3.1 What Is A Business Flashcards
Why do businesses exist?
To provide goods or services
Goods : physical products e.g. burgers / cars
Services : provided by a person or a business
How do suppliers work?
Suppliers sell to businesses > Businesses sell products to other firms > These firms sell products to customers
What is the difference between a customer and a consumer?
Customer - the person buying the product
Consumer - the person using the product
What is adding value?
The process of making a product more valuable to the purchaser.
In each stage of the production process more value is added
Name 4 methods of adding value
- Convenience
- Branding
- Quality/ design
- USP
- Speed and excellent service
- product features and benefits
What are the three main types of industry which firms operate?
- primary
- secondary
- tertiary
What is a business objective?
This is the states measurable target of how businesses achieve aims
What is profit maximisation?
In order to increase profits companies must:
- maximise turnover
- minimise costs
(Normally only large companies can do this)
What is growth?
When a company expands their business which can result in economies of scale
What are economies of scale?
This is when a company can be more efficient and get better value from their resources
What is survival?
Sometimes a priority in several different situations:
- A new business getting established
- Times of recession
- Overcoming other external factors (e.g. terrorist attack, health scare)
What is maximising quality?
Minimising waste and therefore costs
What is society?
Sponsoring or supporting local clubs / charities / good causes
What is satisficing?
Trying to make enough to keep the owners comfortable
Usually the aim of a smaller business
What is market share?
Is the total output of sales a business has in a specified market
What does SMART objectives stand for?
S - specific M - measurable A - achievable R - realistic T - time specific
What is profit defined as?
The financial gain that a business makes from proving goods and services
How do you calculate profit?
Profit = total revenue - total costs
P=TR-TC
What is return for risk?
- the chance of loss or damage
- the probability that something goes wrong leading to a loss
- when a hoped-for outcome does not happen
- profit is the reward that business people get from taking a risk
Which two ways can profit be used?
- owners may take profit for own benefit
- profits may be retained in the business
What is the public sector?
Owned and ran by the government, aim to provide for the public rather than make profit
What is the private sector?
Owned by private individuals.
Non-profit organisations also part of private
What is a sole trader?
A single person who owns and runs a business
Give 4 facts about sole traders
- most common type of business structure
- individual owning the business
- personally responsible for all the business debts
- unlimited liability
Give some advantages of a sole trader
- simple to run
- profit, entitled to all profits
- easy to close/shut down
- quick and easy to set up
Give some disadvantages of sole traders
- unlimited liability
- harder to raise finance
- time, long hours
- business suffers if the owner becomes ill
What is a partnership?
Started and owned by more than one person
Give 4 facts about a partnership
- legal partnership agreement covering:
- how profits are shared
- how decisions are made
- what happens if partner was to leave
- unlimited liability
Give some advantages for a partnership
- simple
- expertise and efforts of more often than one owner
- partners can provide specialist skills
- greater potential to raise finance
Give some disadvantages for a partnership
- unlimited liability
- a poor decision by one partner damages the interests of the other partners
- complicated to sell or close
Give 5 key facts about private limited companies (private ltd)
- can’t sell shares to the public
- don’t have to share prices on stock exchange
- often small businesses
- no minimum capital required
- end name with ‘limited’ or ‘Ltd’
Give 5 key facts about public limited companies (PLC)
- can sell shares to the public
- share prices are on stock exchange
- shares are sold through stockbrokers, banks and share shops
- need £50,000 share capital to be listed on stock exchange
- end their name in PLC
What is a not for profit organisation?
- benefit the community
- have social aims
- includes charities, housing associations, community development trusts
What is unlimited liability?
Owner of the business is legally responsible for all the debts of the business
Could potentially loose the businesses items as well as their personal items
What is limited liability?
Owners of the business only have part responsibility for the debts of the business
They have a legal identity
What is a shareholder?
The owners of the company or someone who owns a share
What are stocks?
Stock is a type of security that represents ownership in a corporation
People can have as many stocks/shares as they want or can afford
Give 5 reasons why a shareholder would want to invest in a business
- environmental reasons
- wants to help develop the business
- to gain more money for the future, venture capitalists
- interested in the business
- paid a dividend in return for their investment
What are the main roles of shareholders?
- provide funds
- more shares = more power
- most shareholders aren’t involved in running the business but depending on how much stock they have can determine whether they make decisions
What is a dividend?
A dividend is a payment from the accumulated profits earned by a company to shareholders who qualify for the payment.
Can only be paid if the company has enough reserved profit
Is authorised by shareholders
Why do share prices move up and down?
- performance of the company
- speculation and rumours of new product launches
- current share prices
- bank interest rates
- state of the economy
What is rights issued?
When a company offers its current share holders a right to buy additional shares before they’re released to the public. These are usually at a lower price
What are the three sectors in the uk economy?
- Private
- Public
- Voluntary
Give 4 facts about the Private Sector
- these are business enterprises
- set up by entrepreneurs
- provide most goods we use everyday
- most are small (village shop)
- come in different forms e.g. sole trader, partnerships, private companies and public companies
What is the Public Sector?
What is included in it?
- goods and services produced by the government and owned organisations are in this
- police, NHS, fire brigade e.c.t.
Why does the government organise provisions of goods or services which won’t be suitable for private businesses?
- This is for things like street lights, post boxes
- Some things are too important to be ran by private firms e.g. army, NHS, police
What is the Voluntary Sector?
Includes charities and societies that exist to help people e.g. Oxfam, cancer research
What are the main objectives for the private sectors?
Exist to make profit.
Assumed to maximise profits
(Not always true: satisficing)
What are the main objectives for the public sectors?
The government will have different objectives for different organisations.
- public service - maximise quality of service they provide
- financial return e.g. the BBC must pay for themselves and attempt to make a profit to help the country’s finances
Define business environment
Incorporates all of the internal and external factors that affect how the company functions including employees, customers, management, supply and demand of the business
What 5 things are included in a businesses environment?
- safety
- culture
- happiness
- political reasons
- confidence
