1.1 the nature and purpose of business Flashcards
what are wants and needs
wants: a product you can survive without
needs: a product that is essential to your life
what are goods/ services/ products
good: a physical product (e.g. house/ designer suit)
service: an intangible item (e.g. insurance/ decorating)
product: includes goods/ services
why are businesses important for a country?
- create employment
- create wealth
- create new products
- enhance a country’s reputation
what do businesses do?
Inputs –> Transformation process (adds value) –> Outputs
what are the 3 types of businesses?
B2B- (samsung)
B2C- (tesco)
C2C- (ebay)
what are the 3 sectors in which businesses can operate in?
Primary- obtaining raw materials
Secondary- manufacturing raw materials to make something
Tertiary- supplying a service (selling the products)
mission statement triad
mission statement corporate aims corporate objectives functional objectives > downward communication from MS
what is a functional objective?
> objectives that relate to the specific functions of a business (e.g. marketing, operations, HRM, finance)
designed to make sure the corporate objectives are met
businesses may divide its activities into several business functions.
what is a corporate objective?
objectives that relate to the business as a whole
usually set by top management
what is a corporate aims?
the long term targets + plans to fulfil the mission statement
what is a mission statement?
a statement of the company’s purpose- what it wants to accomplish
takes an aim statement and makes it sound motivational and meaningful.
what is a business aim?
what it hopes to achieve as a result of its work. Aims are usually general.
“Example - ‘Tesco’s aim is to broaden the scope of the business to enable it to deliver strong, sustainable long term growth.”
what is a business objective?
the targets that businesses set themselves in order to achieve the aims
must be: specific, have targets + deadline dates, are measurable
why do businesses use aims and objectives?
to monitor its success. e.g. profit, jobs created (from expansion), market share, growth, ethics
what are the SMART objectives?
Specific Measurable Agreed Realistic Time specific
how do you make SMART objectives?
- Must have a quantifiable target (such as a 20% increase)
- Employees must know how long they have to achieve the target.
- Inclusive- to encourage commitment to target, not just imposed.
SMART objectives: Specific?
must outline clearly what is being measured
such as sales or profits
SMART objectives: Measurable?
must include a quantifiable target
such as a 20% increase
SMART objectives: Agreed?
inclusive of everyone to encourage commitment to the target, not just imposed.
SMART objectives: Realistic?
must be seen as attainable (doable) in order for workers to be motivated to achieve the target.
SMART objectives: Time specific?
Employees must know how long they have to achieve the target.
what are some common business objectives:
- profit
- diversification
- growth
- cash flow
- survival or break even
- social + ethical
- market share
- developing relationships
Short run vs Long run
SR: look to maximise profit short term- leave themselves vulnerable to being in a weaker position in the future.
OR
LR: training employees/ investing in other expenses which will affect profit long term
what are variable costs?
fluctuate with output, e.g. ingredients, raw materials, fuel
what are fixed costs?
stay the same regardless of output e.g. rent, salaries, maintenance costs
Types of business costs:
- labour
- fuel + ingredients
- raw materials
what are semi-variable costs?
characteristics of both variable/fixed
- increases with output but at slower rate
- e.g. electricity, the more units you make… may exceed base rate / need new premises
what are total costs? (formula)
assumes all costs:
Total costs = fixed costs + variable costs
what are average costs? (formula)
costs of producing 1 single unit
average cost per unit = total cost / level of production
what is revenue? (formula)
The income a business receives over a period of time
(Known as sales income, turnover or sales revenue)
revenue = quantity sold x selling price
what is the formula for profit?
Profit = Total revenue - Total costs
Profit depends upon 2 factors:
- Profit Margin - the amount/ % of final selling price that is profit.
- Quantity/Volume of sales - selling a greater quantity of products will make more profit.
why are profits important?
- attractive for investment
- attractive to customers
- easier to make agreements
- confidence from suppliers, longer trade credit
Q: A business produces 10,000 units which it sells for £5 each. Its variable costs are £25,000 and its fixed costs are £10,000. What is the profit?
Profit: total rev - total costs
Total revenue: units sold x price per unit
Total costs: variable costs + fixed costs
Rev = 10,000 x £5 = £50,000 Costs = £25,000 + £10,000 = £35,000
Profit = £50,000 - £35,000 = £15,000
