1.2 Business Structure Flashcards
Define primary sector
This is the first stage of the production process involving the growth and extraction of resources such as fishing, mining, oil, agriculture
Define secondary sector
This is part of the economy that manufactures and assembles products using raw materials (cars, construction industry building houses)
Define tertiary sector
Businesses that provides services that are intangible (retailers, transportation services, insurance services)
Define quaternary sector
Represents organizations that are based on the skills and knowledge of the employees (management consultancies, research and development businesses)
Define nationalization
This is when the government takes ownership of a private sector business to a public sector
Define privatization
This is when the government transfers ownership of a public sector business to a private sector
What are the organizations the government is likely to run?
- defense team (police)
- health & education
- essential goods and services
- govt is more concerned with welfare of citizens than profit
What are the reasons for less government intervention and a bigger private sector?
- people’s desire to run and own their own business
- individuals gain a great source of financial income from the profits they make
- encourages people to identify the needs and wants of the consumers and to meet these demands in goods/services
- Increases a person’s efficiency and promotes less wastage of resources
What are the reasons for more government intervention (a bigger public sector)?
- people may not trust the private sector
- people who want the provision of healthcare and education may not get it because people would have to pay for it in the private sector
- people may want non-profit oriented services like bus or rail links so that public transport can be provided to everyone
- consumers may believe that they are being misled in the private sector as firms may sell goods that aren’t safe for cheaper, while earning a high profit
State 2 benefits of the private sector
- Profit oriented means business wants to focus on what is demanded and provide it with the best quality
- Profit oriented means business focuses on being more efficient and not waste resources
State 2 benefits of the public sector
- Focuses on what’s beneficial to society and not on profits
- Doesn’t exploit or mislead consumers
Define a sole trader
An individual who runs their own business independently (hairdressers or plumbers)
What does it take to be a sole trader?
- You have to be hard working
- You have to have a strong sense of self discipline
- Be organized and manage your time effectively
- Be able to manage stress levels well
- Have confidence, skills and flexibility to serve your customers
- Be able to work on your own
What are the advantages of being a sole trader?
- It’s easy to start up your own business
- You are your own boss and have the freedom to make your own decisions
- Your decisions can be made quickly without having to wait or ask permission from another person
- All the rewards gained can be kept for yourself and the profits generated don’t need to be shared with anyone else
What are the challenges of being a sole trader?
- Sole trader carries all the responsibility if anything goes wrong
- Can be lonely
- The hours are demanding
- Difficult to cope with the pressure
- Sole traders may not get holiday breaks because they don’t want to risk losing their customers when shutting down their business
- Raising finance to set up and expand the business
- Sole traders usually have to rely on their own money, family/friends, or money from within the business
- They can get bank loans, but banks usually charge high interest rates to small businesses in fear that they will fail so businesses want to cover up these losses
Define unlimited liability
It’s when individuals/groups are responsible for all the actions of their business
Why is working for others in a large organization easier?
- You receive a more regular income
- You’re able to share your ideas more with other people
- You are able to call on experts to help you solve problems
Define partnership
This is when individuals want to join together and start a business
What are the advantages of a partnership?
- You have more people to share your ideas with
- You can cover up for your partner if they are sick or on holiday
- You and your partner can share each other specialist skills which can provide more service to customers
- More people to invest and finance in the business
What are the disadvantages of a partnership?
- Disagreements between partners on decisions or policies which can cause disputes
- Partners have to share profits
- Partners have unlimited liabilities
Define company
It’s a business organization that has a legal identity and limited liabilities
Define shareholders
When persons or organizations share part of the business. The more shares a person has, the more the company belongs to them
Define limited liabilities
When investors lose the money they’ve invested into the business, but their own possessions are safe
What’s the importance of limited liabilities?
- Companies need to raise finance to sell more shares
- Reduced risk than having unlimited liabilities because investors know that they aren’t going to lose out on their possessions, hence, there’s a limit to the loss
Define private limited company
A company that is owned by shareholders and the owner can decide who the shares can be sold to in the future
Define public limited company
A company that is owned by shareholders and restrictions can’t be places on who the sale of these shares
Define franchise
This is when the franchisor sells the right to use and sell a product to a franchisee. Eg: Buying a McDonalds franchise
Advantages of buying a franchise
- More bargaining power with other franchisees than you would have on your mown
- Less risk as a franchise than having your own business
- Can get support from the franchisor about things like pricing decisions, planning ahead, choosing suppliers, etc
Problems of buying a franchise
- High costs
- Being linked to other franchisees is a problem because if the quality of service drops in those franchisees, this will also damage the reputation of your own franchise and lead to a loss in sales
- Makes franchise more dependent and vulnerable as a result of other franchisees
Advantages of being a franchisor
- Franchisors benefit from the income generated from franchisees
- Franchising helps to grow fast
- Motivated managers running their own business
Define co-operatives
Co-operatives are businesses that are owned and run by its members (customers, residents, employees, etc)
Define joint venture
This is where two or more businesses collaborate on a project but don’t formally join together all their activities
Benefits of a joint venture
- Businesses can share their skills/expertise/ideas/resources which benefits both parties
- Businesses can collaborate on a project that mutually benefits them without having to merge their operations (easier to manage, less expensive)
Difficulties of a joint venture
- different views on the decisions/priorities to be made
- different views on when the joint venture should end
- difficulty agreeing on dividing profits
- disagreements of the contributions made to the business
Define social enterprise
A social enterprise is a business that has social aims and trades in order to benefit the community/society (charities, job creation and training, community service, govt organizations, etc)
