign.

Question 518

What is specialisation? Explain with examples.

Answer 518

Specialisation means people in business focus on what they do best. A shoe store focuses on selling shoes only, not clothes or food. A transport company may hire a website designer to create their website, as their expertise is in driving and vehicles, not in information technology.

Question 519

What is the purpose of business activity? Explain with examples.

Answer 519

The purpose of business activity is to satisfy consumers’ wants. A fast-food outlet satisfies consumers desire to eat a hamburger. A social media network satisfies users who want to connect with their friends.

Question 520

Define added value.

Answer 520

Added value is calculated by subtracting the cost of materials from the selling price. Added value = Selling price - Cost of materials

Question 521

How is cost of materials calculated?

Answer 521

Cost of materials is calculated by adding together the costs of all the different materials to make a product.

Question 522

How can value added be increased?

Answer 522

Value Added can be increased by increasing the selling price or reducing the cost of materials.

Question 523

How can businesses increase selling price and justify it?

Answer 523

**Businesses may offer additional features. ** Mac could add bacon or avocado to the hamburgers they sell. **They can also improve the quality of materials. ** Mac’s could offer organic cheddar cheese in their burgers rather than processed cheese. **Branding is crucial in increasing added value. If consumers trust a branded product they will be willing to pay more. ** If Mac has a positive reputation and builds brand identity he may be able to increase prices for his burgers. Apple can charge high prices for their products due to the strength of its brand image.

Question 524

WaWay, a large manufacturing business, makes cell (mobile) phones. WaWay exports 30% of its products. It imports most of its raw materials to help reduce total costs. All 400 of WaWay's employees understand the importance of quality control. WaWay's directors are researching ways of further adding value to their products. (c) Outline two ways WaWay can add value to it's products. Way 1: Explanation: Factor 2: Explanation:

Answer 524

Way 1:Packaging Explanation: Use attractive packaging to add to the experience of" unboxing" the cell phone Factor 2: Add features Explanation: Like fingerprint recognition to make phones easier to use

Question 525

The purpose of business activity is best described as:

Answer 525

satisfying peoples' needs and wants.

Question 526

the method of adding value and the explanation/example for a car manufacturer Branding = Features = Quality of materials =

Answer 526

Branding = shows the car is high quality and can be trusted by consumers Features = Reversing sensors, heated seats, bluetooth stereo connection Quality of materials = Car's body is made from light weight, durable carbon fibre

Question 527

Define mixed economy. Give examples.

Answer 527

The mixed economy describes a country with economic activity in both the public sector and private sectors. In reality, nearly all countries have a mixed economy. The variation lies in the balance between the public and private sectors in the overall economy. India has a very small public sector lower than 10% of the total economy. However, in China, estimates put government-owned activity at around 50% of the whole economy.

Question 528

the business with the correct sector of the economy Orange plantation = Motorcycle Factory = Fast food outlet =

Answer 528

Orange plantation = Primary sector Motorcycle Factory = Secondary sector Fast food outlet = Tertiary sector

Question 529

Define entrepreneur.

Answer 529

An entrepreneur is someone who invests capital, takes a risk and starts up and operates a new business venture. Entrepreneurship drives business growth and innovation.

Question 530

Explain the four characteristics of successful entrepreneurs?

Answer 530

reativity; also known as innovation or vision It is the ability to generate new ideas or fresh thinking for new products or services to gain competitive advantage. Resilience; also known as optimism or the ability to bounce back. All entrepreneurs will face many setbacks and have to overcome these and not give up on their aims. **Hard Working ** entrepreneurs often have to work long, irregular hours late into the night and on weekends, especially during the start-up phase of the business. Multi tasking, also known as problem-solving or independence. Before they can afford to hire experts, entrepreneurs will have to juggle all the tasks of the business and develop skills in many different areas like marketing, finance and operations.

Question 531

What is a business plan?

Answer 531

A business plan is a document setting out a business’s objectives and how it will achieve them. It is usually drawn up when starting up a new business or when there will be an important change in how the business is run, like starting a new service or investing in a new outlet.

Question 532

Explain the finance section of a business plan.

Answer 532

Finance concerns how much capital the business will need and where will it come from. For example, $10,000 start-up capital required from a bank loan. It will also look at forecast revenue and costs so the business can estimate how much profit they will make. It makes sure there is enough capital to start the business. It can also show banks or potential investors the business has a solid plan to control costs, earn revenue and repay loans.

Question 533

Explain the marketing section of a business plan.

Answer 533

The Marketing Plan involves researching the market and planning how to sell a product or service. It ensures there is a sufficient budget in place to pay for marketing campaigns and outlines strategies for building a customer base. It can also help forecast future volume demand.

Question 534

Explain the Operations section of a business plan.

Answer 534

The Operations section shows how the product or service will be produced. It ensures the firm can find suppliers, and produce effectively at the output needed to ensure the customer demand is satisfied.

Question 535

Explain the Human resources section of a business plan.

Answer 535

Human Resources outlines the employees that will be required, and what skills or training they will need. It means entrepreneurs can employ the right people for the job and the business can be productive quickly. For example, a restaurant will have to find skilled chefs and train service staff.

Question 536

How to governments support business start ups?

Answer 536

Training schemes: To help entrepreneurs draw up a business plan and forecast their sales and costs for the first year. Grants: payments for equipment or to help with start-up costs. Tax breaks, free office space, and subsidies for hiring new employees.

Question 537

Why do governments support business start ups?

Answer 537

Employment creation: successful startups employ workers and reduce unemployment. Economic growth: entrepreneurs contribute to developing economic activity by creating profits, and paying employees and suppliers. Innovation and technological change: often entrepreneurs come up with new ideas which can inspire other startups, and make the economy more competitive and productive.

Question 538

Name and explain the different methods of measuring business size.

Answer 538

Number of employees e.g. Simply add up all of the employees in X-Ray Microchips and Yummy Oranges and see which one has more.

Question 539

What is the disadvantage of looking at the number of employees as measuring business size?

Answer 539

Some large businesses may have invested in machinery, and have a high output but a low number of employees. If we only look at the number of employees as a means of measuring business size, it may give a misleading impression of business size.

Question 540

Explain the operations section of a business plan.

Answer 540

The Operations section shows how the product or service will be produced. It ensures the firm can find suppliers, and produce effectively at the output needed to ensure the customer demand is satisfied.

Question 541

How do governments support business start ups?

Answer 541

Training schemes help entrepreneurs draw up a business plan and forecast their sales and costs for the first year. Grants are payments for equipment or to help with start-up costs. Governments can also offer tax breaks, free office space, and subsidies for hiring new employees.

Question 542

Why do governments support business start ups?

Answer 542

Employment creation: successful startups employ workers and reduce unemployment. Economic growth: entrepreneurs contribute to developing economic activity by creating profits, and paying employees and suppliers. Innovation and technological change: often entrepreneurs come up with new ideas which can inspire other startups, and make the economy more competitive and productive

Question 543

Name the ways of measuring business size

Answer 543

Number of employees. Capital employed. Value of output

Question 544

How do you calculate the number of employees. Give an example.

Answer 544

Simply add up all of the employees in X-Ray Microchips and Yummy Oranges and see which one has more.

Question 545

What is the limitations for measuring business size by the number of employees?

Answer 545

Some large businesses may have invested in machinery, and have a high output but a low number of employees. If we only look at the number of employees as a means of measuring business size, it may give a misleading impression of business size.

Question 546

Explain, with an example, how you calculate capital employed.

Answer 546

Add up the value of all the assets in a business like buildings and machinery. X-Ray Microchips has much more capital employed than Yummy Oranges, because it is a high technology business and has to invest high levels of capital in its production line.

Question 547

How is value output calculated?

Answer 547

Value of output is calculated by multiplying market value of the product by the level of output. Value of output = market value of the product x the level of output

Question 548

What is the limitation for measuring business activity through value of output?

Answer 548

However, we can’t be sure that all the products will be sold or the prices might change, which limits the accuracy of the figure.

Question 549

Is profit a measure of business size?

Answer 549

No.

Question 550

Why do owners of business want to expand?

Answer 550

* Profit: The bigger a company grows, the more products or services it can sell. Therefore, if a business grows there is a greater potential to make profit. * Economies of scale: As companies grow larger they can cut costs by buying in bulk, and can afford to invest in technology or machinery that lowers the unit cost of each item they produce, cutting costs and increasing profits. * Diversification or spreading risk: As a business grows it can produce different products and it lowers its dependence on one product. For example, a car rental company may expand to also offer van and truck rental. This means if there is a downturn in the car rental market the business can can still rely on revenue from the truck market. * Market domination: As companies grow they gain greater market share and greater control of the market. For example, if a coffee shop in a small town has a number of outlets, it can have a large influence over setting prices for of a cup of coffee in that town.

Question 551

What are the different ways in which a business can grow?

Answer 551

* External Growth: When a business expands by taking over or merging with another business. For example, Facebook took over photo-sharing platform social Instagram for $1 billion in 2012. * Internal Growth (or organic growth): When a company expands by building another outlet or adding another service rather than taking over another business. For example, Ed’s Coffee expands by renting another shop, redecorating, employing staff and starts operating.

Question 552

Which is quicker, external growth? Or internal growth? Explain the risks and why.

Answer 552

External growth is quicker than internal growth, but riskier and requires higher capital investment. It’s more expensive to buy an existing business than expand your own operations from scratch, but much quicker, as the business is already running and has a customer base and suppliers.

Question 553

What are the problems linked to business growth? How can we overcome them?

Answer 553

Communication: As a business grows, more people are employed in more locations. It becomes increasingly difficult to ensure everyone is getting clear messages, and for management to know what is going on in every part of the business. To overcome this, businesses can set up clear communication channels with the assistance of modern technology (email and instant messaging) to keep all staff updated. Finance: Expansion involves a high capital cost which puts pressure on a company’s finances and cash flow. The solution can be to expand more slowly, and ensure that there are suitable long term sources of finance available.

Question 554

Why do some businesses stay small?

Answer 554

Expansion is never an option because of a lack of capital. This may be because they can’t get a bank loan or find an investor to finance business growth. This is particularly the case in the developing world, where there are millions of small business owners who can’t expand because of high-interest rates, or they lack the assets required as collateral for a bank loan. Some businesses choose to stay small. Owner’s objectives: Some business owners start their own business as they want to have control over their lives. If a business expands it will involve more responsibility, stress, risk and a higher workload. So the business stays small to allow the owners greater work-life balance. Contact with customers: For many small business owners what makes them successful and what motivates them is the close relationship with customers. For example, a yoga teacher may expand her business by employing other teachers and operating more classes. However, this would mean she would spend less time giving a personalised service to her loyal customers, and more time in the office controlling and organising.

Question 555

Why do businesses fail?

Answer 555

Lack of management skills. Business managers have to be experts in finance, marketing, operations and all aspects of the business. It is very difficult to master every part of business and mistakes or bad choices can lead to failure. Startups are particularly vulnerable, as they are just starting out and lack the experience or expertise of competitors, and will inevitably make mistakes. Changes in the business environment. Changes in the business environment can affect the whole economy like a recession, where the economy gets smaller. Changes in the business environment may also just affect a small section of the economy. For example, online shopping has made it very difficult for ordinary “bricks and mortar” shops to compete. Many high street shops have closed down as they can’t compete on price and convenience with Amazon and Alibaba. Lack of finance/liquidity. Startups often underestimate how much money they will need to survive, and it can be a real challenge to predict sales accurately. If revenue is lower than costs the business will ultimately fail. More established companies can base their sales forecasts on previous results. All companies will fail if they don’t have enough money coming into the business to be able to pay their short term debts.

Question 556

the cause of business failure and the example or explanation Lack of finance/liquidity = Lack of management skills = Changes in the business environment =

Answer 556

Lack of finance/liquidity = start ups often under estimate how much money they will need to survive, and it can be a real challenge to predict sales accurately. Lack of management skills = online shopping has made it very difficult for ordinary "bricks and mortar" shops to compete. Changes in the business environment = It is very difficult to master every part of business and mistakes or bad choices can lead to failure.

Question 557

Eka owns and manages She Works, a new business start-up in country X. It provides office space for female digital entrepreneurs for a monthly fee. She Works has increasing sales revenue and Eka is considering opening another co working space in a neigbouring town. Eka said "Without the government's support and training in the early stages of the business development, She Works would not have survived" (e) Do you think the government should help start-up businesses? Justify your answer.

Answer 557

Yes because start-ups create jobs. Higher employment means more spending and greater economic activity in Country.X. No because helping businesses means higher government spending and the government could spend it's money on other projects like roads or hospitals Innovative business start ups are crucial creating innovation for economic growth. Although an extra cost in the long term they will repay the investment through tax on profits and providing employment.

Question 558

Define a sole trader.

Answer 558

A sole trader is a business owned by one person who is responsible for all decisions, capital invested and risk. Therefore, the sole trader has complete control over how the business is run, but is limited to their own funds or loans in order to finance the business.

Question 559

A sole trader is a business owned by one person who is responsible for all decisions, capital invested and risk. Therefore, the sole trader has complete control over how the business is run, but is limited to their own funds or loans in order to finance the business.

Answer 559

A partnership is where two or more people join together to set up a business. There is shared decision making, capital investment and risk.

Question 560

What is a private limited company.

Answer 560

If the partners start to further expand they can consider a private limited company. This will allow further capital investment, usually from friends and family, but less control in how the business is run, as the new investors will have an input into decision making. Setting up a private limited company is more complicated and costly than starting a sole trader or partnership, but much more straight forward than a public limited company.

Question 561

What is a public limited company?

Answer 561

The final step is changing to a public limited company. Much more capital can be raised as shares can be sold to members of the public, but shareholders also have a greater influence over decision making. Setting up a public limited company is complicated, high cost, and time consuming. Public limited companies must publish financial information about their profits, so there is less privacy of the business operations.

Question 562

What is an unincorporated business? Name examples of an unincorporated business.

Answer 562

An unincorporated business refers to a business where in the eyes of the law there is no separation between the owners and the business. The owners and the businesses are one and the same. Sole Traders and Partnerships are examples.

Question 563

What are the risks unincorporated businesses face?

Answer 563

If sole traders or partnerships go bankrupt there is unlimited liability. Owners personal assets may be taken to pay for debts of the company. If a sole trader goes bankrupt and owes money to the bank, the bank can repossess the sole traders personal property to repay the loan.

Question 564

What is an incorporated business? Name examples.

Answer 564

An incorporated business refers to a business where there is a separation between owners, who are called shareholders, as they all own a small slice or (share) of the company. There is limited liability so much lower risks for shareholders compared to being a sole trader or in a partnership. Public and Private Limited Companies are examples.

Question 565

Name some examples of Sole Traders.

Answer 565

Small businesses, independent shops or tradespeople like plumbers and electricians.

Question 566

Name some examples of Partnerships.

Answer 566

Professionals like lawyers, doctors, dentists.

Question 567

Name some examples of Private Limited Companies.

Answer 567

Mid-sized firms that are often family owned, for example George Smith and Sons Ltd.

Question 568

Name some examples of Public Limited Companies.

Answer 568

Large companies that want to raise a lot of capital, usually for expansion. Facebook, Apple, Walmart and Shell are some of the world’s largest public limited companies.

Question 569

What are joint ventures? Explain with examples.

Answer 569

Joint Ventures (or JVs as they are often known on the business news) are when two companies work together on a specific project. They share capital and risks. They benefit from each other’s expertise and split profits from the venture. In return they will both take a share of the profits. A great example of this is HULU. Disney and Comcast teamed up to create a streaming service to rival Netflix. They both shared capital and expertise (and contributed their content like movies and TV shows)

Question 570

Explain a franchise with an example.

Answer 570

A Franchise is when a businessbuys the license to use another company’s logo and branding, and sell their products. An entrepreneur entering a franchise agreement with Starbucks is called the franchisee, Starbucks is the franchisor.

Question 571

What are the limitations of a franchise agreement?

Answer 571

Must share profits with the franchisor Must follow rules and regulations set by the franchisor

Question 572

Consider if franchising is a good “fit” for the objectives of the business in the question?

Answer 572

Franchising can be a good option if the business owner in the question can afford the higher investment costs and is willing to share profits. It also can suit entrepreneurs with less business experience as marketing is provided by the franchisor and support and guidance is usually available from the franchisor. The franchise has a proven business model and a ready-made customer base so there is a higher chance of success. It is less suitable if an entrepreneur or business owners want independence to make their own decisions on what products to sell, and how to run the business.

Question 573

What are business organisations in the public sector?

Answer 573

They are government owned organisations set up to provide service to the public, rather than make a profit. A good example is the BBC in the UK, it’s aim is not to make a profit but to educate and entertain the citizens of the United Kingdom.

Question 574

Tammy is a sole trader. She provides window cleaning services to home owners. Her business does not benefit from any economies of scale because it is small. Tammy has just bought a new van and must make repayments to the bank every month. Tammy has to pay her employees every month. However, she gives her customers 2 months to pay. (d) Explain one advantage and one disadvantage to Tammy of being a sole trader.

Answer 574

Advantage: Keeps all the profit Explanation: so if successful she will make more money from window cleaning business Disadvantage: Unlimited liability Explanation: so if the business is not able to make the van repayments every months she may lose her personal possessions

Question 575

Why are business objectives important?

Answer 575

Sets out what the business wants to achieve Gives an idea to employees, potential investors, stakeholders etc. More successful in gaining people’s trust

Question 576

What are some possible business objectives?

Answer 576

Survival Profit Growth Market share

Question 577

What are the objectives of social enterprises?

Answer 577

Help people who are in need Help the underprivileged Help the economy Help the government Help decrease unemployment rates Increase GDP

Question 578

Name the internal stakeholders of a business and their role in the business.

Answer 578

Owners: Interested in the performance of the business and profits Shareholders: Interested in the amount of dividends they will receive Managers: Responsible for the performance of the business, if they do well they may gain bonuses or promotions Employees: Interested in the performance of the business, so they can earn good pay and get better job security

Question 579

Name the external stakeholders of a business and their role in the business.

Answer 579

*Lenders: They are interested in the capability of the business to repay loans and if they can get any interest from the loans they give *Suppliers: They are interested in the amount of cash the business has to be able to pay the suppliers at required dates and if they can get success from supplying the business *Customers: They have an interest in the activities of the business because they want to be sure that the business if going to continue to exist in the future and that they are charged fair prices for the products *Government: Interested in the capability of the business earning high profits so they can receive more tax for spending on things such as education, health etc. *Local community: Interested in what the business offers to the local people, in terms of employment, whether or not the business will have a negative impact on the business etc.

Question 580

What are the main objectives of the private sector?

Answer 580

Earn profit Survive Increase market share Growth Economies of scale

Question 581

What are the main objectives of the public sector?

Answer 581

Increase GDP Decrease unemployment rates Provide a better standard of living Help the economy

Question 582

Define business objectives.

Answer 582

Business objectives are the aims or targets that a business works towards.

Question 583

What are the benefits of setting objectives? (4 benefits)

Answer 583

Motivates workers and gives workers and managers a clear target to work towards. Business manager can compare how the business has preformed to their objectives. Clear and measurable objectives help unite the whole business towards the same goal. Taking decisions will be focused on: ‘Will it help achieve our objectives?’

Question 584

What are the most common objectives for businesses in the private sector are to achieve:

Answer 584

Business survival. Profit. Returns to shareholders. Growth of the business. Market share. Service to the community.

Question 585

Define profit.

Answer 585

Profit is the total income of a business [revenue] less total costs.

Question 586

What are profits needed for?

Answer 586

To pay a return to the owners of the business for the capital invested and the risk taken. To provide finance for further investment in the business.

Question 587

Why would the owners of a business aim for a satisfactory level of profits?

Answer 587

The owners of a business aim for a satisfactory level of profits which will avoid them having to work too many hours or pay too much in tax to the government.

Question 588

Why would a business set increasing returns to shareholders as an objective?

Answer 588

This is to discourage shareholders from selling their shares and helps managers keep their jobs.

Question 589

How are returns to shareholder increased? (2 ways).

Answer 589

Increasing profit and the share of profit paid to shareholders as dividends. Increasing share price.

Question 590

How can managers increase share price?

Answer 590

Managers can try to achieve this by putting plans in place that give the business a good chance of growth and higher profits in the future.

Question 591

The owners and managers of the business may aim for growth in the size of the business in order to: (5).

Answer 591

make jobs more secure if the business is larger. increase the salaries and status of managers as the business expands. open up new possibilities and help to spread the risks of the business by moving into new products and new markets. obtain a higher market share from growth in sales. obtain cost advantages.

Question 592

Why is it important to put meeting customers’ needs as a very high priority?

Answer 592

Why is it important to put meeting customers’ needs as a very high priority?

Question 593

Why is it important to put meeting customers’ needs as a very high priority?

Answer 593

Market share is the percentage of total market sales held by one brand or business.

Question 594

What is the formula for market share?

Answer 594

Market share % = company sale/total market sales x 100

Question 595

What three things does increased market share give a business?

Answer 595

Good publicity. Increased influence over suppliers. Increased influence over customers.

Question 596

What is a social enterprise?

Answer 596

A social enterprise has social objectives as well as an aim to make a profit to reinvest back into the business.

Question 597

Who operates social enterprises?

Answer 597

Social are operated by private individuals.

Question 598

People operating the social enterprise often set three objectives for their business:

Answer 598

Social: To provide jobs and support for disadvantaged groups in society (homeless or disabled). Environment: To protect the environment. Financial: To make a profit to invest back into the social enterprise to expand the social work that it performs.

Question 599

Give three examples of situations in which a business might change its objective:

Answer 599

A business set up recently has survived for three years and the owner now aims to work towards higher profit. A business has achieved a higher market share and now has the objective of earning higher returns for shareholders. A profit-making business operates in a country facing a serious economic recession so now has the short-term objective of survival.

Question 600

The following groups of people are involved in business activity in one way or another or are affected by it:The following groups of people are involved in business activity in one way or another or are affected by it:

Answer 600

Owners. Workers. Managers. Consumers. Government. The whole community. Banks. NOTE - These groups are sometimes called the stakeholders. Some of these groups are internal to the business - they work for/own it. Some of these groups are external to the business - they are groups outside of the business.

Question 601

What is a stakeholder?

Answer 601

A stakeholder is any person or group with a direct interest in the performance and activities of a business.

Question 602

Main features of Owners [Internal] (4).

Answer 602

Invest capital to set up and expand the business. They will take a share of the profits if the business is successful. If the business does not succeed, they may lose the money they invested. They are risk-takers.

Question 603

Main features of Workers [Internal] (4).

Answer 603

They are employed by a business. They have to follow the instructions of managers/ May need training to work effectively. Many be employed on full/part-time contracts and on a temporary/permanent basis. If there is not enough work for all workers, some may be retrenched.

Question 604

Main features of Customers [External] (3).

Answer 604

Without customers, a business will make a loss and eventually fail. The most successful business often find out what consumers want before making good or providing services (market research). Customers are important to business because they buy goods or pay for services.

Question 605

Main features of Managers [Internal].

Answer 605

They take important decisions. If they make successful decisions, the business could expand. If they make poor decisions, the business could fail. They are employees of a business and control the work of other workers.

Question 606

Main features of Government [External] (2).

Answer 606

It is responsible for the economy of the country. - It passes laws to protect workers and consumers.

Question 607

Main features of the whole community [External] (2).

Answer 607

The community is greatly affected by business activity e.g. pollution which can damage air quality. Businesses also create jobs which allow workers to raise their living standards and many products are beneficial to the community e.g. medicine or public transport.

Question 608

Main features of Banks [External] (1).

Answer 608

They provide finance for the business’s operations.

Question 609

Most likely objectives for the stakeholder group of Owners [Internal] (2).

Answer 609

Share the profits so that they gain a rate of return on the money invested into the business. Growth of the business so that investment value increases.

Question 610

Most likely objectives for the stakeholder group of Workers [Internal] (4).

Answer 610

Regular payment for their work. Contract of employment. Job security. Job that gives satisfaction and provides motivation.

Question 611

Most likely objectives for the stakeholder group of Managers [Internal] (3).

Answer 611

High salaries because of the important work they do. Job security. Growth of the business so that managers control a bigger and better known business (more status and power).

Question 612

Most likely objectives for the stakeholder group of Customers [External] (4).

Answer 612

Safe and reliable products. Value for money. Well-designed products of good quality. Reliability of service and maintenance.

Question 613

Most likely objectives for the stakeholder group of Government [External] (2).

Answer 613

Wants businesses to succeed in its country to increase employment, the country’s output, and more tax. Expects all firms to stay within the law.

Question 614

Most likely objectives for the stakeholder group of the whole community [External] (3).

Answer 614

Jobs for the working population. Production that does not damage the environment. Safe products that are socially responsible.

Question 615

Most likely objectives for the stakeholder group of Banks [External] (1).

Answer 615

Business must remain liquid (able to pay interest and repay capital lent).

Question 616

What are the three likely objectives for public sector businesses and organisation?

Answer 616

Financial = meet profit targets set by the government to reinvest back into the business or handed over to the government. Service = Provide a service to the public and meet quality targets set by the government. Social = Protect or create employment in certain areas.

Question 617

Most business try to satisfy more than one objective. How could they satisfy the following groups: Consumers. Local community. Workers. Directors.

Answer 617

Consumers = price and quality. Local community = environment/low pollution/jobs. Workers = jobs. Directors = growth.