3.1 - Business In The Real World Flashcards
What are the functions of a business?
Finance
Manufacturing
Marketing
Human Resources
Meaning of USP
Unique selling point
What is an entrepreneur?
Somebody that takes a risk to start a business
What are some skills of an entrepreneur?
Confidence Determined Resilience Adaptability Creativity
What is a business?
It is a organisation that exists to produce goods and services
What is the importance of profit?
Main aim of most businesses
Considers how well the business is performing
What is a customer?
Someone who buys the product
What is a consumer?
Someone who uses the product
Reasons to start a business
To make profit Help society - social enterprise Need a job Become successful Escape a boring job
What is a chain of production?
The stages that a product goes through to be ready to be sold to customers
What is deindustrialisation?
Where there is a decline in manufacturing in a country and an increase in tertiary businesses
What is land?
It is a physical site on which a business is based
What is labour?
The skills available and number of workers employed by a business
What is capital?
Investment in equipment required to run a business such as factories and machinery
What is enterprise?
The skills of the people involved in business to identify business opportunities and bring resources
What is an opportunity cost?
It is the benefit lost of the next best alternative
What is a sole trader?
A business that is owned and run by a single individual
Positive of being a sole trader
No special paperwork
Don’t have to share the profits
Can cater for local people’s needs
Negatives of being a sole trader
Unlimited liability
Can be quite stressful to have to make all the decisions
Illness/holidays may affect the running of the business
What is unlimited liability?
Owners are personally responsible for debts of the business, may have to sell own possessions to pay businesses they owe money to
What is limited liability?
The shareholders are only liable for the debts of the company up to the value of what they originally invested
What is a partnership?
Partners are joint owners of a business. Have to have between 2 and 20 partners.
Positives of being in a partnership
Profits are shared amongst partners
Flexibility over when you work
Teamwork
Negatives of being in a partnership
Long hours
Some partners may dominate decisions
Conflicts may arise
What are limited companies?
A company whose shares are traded publicly on the stock
What is a private limited company?
A company whose shares are sold privately often to friends and family
Benefits of LTD (private limited companies)
- Less likely to be subject to a takeover bid. This is because the share price is not publicly known
- Shareholders are more likely to agree, this is because you control who buys shares and they often have same investors as other owners
- Attracts private investors known to the owners due to limited liability
- Original owners often stay as directors and managers and run the business
Drawbacks of LTD (private limited companies)
- Expansion can be difficult
- Cannot be listed on the stock exchange therefore can be hard to raise finance (share capital)
- Can be taken over if the majority of shareholders agree to a bid from another company
What are the benefits of a PLC (public limited company)
- Limited liability
- Selling to the public allows for larger sources of finance
- Wider range of expertise
- PLCs have a larger status than other businesses and often generate media attention due to their size
Drawbacks of PLC (public limited company)
- At risk of hostile takeovers due to the publics availability to buy share
- PLCs must produce detailed information regarding its finances and performance to the public. This can give away information to competitors like USP
- Shareholders are unknown to the business – increasingly likely for a clash of objectives
What is an aim?
An overall goal or target a business hopes to reach
What is an objective?
An objective is a specific, measurable target that outlines how a business will achieve that aim
What is SMART?
Specific Measurable Achievable Realistic Time
Purpose of objective
Give business a clearly defined target
Can help motivate employees
Enables a business to measure progress towards goals
What is a stakeholder?
An individual, group or organisation that effects or is affected by a business’ actions
Common business stakeholders
Customer Employees Local community Competition Owners
What is a location?
Where a business is geographically situated
What is an organic method of growth?
When a business increases in size from within the business, using its own resources e.g open more shops, offer franchises
What is an inorganic method growth?
When a business increases in size by joining with or buying another business e.g merger, takeover
What are fixed costs?
They are costs that do not change with the amount a business produces or sells (output)
What are variables costs?
They are costs that change depending on what the business produces or sells (output)
What is a franchise?
This is where a business sells the rights to another business to use their name, product or process
What is a franchisor?
Individual who sells the rights to use the name
What is a franchisee?
They decide to pay a franchise to use their name and sell their products
What is a vertical growth?
When two businesses join the same industry but from different stages of production
What is horizontal growth?
When two businesses join together from the same industry of production
Benefits of organic growth
- Easier to manage and control
- Paid for profits (less costly)
- Quick method of growth
- Slow and steady (less risk)
Disadvantages of organic growth
- Market share could fall if others grow more quickly
- No benefits from joining another business
- Too slow for some (may take years)
Disadvantages of inorganic growth
- It could cause redundancies
- It can be hard to intergrate the two businesses
- Can be very expensive
Benefits of inorganic growth
- Can share specialist skills and cost advantages
- Benefits from other business’ expertise
- Increased revenue
- Higher profit levels
- Diversification
- Reduced competition - removing key rivals
Benefits of franchising for the franchisor
- Growth is paid for by the franchise paying fees to existing business
- Franchisor has fewer staff and fewer problems to manage
- Franchise fee is good source of finance
- Management problems of the outlet do not have to be dealt with by the original business
- Quick growth rate for the franchisor
Drawbacks of franchising for the franchisor
- If one franchise attracts poor publicity the whole business could be damaged
- A franchise may not keep their legal agreement, this could also damage the image of the brand
Benefits of franchising for the franchisee
- Franchises have a high incentive to expand their business quickly
- Its a safe strategy for franchises, only 6-7% of new franchises fail
- Most of the profit is kept by the franchisee
- Ongoing support is provided by the franchisor
Drawbacks of franchising for the franchisee
- The franchisor could end the franchise without reason
What is diseconomies of scale?
Occur when average unit costs rise as output increases
