3.1 What is a business? Flashcards
Give 5 reasons why a mission statement is needed.
- It provides a clear goal, purpose and sense of direction
- It communicates to stakeholders
- It creates a sense of identity and a USP
- It enables a business to set clear goals to help it achieve its mission
- To review if the business has achieved its goals
Give 6 reasons why businesses set goals?
- The stepping stones to fulfilling a purpose
- Provide clear targets for employees to work towards
- Provide a framework for decision making
- Motivational
- Used to judge progress against
- Provide incentives / pay structure
Give 8 reasons why profit is important
- Contributes towards the long term survival of a business
- Profit is reward to entrepreneurs
- Profit is a motivator for staff
- It is a measure of success
- Guide for future investment
- A source of finance
- Attractive for stakeholders
- Used for ethical / social purposes
What are fixed costs?
Costs that remain constant in the short term, regardless of output
What are SMART Objectives?
- Specific - It’s clear
- Measurable - There is a numerical target attached
- Agreed - Key stakeholders have approved the aim
- Realistic - It’s possible
- Time constrained - There is a date to do it by
What are some common business objectives?
- Survival - want to build a customer base
- Cash flow (liquidity) - Sufficient cash flow to enable a business to meet its debts
- Profit - Most businesses will not survive in the long term without making profit
- Growth - Expanding the business (phyically, new market etc.)
- Social and ethical objectives - More reasons for a business to exist
What are the 4 types of business objectives?
- Mission statement - The over-arching purpose
- Corporate Aims - A medium to long term goal that will enable the business to achieve it’s mission
- Corporate Objectives - Short term goals that will enable the business to achieve their aims
- Functional Objectives - Specific targets set for each area
What are the total costs of a business?
All of the costs of production incurred by a business
Total cost = Variable cost + Fixed costs
What is a mission statement?
A qualitative statement of an organisaton’s overall mission or purpose.
What is meant by the term legal structure?
- It refers to the ownership of a business
- It determines:
- The legal liability of a business
- Sources of finance available
- Legal requirements for record keeping and publishing accounts
- Degree of risk to owners
- Tax and NI payments
- Responsibilities and rights of decision makers
What is profit?
The difference between total revenue and total costs
Profit = Total Revenue - Total Costs
What is revenue?
The income recieved from an organisation’s activities
Total revenue = Price per unit x Quantity of units sold
What is the private sector?
It is the part of the economy that is owned and run by private individuals and organisations.
What is the public sector?
It is the part of the economy which is owned and run by the government usually for the purpose of providing a public service.
What is variable costs?
Costs that change directly in proportion to output
Total variable cost = Variable cost per unit x output
