3.1 What Is A Business? Flashcards
What is mission?
A qualitative statement of the business aims
What is aim?
A long term plan from which business objectives are derived
What is an objective?
A target which must be achieved in order to realise the stated aims
What is a mission statement?
A mission statement defines the company’s business, its objectives and its approach to reach these objectives
What is a business?
A business is an organisation that exists to provide goods and services on commercial basis to customers
What are goods?
They are physical or tangible products e.g. Cars
What are services?
They are intangible products e.g. Insurance
Why does a business exist?
They are formed by entrepreneurs and are subsequently developed if they manage to get beyond the survival stage.
Profit is also key in a business
What is the transformation process?
When you take resource inputs and transform them into goods and services
Inputs -> transformation process -> outputs
What is the role of an entrepreneur?
Play a key role in the formation and the development of the business:
Spot a business opportunity
Take risks (calculated) to gain possible future returns
Create growth
What are the 4 broad business sectors?
Primary - extraction of natural resources
Secondary - production of finished goods and components
Tertiary - providing service
Quaternary - providing information
What does adding value mean?
Creating value by transforming the inputs into business activity so that then what is created is greater than the costs involved
What is the difference between unincorporated & incorporated?
A key distinction needs to be made between businesses formed as a company (incorporated) and those that are not
What is unincorporated?
The owner is the business - no legal difference
Unlimited liability
What is incorporated?
There is a legal difference between themselves and the business
Owners (shareholders) have limited liability
What is a sole trader?
This is the most common way of setting up a business
Just one person owning it
They can employ people but those employers don’t share the ownership of the business
Crucially - a sole trader has unlimited liability
What are the advantages of being a sole trader?
Quick & easy to set up Simply to run Make all the decisions Easy to close and shutdown Get all profits
What are the disadvantages of being a sole trader?
Full personal liability - “unlimited liability”
Business is the owner of the owner becomes ill the business could go down and maybe shutdown
Pay higher tax rate than a company
What are the advantages of limited liability?
Protects the shareholders
Easier to raise finance
Stable from structure
What is a public limited company? PLC
A public limited company is simply a more specialist type of limited company
Shares may be quoted and traded on a public stock market (don’t have to be)
Usually have more shareholders because shares are done publicly
What is a private limited company? LTD
Shares can’t be shared publicly only between family
Bigger than sole traders or partnership but still small
What is partnership?
2-20 people setting up a business
Each is self employed & takes shares of profits, personally responsible for any depts
Business can still continue to run if someone dies, becomes seriously ill, bankrupt or resigns
What is public sector?
An organisation that doesn’t want to make a profit (cut costs)
Owned by government to help the community
What is privatisation?
This is when the government sells an organisation to an organisation in the private sector e.g. Royal Mail
What is a private sector?
It is there to maximise profits
Expand business
Improve quality
What is charity aims?
Help people
Maximise collections for cash
Recruit more helpers
What are the external environment features that effect a business?
P - political - competition
E - economic - spending & income
S - social - taste & fashion
T - technology - new production
L - legal - minimum wage, living wage, health & safety
E - ethical/environment - pollution & emissions
What is fair trade?
Better price, decent working conditions & fair trading terms for farms and workers
What is innovation?
New product or method
What are demographic factors?
There are a number of major demographic changes which have created new opportunities and threats for firms
They include:
The population increasing
More women working
What is interest rate?
The cost of borrowing money and the return for lending it
What does demand mean?
The amount of a particular good or service that consumers or organisations want and are able to afford to purchase
What are the market conditions?
Level of sales Sales growth Price levels Strength of rivals Market shares
What is market capitalisation?
Multiply the share price by number of shares sold
Value the stock market places on the whole business
What does profit mean?
This is the prime object of most firms
2 ways of increasing profit are:
Increasing sales revenue
Decreasing cost
What are classifying cost?
Costs are the money paid out by firms
What are the principal reasons for classifying costs?
To assess the impact of changes in output on the costs of production
To calculate the costs of making a particular product in a multi-product company
What is real incomes?
Real incomes measure the amount of disposable income available to consumers
What is dividends?
Dividends is a payment made to shareholders by the company from earned profits
Normally no requirement to pay dividends, but most quoted companies do
What is a share?
A share is an individual part of the total issued share capital of a company
What is a share price?
A share price is the price paid to acquire ownership of that share
When the shares are first issued the price is the “issue price”
What does market capitalisation represent?
The total market value of the issued share capital of the capital
How do you work out market capitalisation?
Share price (per share) X number of shares issued
What are some of the factors within the company’s control?
Financial performance
Dividend policy
Relationship with key investors
Management reputation
What are some of the factors outside the company’s control?
State of the economy
Alternative investment’s in the company’s sector
What is real incomes?
Real incomes measure the amount of disposable income available to consumers
What is dividends?
Dividends is a payment made to shareholders by the company from earned profits
Normally no requirement to pay dividends, but most quoted companies do
What is a share?
A share is an individual part of the total issued share capital of a company
What is a share price?
A share price is the price paid to acquire ownership of that share
When the shares are first issued the price is the “issue price”
What is share capital know as?
Equity finance
What are the two methods of issuing new shares for a public company?
Flotation - share issued on stock exchange for the first time
Right issue - fresh issue of new shares to existing shareholders
What is the definition of flotation?
The admission of the shares of a public company to a stock exchange and subsequent trading in those shares
What is a stakeholder?
A stakeholder is any individual or organisation who has a vested interest in the activities and decision making of a business
A shareholder is one example of stakeholders
What is a shareholder?
Owner of a business
May work as well
Benefit directly from increases in the value of the business
Key stakeholders in a business can be grouped name the three groups
Internal - managers & employees
Connected - customers, suppliers
External - government
What does the matrix do?
Provides some guidance when making a decision, who is mostly listened to in a decision
(Look in notes for the grid)
What are the purpose for business objectives?
The specific intended outcomes of business strategy
End results of a programme of activities
Targets that the business adopts in order to achieve its primary aims
What are the main purposes of business objectives?
Make a clear statement of what needs to be achieved
Provide a focus for all business activity
Help set targets for individual and group achievement
What does smart stand for?
S - specific - stated exactly what you want to achieve
M - measurable - should be capable of reaching the target
A - achievable - target should be realistic
R - realistic - should be relevant
T - time bound - targets set with a time frame
What is corporate objectives?
Corporate objectives are what a business as a whole wants to achieve
What are functional objectives?
The specific objectives set for the individual functional areas of a business, designed to support the achievement of corporate objectives
What are classifying costs?
Costs that are paid out by firms
What is a firm?
A business organisation -> limited liability, sells goods or services to make a profit
What are the two principals for classifying cost?
To access the impact of changes in output on the costs of production
To calculate the costs of making a particular product in a multi-product company
What are the two types of costs?
Fixed costs (FC) - costs that do not vary directly with output in the short term run Variable costs (VC) - costs that vary directly with output in the short term run
How do you work out the total costs?
Sum of the fixed cost and the variable costs
FC + VC = TC
What are semi-variable costs?
These are costs that combine elements of fixed and variable costs
How do you work out the total revenue?
Price X quantity sold
What is a legal structure?
Is the legal definition of your business
