3.1 what is a business? Flashcards
what is a business?
a business is an organisation that exists to provide goods and services to customers
what are goods?
tangible products
what are services?
intangible products
what are customers?
individuals buying from businesses or organisations
why do businesses exist?
-they are formed by entrepreneurs
-to earn a return for the business owner
potential for profit
how do businesses play a key role in wider society?
-create employment
-create new products
-contribute to infrastructure
-pay taxes earned by the government
-create wealth by providing returns
what do roles do entrepreneurs have?
-spot business opportunities
-take calculated risks
act as a catalyst for creation and growth
what is a business objective?
they are statements of specific outcomes that are to be achieved
they are often set at various levels and in financial terms
what are the components of objectives?
mission - overall purpose of the business
vision - overall aspiration of the business
aims and goals - what a business intends to achieve
objective - more precise and detailed statements
what is the mission of a business?
overriding goal of the business, provides a strategic perspective
advantages of an effective mission statement
-differentiates the business from competitors
-defines the markets or business in which the business wants to operate
-relevant to stakeholders
-motivates employees
what is the SMART criteria?
specific
measurable
agreed
realistic
timely
what are corporate objectives?
refers to the business as a whole, the focus on the desired performance and results of the business
what are functional objectives?
relate to the specific functions of a business for example marketing, operations or HR
they are designed to ensure that the corporate objectives are achieved
what is profit?
the reward or return for taking risks and making investments
how is profit calculated?
total sales(revenue) - total costs
what is revenue?
the amount of a product that customers actually buy from a business
what is demand?
the amount of a product that customers are prepared to buy
what are the factors affecting the level of demand?
-prices and incomes
-trends
-competitors actions
-seasonality
equation for total revenue
total revenue = volume sold x average selling price
how can a business increase revenue?
-increase the quantity sold
-achieve a higher selling price
what are costs?
amounts that a business pays in order to make goods and services
why are costs important?
-drains away the profits
-can impact profit margins
-main cause of cash flow problems
-change depending on output
what are variable costs?
costs that change depending on output changing
what are fixed costs?
do not change depending on output changing
equation for total costs
variable + fixed
what do unincorporated businesses include?
-the owner is the business
-unlimited liability
-sole traders and partnerships
what do incorporated businesses include?
-separate legal identity
-limited liability
-private limited companies and public limited companies
what is limited liability?
shareholders only lose what they invested
what is unlimited liability?
shareholders have to pay the debts and also their investements
what is a share?
a share is an individual part of the total issued share capital of a company
how is the value of a business determined?
by the price at which shares are bought and sold
what is market capilisation?
represents the total market value of the issued share capital of the company
what are not for profit organisations?
they don’t aim to gain financial reward for their business
what are mutual businesses?
do not have shareholders or other owners, they exist for their members
what is a social enterprise?
makes its money in a socially responsible way, designed to benefit others
what are charities?
they use the money earned from fundraising or operating services to benefit others in need
