3.1 What is Business? Flashcards
What is a business?
A business is an organisation that exists to provide goods and services to consumers.
Why do businesses exist?
Give 4 examples of business objectives that aren’t profit.
Most exist in order to earn a profit for busines owners, however others exist with differing objectives.
Survival, growth, cash-flow, social and ethical responsibility.
How do business benefit society? Give 4 reasons
Create and sustain employment
Drive innovation through RnD
Contribute to the countries infrastructure
Pay taxes to the government
Create wealth
What is the mission of a business?
The businesses overriding goal and reason for its existence
Why does a business set objectives?
In order to achieve its mission
What is the hierarchy of objectives?
Business Aim -> Mission -> Corporate Objectives -> Functional Objectives -> Individual Targets
What is profit? How is it calculated?
The reward or return for taking risks and making investments.
Total sales - Total Costs
What is revenue?
The money generated from normal business operations.
Number of units sold X Sales price per unit
What are fixed costs?
Costs that do not change in relation to output.
What are variable costs?
Costs which change as output varies.
What are total costs?
FC + VC
What is a sole trader?
Name 3 advanatges and 3 disadvantages.
A sole trader is an individual person owning the business. They have unlimited liability and are responsible for all business debts.
Advantages:
-Quick and easy to set up
-Minimal paper work
-Easy to run, easy to close
Disadvantages:
-Unlimited liability
-Harder to raise finance
-Can pay a higher tax rate than a company
What is a private limited company?
Name 3 advantages and 3 disadvantages
A private limited company is a business that is owned by shareholders, run by directors and where the liability on the shareholders of the companies debts are limited.
Advantages:
-Limited liability, protects personal wealth of shareholders
-Easier to raise finance, can also be done through the sale of shares
-Provides more privacy of information than a public ltd compnay
Disadvantages:
-Greater admin cost than sole trader
-Director’s legal duties
-Public disclosure of certain company information
What is a public limited company?
What are the requirements?
Name 3 advantages and 3 disadvantages
A public limited company is a business that is able to offer its shares to the public, they don’t have to but they can.
The min.number of shareholders and directors must be 2.
Accounts must be filed within 6 months of the year end.
The Company Secretary must be qualified.
Advantages:
-Better access to capital through selling shares
-There is more liquidty as shares can be bought and sold easily
-Acquisitions can be made easily through offering shares to the target firm
Disadvantages:
-Once listed publicly there will be a much larger number of shareholders to which the directors are accountable
-Financial markets will govern the value of the company
-Greater public scrutiny of the companies actions
What is the difference between the private and the public sector?
Public sector companies are controlled by governments and exist on the basis to help serve and protect people, normally not profit motivated.
