3.1 What is business?

Question 1

Why do Businesses exist?

Answer 1

• To create wealth
• To create jobs
• Develop new products to benefit society
• Provide a source of tax revenue for the government

Question 2

What is a mission statement?

Answer 2

• A general statement of where the business is heading expressed to make it seem especially purposeful and motivating.
• Usually communicated to stakeholders.

Question 3

What are objectives?

Answer 3

Stated measurable targets of how to acheive Business aims.

Question 4

Why do businesses set objectives?

Answer 4

• Managers can feel confident in making decisions.
• Motivation
• Basis for devising strategy
• Budgeting

Question 5

What are SMART objectives?

Answer 5

Specific

Measurable

Agreed

Realistic

Time specifc

Question 6

What are satisficing objectives?

Answer 6

Trying to make enough profit to keep owners comfortable.

Question 7

What is profit maximisation?

Answer 7

Maximising turnover, while reducing costs.

Question 8

What are Variable costs?

Answer 8

Costs that vary with the level of output. Eg.

Question 9

What are fixed costs?

Answer 9

Costs that don’t change with the level of output. Eg. Rent.

Question 10

What is Revenue? How do you calculate it?

Answer 10

• Revenue is the value of sales made during a trading period.
• Total Revenue = Price(£) x Quantity sold

Question 11

What is cash flow?

Answer 11

The total amount of money coming in and out of the business.

Question 12

What is a sole trader?

Answer 12

Only one person owns the business.

Question 13

Advantages of being a sole trader?

Answer 13

• Quick + Easy to set up
• One person benefits financially
• Minimal paperwork
• Owner has complete control over decision-making.
• Easy to close
• No set up costs

Question 14

Disadvantages of being a sole trader?

Answer 14

• Unlimited liability
• Limited source of finance
• The business is the owner e.g. business suffers if owner is ill
• Pay more tax than a company

Question 15

What is a private limited company (Ltd)?

Answer 15

• The business is a seperate legal entity to the owner.
• Owned by shareholders (privately sold shares)

Question 16

List some advantages and disadvantages of being a private limited company.

Answer 16

Pros:

• Limited liability
• Wider access to capital - easier to borrow money

Cons:

• Must undergo incorperation at Companies House
• Higher set up costs.

Question 17

What is a public limited company (Plc)?

Answer 17

• Large public owned company
• External shareholders due to stock market floatation

Question 18

List some advantages and disadvatages of being a public limited company.

Answer 18

Pros:

• Raise capital by selling shares to public
• Ability to take over other businesses
• Shareholders have limited liability
• Benefit from economies of scale

Cons:

• ​Can lose control of the business
• Pressure to pay dividends to shareholders
• Min. set up cost of £50,000

Question 19

What are non-profit organisations?

Answer 19

Trade in order to benefit the community.

Question 20

What is limited liability?

Answer 20

Shareholders of the business are legally responsible for the debts of the business only to the extent to the value of the shares in the business.

Question 21

What is unlimited liability?

Answer 21

The owner is responsible for the total amount of debts and obligations of that business.

Question 22

What is the private sector?

Answer 22

Part of the national economy that is not under direct state control.

Question 23

What is the public sector?

Answer 23

Part of the economy that is controlled by the state, e.g. NHS

Question 24

What are social enterprises?

Answer 24

Trades goods and services for a social purpose. i.e. surplus goes towards social aims.

Question 25

What is ordinary share capital?

Answer 25

An ordinary share represents equity ownership in a company proportionally with all ordinary shareholders, according to their % ownership in the company.

Question 26

What are preference shares?

Answer 26

Shares where the owner gets paid dividends before ordinary shareholders. If the company goes bankrupt, owners of preference shares are entitled to get paid from companies assets.

Question 27

What is market capitalisation?

Answer 27

* The value of the company on the stock market. * **Share price x number of shares**

Question 28

What are dividends?

Answer 28

Sum of money regularly paid to a companys shareholders from their profits.

Question 29

What do political influences include?

Answer 29

* Services * Infrastructre * Tax policy * Change of government

Question 30

What do economic influences include?

Answer 30

* Growth rate * Inflation * Labour costs * Unemployment/employment rates * Exchange rates * Stock market

Question 31

What do social influences include?

Answer 31

* Demographic * Education * Cultural * Imcome

Question 32

What do technological influences include?

Answer 32

* Online/digital developments on sales/marketing * Robotics/automation on processes e,g. manufacturing * New product developments which may make others obeslete. * Payment methods

Question 33

What do legal influences include?

Answer 33

* Regional laws * Law of enforcement * Court system

Question 34

What do environmantal influences include?

Answer 34

* Resource management * Energy availability * Workforce health * Climate change

Question 35

What is competition?

Answer 35

Rivalry among sellers

Question 36

What are market conditions?

Answer 36

Charecteristics of a market that the business is selling in e.g. intensity of rivalry and growth rate.

Question 37

What are interest rates?

Answer 37

The price of borrowing money.

Question 38

What are demographics?

Answer 38

Statistical data relating to the population and particular groups within it.