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AQA A-level Business > 3.1 What is business? > Flashcards

3.1 What is business? Flashcards

1
Q

Why do businesses exist?

A

Most businesses exist in order to earn a return for the business owners, and gain profit

Create and sustain employment —> develop skills of employees

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2
Q

Business Objectives

A

Long-term measurable goals of a business

Include profit, growth, survival, cash flow, social and ethical objectives

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3
Q

Mission Statements

A

The overall goal and purpose of the business which provides strategic perspective

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4
Q

Advantages of a Mission Statement

A

Differentiates the business from its competitors

Motivational because everyone understands the direction

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5
Q

Disadvantages of a Mission Statement

A

Often too vague, general, or obvious

Viewed as a PR

Sometimes regarded cynically by employees

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6
Q

SMART objectives

A

Specific - clear
Measurable - quantifiable
Agreed - all stakeholders agree in setting targets
Realistic - achievable?
Time-bound - achievable in a time frame?

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7
Q

Corporate Objectives

A

relate to the business as a whole

usually set by top management

focus on desired performance and results of the business

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8
Q

Functional Objectives

A

relate to specific functions of a business e.g. finance, HR, marketing or operations

designed to ensure corporate objectives are achieved

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9
Q

Why do businesses set objectives?

A

The business can check its overall performance

Motivational because there’s something to aim at

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10
Q

Importance and caluculation of profit

A

Profit = Revenue - Total Costs

Profit is an incentive and rewards to take risks and make investments

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11
Q

Revenue

A

Revenue = Price x Quantity

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12
Q

Factors affecting Demand

A

PED & YED

Changes in tastes & fashions

Seasonal changes

Changing Technology

Competitor’s actions

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13
Q

Fixed Costs

A

They stay the same

E.g. Rent and salaries

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14
Q

Variable Costs

A

They change as output varies

E.g. Raw materials

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15
Q

Total Costs

A

TC = FC + VC

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16
Q

Sole Trader

A

Individual owning their own business

Has full ownership of the business

Unlimited Liability

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17
Q

Advantages of being a sole trader

A

Quick & easy to set up – can become a limited company whenever

Simple to run – owner has complete control over decision-making

Minimal paperwork

Easy to close / shut down

18
Q

Disadvantages of a sole trader

A

Unlimited liability

They have limited funds so its harder to raise finance

Business suffers if the owner becomes ill, loses interest

19
Q

Advantages of Partnerships

A

Risk is spread amongst more people

Partner may bring in more resources

Increased credibility

20
Q

Disadvantages of partnerships

A

Have to share the profits.

Less control of the business for the individual.

Disputes over workload.

Problems if partners disagree over of direction of business.

21
Q

Private Limited Companies

A

Incorporated –> legal difference between company & owners

Limited liability - shareholders are only responsible for the money invested in the company

Can raise money by selling shares

22
Q

Advantages of private limited companies

A

Owned by one or more shareholders who are often supportive family members.

Profits are only shared between shareholders (dividends)

Able to raise money through selling shares

Limited liability.

23
Q

Disadvantages of private limited company

A

High set-up costs

Shares can’t be traded publicly

24
Q

Public Limited Company

A

Incorporated –> legal difference between company & owners

Shares are bought and sold in open market

25
Q

Advantages of public limited company

A

Limited liability

Greater access to finance

26
Q

Disadvantages of public limited company

A

Vulnerable to takeovers

Risk of losing control

27
Q

Private sector organisations

A

Owned by individuals –> driven by profit.

Profit benefits the owners, shareholders and investors.

Financed by private money from shareholders and by bank loans.

28
Q

Public sector organisations

A

Owned and run by the government

They provide goods and services for the benefit of the community.

Operate with money raised from taxes

29
Q

Not-for-profit organisations

A

Mutual Businesses –> exist to server their ‘members

Charities

30
Q

Unlimited Liability

A

Liable for all debts of the business

Unincorporated business like sole traders or partnerships

31
Q

Limited Liability

A

Only liable for what they have invested in the company

Incorporated businesses like public and private limited companies

32
Q

Market Capitalisation

A

Market Capitalisation = Share price x Number of shares

33
Q

Dividends

A

Payments made to shareholders by the company from earned profits

34
Q

Shareholders

A

Provides financial security for the company & expertise advice

Has control over how the directors manage the company

Receives a percentage of any profits generated by the company.

35
Q

Share prices

A

Share price is determined by supply and demand

If there are more buyers than sellers then share price will rise

If there are more sellers than buyers then share price will fall

36
Q

The effects of ownership on mission, objectives, decisions and performance

A

Sole traders make all their own decisions without pressure from shareholders.

Public limited companies - Shareholders are interested in the growth in value of their own shares so they will want to generate short-term profits to see a return on their investments

Private limited companies - shareholders have a longer term view because they are likely to be more closely related to the business

37
Q

External Environment - MARKET CONDITIONS

A

Economic Growth (GDP)

Market Demand
- faster growing markets encourages new entrants
- slow growing markets creates tougher conditions, competitors fighting for their share of weak demand

38
Q

External Environment - INCOMES

A

Inflation, interest rates, taxes all affect disposable income

Increase in disposable incomes leads to increase in luxury goods

39
Q

External Environment - INTEREST RATES

A

Increase in interest rates leads to:
- reduced consumer spending because borrowing is expensive
- consumers more likely to save rather than spend
- lower GDP & inflation

Decrease in interest rates leads to:
- lower cost of borrowing
- consumers more like to spend instead of save

40
Q

External Environment - DEMOGRAPHIC FACTORS

A

Age
Income
Geographic location

41
Q

External Environment - ENVIRONMENTAL ISSUES & FAIR TRADE

A

Businesses may change their purchasing and operating policies to be environmentally friendly –> leads to increase in costs as they move to more expensive materials or methods of production.

Fair Trade exists where businesses in more developed countries pay a fair price for goods from less developed countries.

AQA A-level Business (10 decks)

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