3.1 What Is Buisness? Flashcards

1
Q

What is a mission statement? And what do they tell you?

A

A mission statement is a written description of the main corporate aims. Mission statements tell you the purpose of the business and include information such as its values, standards, strategy, who the customers are and what makes the business unique.

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2
Q

What are business objectives?

A

Business objectives are the stated, measurable targets of how to achieve business aims.

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3
Q

What are corporate objectives?

A

Corporate objectives are the goals of the business as a whole.

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4
Q

What are departmental objectives?

A

The objectives of each department. They’re more detailed than corporate objectives and they are specific to each department.

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5
Q

What does SMART stand for?

A
S - specific
M - measurable 
A - achievable
R - realistic
T - time-bound
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6
Q

Give examples of business objectives

A

1) Profit maximisation
2) Growth objective e.g. Increase market share
3) Societal objective e.g. decrease CO2 emissions
4) Cash flow objectives etc../

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7
Q

Formula for revenue

A

Revenue = selling price per unit X quantity sold

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8
Q

Formula for total variable costs

A

Total variable costs = variable cost per unit X number of units sold

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9
Q

Define semi-variable costs

A

Costs that have fixed and variable parts, for example, telephone bills

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10
Q

Formula for Total Costs

A

Total costs = fixed costs + variable costs

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11
Q

Formula for profit

A

Profit = total revenue – total costs

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12
Q

Give 3 reasons why profit is important

A

1) profit can motivate people
2) profit is a good source of finance
3) profit can be used to attract investors

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13
Q

What does the term public sector organisations mean?

A

Public sector organisations are owned and run by the government. They aim to provide services to the public, rather than making a profit.

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14
Q

What does the term private sector organisations mean?

A

Private sector organisations are owned and run by private individuals. They range from small sole traders to huge organisations. Most private sector organisations aim to make profit but non-profit organisations are also part of the private sector.

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15
Q

What is unlimited liability?

A

Unlimited liability means that the business and the owner are seen as one under the law. This means that business debts become the personal debts of the owner. Sole traders can be forced to sell personal assets to pay off business debts

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16
Q

What does limited liability mean?

A

Limited liability means that the owners aren’t personally responsible for the debts of the business

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17
Q

What is a sole trader business?

A

A sole trader is an individual trading in his or her own name, or under a suitable trading name. The owner is responsible for all business debts because they have unlimited liability

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18
Q

Give 4 advantages of being a sole trader

A
1. Freedom (The sole trader is his/her own boss & has complete control over decisions)
2. Profit - Sole trader is entitled to all profits
3. simplicity - Bookkeeping is less complex
4. Savings on fees - As there is no legal costs for drawing up ownership agreements
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19
Q

Give 5 disadvantages of being a sole trader

A
– Unlimited liability
– harder to raise finance
– vulnerability - business suffers if the owner becomes ill
– limited expertise
– long hours
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20
Q

What is a partnership?

A

Partnerships are started and owned by more than one person. There is a legal partnership agreement which covers areas such as: how profits are shared, how decisions are taken and what happens if a partner wants to leave. Partnerships still have unlimited liability.

21
Q

Give 4 advantages of a partnership

A
– Simple to run
– Less vunerability - As if one person is ill the other partner could work 
– Expertise - Partners can provide specialist skills like one could be good with finances the other with marketing
– greater potential to raise finance
22
Q

Give 3 disadvantages of a partnership

A
– Unlimited liability
– Shared profits
– Shared control therefore could be complicated to sell or close business
23
Q

What are the two kinds of limited liability companies?

A

There are private limited companies (LTDs) and public limited companies (PLCs)

24
Q

Who own limited liability companies and how are they run?

A

Limited liability companies are owned by shareholders and run by directors.
Shareholders have part ownership of a company.

25
Q

Give 6 characteristics of a private limited company

A
– Can’t sell shares to the general public
– Don’t have share prices quoted on stock exchanges
– shareholders may not be able to sell their shares without the agreement of other state shareholders
– they are often small family businesses
– there is no minimum share capital requirement
– they end their name with the word “limited” or LTD
26
Q

Give 5 characteristics of a public limited company

A
– Can sell shares to the general public
– Their share prices can be quoted on stock exchanges
– shares are freely transferable and can be bought and sold through stockbrokers, banks and share shops
– they usually start as private companies and then go public later to raise more capital
– they need over £50,000 of share capital, and if they are listed on the stock exchange, at least 25% of this must be publicly available.
27
Q

What is ordinary share capital?

A

Ordinary share capital is the original value of shares sold

28
Q

What is market capitalisation?

A

Market capitalisation is the current total value of all the ordinary shares issued by a company

29
Q

Formula for market capitalisation

A

Market capitalisation = number of issued shares X current share price

30
Q

Give 4 advantages of being a limited company

A

– Limited liability
– easier to raise finance
– stable form of structure – business continues to exist even when shareholders change
– less tax

31
Q

Give three disadvantages of being a limited company

A

– Shared control
– public disclosure of company information
– legal duties to follow

32
Q

What is a not-for-profit organisation?

A

A not for profit organisation runs for the benefit of the community and have social aims. Examples include charities, housing associations and community development trust

33
Q

What is a shareholder?

A

A shareholder is anyone who owns at least one share in the company

34
Q

Who usually buys shares in a public limited company?

A

– Individuals
– companies
– institutions (such as pension funds)

35
Q

Who usually buys shares in private limited companies?

A

Family and friends of the original owner/s

36
Q

Give 6 reasons why a shareholder would invest in a company

A

– Some shareholders invest in businesses in order to achieve a capital gain
– shareholders may be paid a dividend in return for their investment
– shareholders want to be involved in the running of the business
– Shareholders will invest because they believe in the aims and objectives of the company and want it to succeed
– A shareholder might invest in a private limited company in order to help the company grow or survive
– they may be a venture capitalist, they will take a big financial risk but to lead to a large financial reward

37
Q

Give 5 reasons why share prices fluctuate

A

– Performance of the company
– speculation of rumours of new product launches and cost saving initiatives
– current share prices
– interest rates, if the bank is offering low interest rate it could increase demand for shares
– state of the economy/external factors

38
Q

What does “rights issued” mean?

A
  • where existing shareholders are given the opportunity to buy a set number of new shares in the company they own
    – if not wanted, they will sell using the stock market as ordinary shares
39
Q

Define business environment

A

Business environment incorporates all of the internal and external factors that affect how the company functions including employees, customers, management, supply and demand and business regulations

40
Q

What are 6 external factors that influence costs and demand?

A
  • competition
    – market conditions
    – incomes
    – interest rates
    – demographic factors
    – environmental issues and fair trade
41
Q

What are the 4 market conditions that affect costs and demand?

A

– Political factors
– labour supply
– incomes and economic factors
– seasonal demand and supply

42
Q

How do political factors affect costs and demand?

A
  • If demand in the economy is too low, governments try to increase it. They cut taxes so people have more to spend and increase their spending in the economy.
  • Government try to reduce demand if it’s too high by raising taxes so people have less money to spend and cut to government spending.
  • The government can also influence demand for particular product by using taxes, for example sugar tax
43
Q

How does labour supply affect costs and demand?

A
  • When unemployment rates are high, there is a good supply of labour. Businesses can hire staff easily and won’t have to pay high wages and people in work will be extra productive to protect their job.
  • A low rate of an unemployment could mean that there is a shortage of labour and the people available for employment might not have the skills needed for the role so will need training.
44
Q

How do incomes and economic factors affect costs and demand?

A
  • In a recession, businesses need to reduce costs and lower incomes mean people have less money to spend on products, so demand decreases.
  • In an economic boom, wages rise and more people are employed. This may lead to greater costs due to increased wages. However, higher incomes mean that people have more money to spend increasing demand for products.
  • Changing incomes affect demand for some products more than others (income elasticity of demand)
45
Q

How does seasonal demand and supply affect costs and demand?

A
  • There are variations in demand and supply throughout the year, this is called seasonality.
  • Businesses must have strategies to deal with it for example; after Christmas, demand for retail goods drops, so shops cut prices to boost demand and get rid of stock
46
Q

How does competition affect costs and demand?

A

Competition can reduce demand and increase costs.

47
Q

How do interest rates affect costs and demand?

A
  • Interest rates determine the cost of borrowing money and the return on savings.
  • High interest rates mean most customers have less money to spend – people with existing borrowing have to pay back more money in interest, so they have less disposable income and so market demand goes down.
  • Low interest rates means customers have more disposable income and there is less reward for saving, so demand goes up.
48
Q

How do businesses respond to demographic changes?

A
  • The structure of a population changes over time in terms of age, sex and race – this is demographic change.
  • Demographic change is important to businesses because it has an impact on demand for products.
  • Different demographics of consumers tend to buy different things, so businesses need to adapt the amount and type of products they are producing.
  • Demographic changes can mean that certain types of business are more in demand, this might allow existing businesses to expand or new businesses to be set up.
49
Q

How do environmental and ethical factors increase business costs?

A

Consumers are becoming increasingly concerned with the effect that their purchasing has on the environment and the ethical and unethical behaviour of firms. This is forcing businesses to consider the impact on the environment and how ethical they are being. Most of the time this increases costs