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Business A level > 3.1 What is business? > Flashcards

3.1 What is business? Flashcards

1
Q

Define a Mission Statement

A

Overall reason for a business’ existence

A long term goal (10+ years)

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2
Q

Advantages of Mission Statements

A
  • May improve motivation
  • Teamwork: common focus for everyone in organisation
  • Can help determine a business’ strategic position
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3
Q

Why is it important to share a mission statement with employees?

A

Gives:

  • Sense of direction - follow same path
  • Sense of motivation - makes them more productive
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4
Q

Why is it important for leaders to think back to mission statements?

A
  • Keeps them on focus

- Stay ethical to the task, ward off pressure groups

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5
Q

Define corporate/strategic objectives

A

Goals for the whole organisation, purpose of showing direction to staff and the whole organisation

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6
Q

What dictates the corporate objectives?

A

Mission statement

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7
Q

Give an example of a mission statement

A

‘to accelerate the world’s transition to sustainable energy’

  • Tesla
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8
Q

Internal influences on corporate objectives

A
  • Business ownership / leadership
  • Power of stakeholders (employees)
  • Ethical actions
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9
Q

Disadvantages of corporate objectives

A

Shareholders may be bias to shareholder maximisation so many corporate objectives may be necessary to avoid this

May be too vague for each department

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10
Q

Define shareholder maximisation

A

A maximum return to shareholders is and ought to be the objective of all corporate activity

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11
Q

During a recession, a business may need to change its objectives. What to?

A

Survival

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12
Q

Define functional objectives

A

Objectives for each department

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13
Q

Advantage of using functional objectives

A

Being more specific means more motivating for each employee, feel like they are more of a contributing factor.

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14
Q

Define strategy and tactics

A

Strategy: how we do things, medium/long term plan of action, put in place to achieve a business objective.

Tactics: short term that helps to achieve a strategy- daily activities such as sending emails

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15
Q

Suggest the tiers associated with missions, aims and objectives

A
  1. Mission / Corporate Aim
  2. Corporate Objective
  3. Functional Objective
  4. Strategies
  5. Tactics
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16
Q

What makes an effective mission statement?

A
  • Unique (to competitors)
  • Defines the market of operation
  • Relevant to all major stakeholders
  • Excites, inspires, motivates and guides
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17
Q

What is profit?

A
  • A return on investment
  • Reward for taking risks
  • A measure of business success
  • Motivating factor
  • Helps to create positive cash flow
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18
Q

Define Revenue

A

Amount/value of a product that customers actually buy from a business

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19
Q

Define Demand

A

Amount of a product that customers are prepared to buy

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20
Q

Factors that affect level of demand

A
  • Price
  • Competitors
  • Government/laws
  • Tastes/trends
  • Changes in technology
  • Demographic changes
  • Ethics
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21
Q

Ways to increase revenue

A
  • Increase amount sold

- Achieve higher selling price

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22
Q

Give examples of business objectives

A
  • Maintain / increase market share
  • Develop new products
  • Increase quality
  • Enter a new market
  • Build a competitive advantage
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23
Q

Define sole-traders

A

An individual owning a business on their own

Can employ people, but they don’t share any ownership

UNLIMITED LIABILITY

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24
Q

Define UNLIMITED LIABILITY

A

Full legal responsibility for any debts

Personal assets can be taken

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25
Q

Disadvantages of UNLIMITED LIABILITY

A
  • Personal assets can be taken

- Bigger risk than limited, meaning taking out a loan may be more difficult

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26
Q

Define LIMITED LIABILITY

A

Business has separate legal responsibility for any debts

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27
Q

Advantages of LIMITED LIABILITY

A
  • Personal assets cannot be taken to pay the debt, separate legal identity - STABILITY
  • More flexible with debts
  • Easier to raise finance
  • Less tax
28
Q

Disadvantages of LIMITED LIABILITY

A
  • Shareholders could lose the value of their investment

- Greater admin costs

29
Q

Advantages of Sole-traders

A
  • Quick + easy to set up
  • Simple operational structure
  • Minimal paperwork
  • Easy to close/shut-down
  • Owner gets full control
30
Q

Disadvantages of Sole-traders

A
  • UNLIMITED LIABILITY
  • Harder to raise finance
  • Business relies 100% on the owner
31
Q

Define Public Limited Company

A

A business that trades shares on the stock market

Owned by shareholders and run by directors (do not own assets and not liable for debts)

Large value of share capital invested

32
Q

Why may a public limited company close?

A

If it becomes insolvent (cannot pay debt)

33
Q

Define ‘insolvent’

A

Cannot pay debt

34
Q

Define Private Limited Company

A

Shares traded privately, friends and family

NOT ON STOCK EXCHANGE

35
Q

Give two types of limited companies

A

Private limited companies

Public limited companies

36
Q

Advantages of Public Limited Companies

A
  • LIMITED LIABILITY
  • Easier to raise finance
  • Stable form of structure
  • Able to pay less tax
37
Q

Disadvantage of Public Limited Companies

A
  • Greater admin costs
  • Public disclosure of business information
  • Loss of ownership for original owners
38
Q

Define market capitalisation

A

How much a company is worth as determined by the stock market

39
Q

How much share capital must a business have, if it wishes to become a PLC?

A

£50,000

40
Q

Equation for market capitalisation

A

Number issued shares

x

Current share price

41
Q

Define capital growth

A

Arises from an increase in value of a business

42
Q

How can you judge capital growth?

A

An increase in share price

43
Q

Explain what the ‘simple demand curve’ suggests

A
  • Higher price leads to a reduction of quantity demanded

- Lower price leads to an increase in quantity demanded

44
Q

Axis on ‘the simple demand curve’

A

Y = Price

X = Quantity demanded

45
Q

Axis on ‘the simple demand curve’

A

Y = Price

X = Quantity demanded

46
Q

Define ‘variable costs’

A

Change as output varies

47
Q

Define ‘fixed costs’

A

DOESN’T change in relation to output varying

48
Q

Give examples of variable costs

A
  • Raw materials
  • Bought-in stocks
  • Marketing costs (based on sales)
49
Q

Give examples of fixed costs

A
  • Rent
  • Salaries
  • Advertising costs
  • Wages
  • Insurance fees
  • Software / IT systems
50
Q

Why does cost per unit fall when as output increases?

A

Fixed costs are spread over larger number of units

(e.g.) only pay rent once, doesn’t increase with output

51
Q

What does the customer expect when thinking about a service?

A
  • High quality
  • Honesty
  • Warranty
  • A good relationship
52
Q

What are variable costs dependent on?

A

Output

53
Q

Define ‘satisficing’

A

Try to make enough profit to keep the owner comfortable and secure

54
Q

What are ‘SMART’ targets?

A 
Specific
Measurable
Achievable
Realistic
Time
55
Q

Why is profit important?

A
  • Survival
  • Operation
  • Business owner can be satisfied financially
  • Improves cash flow of business
56
Q

Define ‘return for risk’

A

Probability of something going wrong leading to loss

57
Q

Define ‘partnership’

A

Started and owned by more than one person

Legal partnership agreement covering:

  • How profits are shared
  • How decisions are taken
  • What happens if partner was to leave
  • Unlimited liability
58
Q

Advantages of a ‘partnership’

A
  • Simple
  • Expertise and efforts of more than one owner
  • Partners can provide specialist skills
59
Q

Disadvantages of a ‘partnership’

A
  • Unlimited liability
  • Poor decision by one partner can damage interest of other
  • Complicated to sell / close
60
Q

Define ‘Not For Profit’ organisations

A
  • Benefit community
  • Social aims
  • e.g. Charities
61
Q

What are all of the different forms of a business?

A
  • Sole trader
  • Partnership
  • Not for Profit
  • PLC
  • LTD
62
Q

Define ‘dividends’

A

Payment from accumulated profits earned by a company to shareholders who qualify for such as payments

63
Q

What will impact share price? (external)

A
  • Good publicity
  • Rumours
  • Virus /pandemic (external factors)
  • Fake news
  • Ethical issues
  • Financial crash (Wall Street Crash - 1929)
  • Economic boom
  • Inflation
  • Increase / decrease in sales
64
Q

What makes share prices move up and down?

A
  • Performance of the company
  • Speculation and rumours of new product launches and cost saving initiatives
  • Current share price
  • Interest rates, if bank offering low interest, could increase demand for shares
  • State of the economy / external factors
65
Q

Define ‘right issued’

A

SHAREHOLDERS GET PRIORITY

When a company issues existing shareholders a right to buy additional shares in the business

Will offer shareholder a specific number at a specific price

Company will set a time limit for purchase

If not wanted, they will sell using the stock market as ordinary shares.

AT DISCOUNTED PRICE

66
Q

Define ‘privatisation’

A

When government sells a public service privately

e.g. Royal Mail

Business A level (13 decks)

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