3.1 What is business? Flashcards
Define Business
An organisation that provides a good & service on a commercial basis to a customer
What are the impacts businesses have on society?
- Provide Employment ( jobs )
- Drive innovation
- Improve & develop a countrys reputation
What is the transformation process?
Where businesses convert inputs ( Raw materials) into outputs ( Finished goods) to satisfy the needs & wants of customers
What are the two types of businesses?
Define them
B2B : Business to business : Businesses sells goods and/or services to other businesses e.g. shopify
B2C : Business to consumer : Businesses sells goods and/or services directly to consumers e.g. Spotify
What are the four types of sectors in business?
Define them as well
1) Primary : Extracting/growing primary products from nature ( e.g. Fishing ,Farming & miners)
2) Secondary : Manufacturing raw materials into finished goods (e.g. clothes)
3) Tertiary : Providing services to individuals or businesses ( e.g. Cinemas)
4) Quatermary : Providing information ( ICT , software)
What is a mission statement?
A formal statement which explains the overriding purpose and values of a business.
Who are the key audience for mission statements?
Stakeholders
e.g. Employees
Shareholders/investors
Society
Customers
What makes a good mission statement?
- Clear sense of purpose
- Motivates & guides employees/shareholders
- simple & easy to remember
- Differentiate from competitors
- For all stakeholders
What are criticisms of Mission statements?
- Often vague & general
- Not always supported by actions of a business
- Sometimes regarded cynically by staff
What is a corporate aim?
Are the long-term goals of the entire business, which will allow the business to work towards its overall mission.
What are corporate objectives?
Contain the specific tasks and activities a business must accomplish in order to satisfy its corporate aims.
What are business objectives?
Are statements of specific outcomes that are to be achieved.
They must be SMART
What does ‘SMART’ stand for?
- Specific
- Measureable
- Achieveable
- Relevant
- Time-bound
What are the benefits of setting objectives?
- Provides direction
- Ensures all employees are working towards the same goal
- Can help and support planning
- Can motivate staff as theres a clear goal
Examples of Business objectives:
- Increase market share - Growth
- Increase cash flow - survival
What is revenue?
The income earned by the sale of goods and/or services
also known as sales, takings
What is the formula for revenue?
Revenue = number of sales x sales price
What are costs?
Are the amounts businesses incur in order to make goods and/or provide services
Why are costs important?
They are the main cause of cash flow problems
They drain away profits
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Fixed costs : Costs that dont change when output varies e.g. Salaries, rent
Variable costs : Costs that change when output varies e.g. Raw materials
Whats the formula for variable costs?
Variable costs = Cost per unit X Total number of units
What is cost leadership (A/A*)
A strategy to reduce the cost of operation and produce the lowest priced products or services, to outdo the closest competitors and gain market share.
Whats the formula for total costs?
Total costs = Fixed costs + Variable costs
What are profits?
The amount of money a business makes when taking into account costs
What is the formula for profit?
Profit = Total revenue - total costs
What is the formula for
average unit cost?
Average unit cost = Total costs / outputs (i.e. total num of units produced)
What is interest?
The money you pay back when you borrow money
Formula for interest
Interest = Interest rate X the size of the loan
What is a good?
A tangible product that can be physically held
What is a service?
An intangible product
What is a sole trader?
A business owned & controlled by one person e.g. Plumbers
Advantages of sole traders
- Easiest type of business to set up
- They are their own boss
- Keeps 100% of profits
- Easy to change legal structure if circumstances change
- Unlimited liability
- Hard to raise funds ( As banks see them as risks)
- Responsible for everything ( Causes stress & requires them to be multi-skilled)
Is a sole trader a good form of business ownership?
Depends on the personal skills of the person
What is a partnership?
A business owned by 2 or more people
2-20 PEOPLE CAN OWN A Partnership
What is the deed of partnership?
A legal contract on how partners divide profits & ownerships
Advantages of a partnership
- Access to more finance
- Mixture of skill sets
- Businesses can stay running even when one partner is ill
Disadvantages of partnerships
- Share profits
- Share control
- Unlimited liability
- If a partner dies/retires then the business may have to shut down
What is unlimited liability?
The business owner/owners are responsible for all debts incured by the business no matter the value
What is limited liability?
The business owner/owners only lose the money they invested into a business if it fails i.e. their personal assets are safe
What is a private limited company (LTD)?
A type of organisation where the ownership of shares are restricted and all shareholders must agree to sell shares before they are sold
Advantages of LTD
- Limited liability - as the company is its own separate entity
- Access to more capital
- Neccesary if you want to grow your business
- No minimum start up cost
- Control over who shareholders are
Disadvantages of LTD
- Share profits
- More legal paperwork
- Have to publich accounts yearly
- Dont have complete control
What is a shareholder?
Someone who owns shares (a part) of the business
What is a Public limited company?
A company that sells its shares to the public on the stock exchange
What is Flotation?
The process of converting an LTD to a PLC, by issuing shares for the public to buy
What is dividens?
A sum of money paid regularly by a company to its shareholders out of profits
Advantages of PLC
- Limited liability
- Easier for companies to raise capital
- Can raise investment due to being able to sell shares on stock exchange
Disadvantages of PLC
- No control over shareholders
- Company accounts must be public
- Need £50,000 to set up a PLC
- Can be bought out
What is a not-for-profit organisation?
A business set up to pursue objects that benefit society & any profits made must be reinvested into the business
What are the types of Not-for-profit organisations?
- Charities - Make money through donations
- Social enterprise - Make money by selling goods & services
- Unincorparated associations - Get no profit & have unlimited liability
What is franchising?
Where a business gives the right to sell its products & use its trademarks for am upfront fee and a percentage of the profits made e.g. KFC
Advantages of franchising
- Increases brand awareness
- Expands businesses without needing large investments
- Doesnt incur costs of opening new stores
Disadvantages of franchising
- No complete control
- If a franchise is run poorly than it can negatively affect brand image
What is ordinary share price?
The amount of finance raised through selling shares to shareholders. & is a source of long term finance
What is market capitalisation?
Is one way of valuing a business
What is the formula for market capitalisation?
Market capitalisation = Num of shares issued X Current market price of one share
What factors influence shareholders buying shares?
- If they believe the share price will increase giving them good ROI
- If they agree with companies values and aims
- If they want dividends
What factors affect the shareprice?
- Business performance
- Economic performance
- News articles/brand image
What is the impact of changing values of shareprice?
Can influence shareholders to increase or decrease amount of shares held
How do shareholders make decisions on the future of the company?
Through the Anual generals meeting (AGM) where votes are made on key business decisions
How do you determine shareholders power?
The number of shares owned
What are functional areas?
Are departments in a business e.g. HR , finance ,etc…
What are overhead costs?
Costs that dont directly relate to the production of goods and services e.g. rent
What are external enviroments?
range of factors which may affect a business but are outside the business’ control.
What is PESTLE? + Examples
External factors
- Politics - laws/changes in gov spending
- Economy - Changes to Interest rates
- Social - Demographic changes/culture
- Technology - Advancements in tech e.g. AI
- Legal - Health & saftey regulations
- Enviroment/Ethics - Carbon emmisions
What other external enviroment factors?
PESTLE
- Competiton
- Market conditions
- Consumer income
- Fair trade
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What is a market?
Anywhere buyers and sellers come together to transact with eachother e.g. Local market
electronic markets
Whats a local market?
the customers who will buy the products/services in the vicinity of where they are produced
Whats a national market?
The domestic marketplace for goods and services operating within the borders of and governed by the regulations of a particular country
