1.1 Understanding the nature and purpose of business. Flashcards
Why do businesses exist?
- To provide goods and services which satisfy our wants and needs.
- To develop a good idea (enterprise)
- To provide help and support for others- most notably charities that raise funds in various ways to help and support the lives of others.
What is a mission statement?
(sometimes called a vision statement) defines what an organisation is, why it exists and its reason for being. It is a declaration of its core purpose and focus.
What is the purpose of a mission statement?
To help bring focus and meaning to a business and act as a guide when making critical decisions that may affect the direction of a business.
What is a business objective?
An objective is a goal to help it achieve its mission, so it sets out clearly what has to be achieved.
What are key business objectives?
- Survival
- Growth
- Profit & profit maximisation
- Cash flow
- Customer service
- Corporate social responsibility
- Diversification
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What is corporate social responsibility?
It refers to the commitment of a business to behave ethically towards their workforce, the local community and society at large, i.e. companies take responsibility for their impact on society.
What is the hierachy of objectives?
Mission statement
Corporate aims
Corporate objectives
Functional objectives
What are business objectives and why do they differ from the mission?
Objectives- are the goals set out to achieve the overall mission of the business.
They differ because they are actionable and measurable.
What characturistics must objectives have?
Specific: objectives must be clear, precise and well defined.
Measurable: It must be possible to know when an objective has been completed.
Achievable: objectives must be within capabilities and have sufficient resources.
Agreed: If targets are discussed and mutually agreed, people will be more likely to be committed to them.
Realistic: Must be challenging but possible to achieve given the capabilities and resources.
Time based: There must be a deadline to work to.
Why do businesses set objectives?
- Used to evaluate business performance (as they will be measurable and time based)
- Provide motivation for those responsible (as they are realistic and achievable).
- Will give meaning and planning and ensure that a business remains focussed on its mission, (as they are specific) giving everyone connected to the business a goal to work towards.
What is revenue?
What is the formula?
The money recieved from sales, so the income of a business over a period of time.
Revenue= price x number of units sold
What are other words that mean the same as revenue?
- Turnover
- sales turnover
- sales revenue
- sales income
What are variable costs?
What are some examples?
Costs that are directly related to output and as a result, vary directly with output.
Direct labour & raw materials & Fuel
What are fixed costs?
Give some examples.
Costs that do not change as a result of changes in the level of output.
These costs have to be paid, whether or not any production takes place.
e.g. rent, rates, direct salaries, maintenance costs
What are total costs?
The fixed costs and variable costs added together and represent the total costs of production in a given time.
