1 - What is business?❓ Flashcards
Define a business start-up
a new firm operating in a market for the first time
Define a market
any place where buyers and sellers meet to trade
Define added value
the process of making the product more valuable to the purchaser
Methods of adding value
- convenience
- branding
- quality/design
- USP
- speed and excellent service
- product features and benefits
How does a business add value?
when the selling price of an item produced is higher than the cost of all the resources used to make it
Why do businesses exist?
they are formed by entrepreneurs and are subsequently developed if they manage to survive
Why are businesses good for the economy?
- create wealth by returns on investments
- pay taxes
- contribute to the infrastructure
- drive innovation through research & development
- create employment
What is the role of entrepreneurs?
- spot business opportunities
- take calculated risk
- act as a catalyst for creation & growth
Define business objectives
statements of specific outcomes that are to be achieved
What is the hierarchy of objectives?
Mission
Corporate
Functional / Departmental
Unit / Team
Individual
What are some examples of objectives?
- desired sales / profits
- rates of growth
- innovative player in the market
- leading in the quality of customer service
What is profit?
- source of finance
- measure of business success
- return on investment
- reward for taking risks
- motivating factor & incentive
Formula for profit
Profit = TR - TC
Why is profit important?
keeps the business surviving
Define public sector
Owned and run by the government - aim to provide for the public than a profit
Define private sector
Owned by private individuals - non-profit organisations included
What is a sole trader?
Most common type of business structure where an individual owns the company
Pros to sole trader
- quick and easy to set up
- simple to run
- easy to shit down
- entitled to all profits
- independence
Cons to sole trader
- unlimited liability
- harder to raise finance
- long hours
- limited expertise
- business suffers if owner ill/uninterested
Define a partnership
Owned by 2 or more people with a legal partnership agreement covering areas such as profit shares / decision making
Pros of a partnership
- different skills
- different and more experience
- less risk as an individual
- easier to raise finance
Cons of partnerships
- splitting profits
- unlimited liability
- harder to shut down as more people involved
- long hours
- poor decision by partner affects others
Define a Private Limited Company Ltd
Can only sell privately to fam/friends not on the stick exchange
Pros to Ltd
- limited liability
- family business = supportive
- seen as prestigious
Cons to Ltd
- shareholders must all agree
- long hours
- more paperwork to set up
- harder to shut down
- splitting profits
- publish financial documents
Define a PLC
A larger organisation that sells shares in the stock exchange
Pros to PLC
- limited liability
- easier to raise finance
- stable form of structure = business continues to exist even if shareholders change
- less tax
Cons to a PLC
- admin costs
- public disclosure of company info
- must give away a % of business
How much of share capital does a PLC need to be listed on the stock market and how much must be available?
Need over £50,000 of share capital and must have atleast 25% of shares available
Define a not-for-profit organisation (social enterprise)
- benefit the community
- has social aims
Give examples of not-for-profit organisations
Charities, housing associations, community development trusts
Define ordinary share capital
Money raised by selling shares for long-term investment
Define dividends
A proportion of the profits earned which are split and paid out to shareholders as a fixed amount per sharw
Define market capitalisation
The total value of all the ordinary shares issued by a company
Market capitalisation formula
Number of issued shares X current share price
Why would shareholders invest?
- as a venture capitalist
- you like a business
- to support family/friends
- paid a dividend in return
- retirement
- to hide money fraudulently
- be involved in decision making
- as a source of finance
What influences share prices?
- scandal
- supply and demand
- exchange rates
- multinationals
- ethics
- taking risk
- lack of consumer demand
- inflation
- the economy
What happens to share prices if more people want to buy shares?
Share price rises
How can the performance of a business cause share prices to increase/decrease?
business is doing well = share prices increase as company has more revenue
How can rumours of a new product launch affect share prices?
- Increase share prices as more people will buy new product
- decrease share prices if it seems too risky
How can interest rates affect share prices?
- low interest increases share prices as it costs less to borrow and so demand will increase
How can the state of the economy impact share prices?
Economy is bad then the pound will be weaker so more expensive and riskier to invest in shares
Define share rights issued
When a company issues existing shareholders a right to buy additional shares in the business, offering a specific number of shares at a discounted price in a time limit
What happens if shares right issued aren’t bought?
The shares go on the stock market for the public as ordinary shares
What does PESTLE stand for?
Political, economic, social, technological, legal, environmental
What does PESTLE help identify?
External influences a business can’t control, but can accommodate to limit impact
Define the voluntary sector
Includes charities and societies that exist to help people eg. Oxfam, Cancer Research
What are some objectives of a voluntary sector business?
Make profit for donations, social and ethics
What is it called when a business is just about surviving
Satisficing
Define privatisation
Moving from a public sector to a private sector
Define business environment
Incorporates all of the internal and external factors that affect how a company runs
What can business environment include?
- safety
- culture
- happiness
- political factors
- confidence
How does the government have a big influence on business environment?
Eg some governments might make too many regulations that a business can’t follow
What factors affect costs and demand?
- competition
- market conditions
- incomes
- interest rates
- demographics
- environmental issues and fair trade
Define a mission statement
It’s overall purpose or main corperate aims, giving you a clue on the company’s beliefs and goals
What may affect a business’s legal structure?
- number of entrepreneurs
- mission statement
- want for unlimited/limited liability
