3.1 What Is Business?

Question 1

What is a business?

Answer 1

An organisation that sells a service or product in pursuit of profit or another end goal.

Question 2

What is a mission statement?

Answer 2

A simple and brief description that encompasses the purpose of a company defining its culture, goals and values.

Question 3

What is an objective?

Answer 3

Statements of specific outcomes that are to be achieved.

Question 4

What does SMART stand for?

Answer 4

Specific
Measurable
Achievable
Relevant
Time bound

Question 5

What are some common business objectives?

Answer 5

• expand market presence by entering two new international markets by Q4
  -increase quarterly revenue by 15% through a targeted sales strategy.

Question 6

What is the difference between fixed and variable costs.

Answer 6

• variable costs change depending on the business’s output, fixed costs do not change no matter the business’s output.

Question 7

Difference between public and private sectors in a business

Answer 7

Private sectors are owned and operated by an individual or groups, public sectors are owned and managed by the government.

Question 8

What is an unincorporated business

Answer 8

A business that hasn’t been registered as a legal entity separate from its owner

Question 9

Incorporated business definition

Answer 9

A business that has been registered as a legal entity separate from its owner.

Question 10

Different types of ownership

Answer 10

• Public limited company
• private limited company
• sole trader
• partnership
• not for profit organisation

Question 11

What is a public limited company?

Answer 11

A business that is legally allowed to sell its shares to the public (stock exchange)
Example -Barclays

Question 12

Private limited company

Answer 12

A business that is owned by the shareholders, run by directors and where the liability of the shareholders for debts of the company is limited.
Example - apple

Question 13

Sole trader

Answer 13

A person who is the exclusive owner of the business, they can have one or more employees.
Example - electrician

Question 14

Partnership

Answer 14

A business where there are two or more owners of the enterprise. They usually establish a deed of partnership where it is agreed the profits they share, the workload etc.
Example - Ben and Jerry’s

Question 15

What’s a not for profit organisation?

Answer 15

Not for profits’ activities are not for the financial benefit of the owners.
Example - charities like UNICEF.

Question 16

Advantages and disadvantages of a public limited company

Answer 16

+ limited liability - owners not personally liable for business’s debts.
+ easier access to capital as anyone can buy the shares.
- expensive to set up, minimum cost of £50k
- greater risk of hostile takeover.

Question 17

Advantages and disadvantages of a private limited company

Answer 17

+ can distribute shares to only people they trust
+ limited liability
- hard to gain capital easily as you would have to invite shareholders
- people are able to view business’s financial information, loss of privacy.

Question 18

Advantages and disadvantages of a partnership

Answer 18

+ easier to gain capital to invest into the business.
+ less workload as two or more people work divided time as agreed on the deed of partnership
- unlimited liability
- may have to compromise when making decisions - less control.

Question 19

Advantages and disadvantages of a sole trader

Answer 19

+ all control over decision making
+ entitled to all profit the business makes
- unlimited liability
- hard to gain capital to start the business.

Question 20

Advantages and disadvantages of a not for profit organisation?

Answer 20

+ tax exempt - in theory, less costly to keep the business as you do not have to pay tax unlike the other ownership types.
+ limited liability
- income isnt stable and fully reliant on just donations
- hard to gain capital easily as not for profit doesn’t make profit or capital that can be reinvested.

Question 21

How can a business improve their profits

Answer 21

• marketing, achieving more sales
• cutting costs - redundancies, changing supplier, etc.

Question 22

What is a social enterprise?

Answer 22

Businesses that put its profits back into strong social or environmental mission. Example - TOMS

Question 23

Difference between not for profit organisations and social enterprises:

Answer 23

Not for profit organisations do not aim to make a profit, they often fun their own activities through donations as they have no fixed income. A social enterprise can sell products or services with the profits reinvested in their business to continue making a social or environmental impact.

Question 24

What is ordinary share capital?

Answer 24

The amount of finance raised through selling shares to shareholders.

Question 25

What does market capitalisation show you?

Answer 25

How much a company is worth as determined by the total market value of all outstanding shares

Question 26

What is a dividends?

Answer 26

A sum of capital paid regularly by the company to its shareholders out of its profits.

Question 27

What is the role of shareholders and why do they invest

Answer 27

Shareholders invest money into the company by buying shares. They invest because they want to make a profit if the company performs well.

Question 28

What influences share price?

Answer 28

Business performance - affects demand for its shares and greater performance will increase demand which will increase the share price - interest rates also influence demand. If interest rates go up, demand decreases therefore share prices fall.

Question 29

What is the significance of share price changes?

Answer 29

Investor sentiment and confidence - if the price increases it shows that investors have confidence for the company’s future. A drop in share prices indicate the investor is not very confident in the company’s future. This could be due to poor earnings or economic downturns.

Question 30

What are the effects of ownership on mission and objectives?

Answer 30

Ownership influences the objectives and mission of a company. For example, owners in the private sector are more likely to place emphasis on profit maximisation where as public sector organisations are more likely to place emphasis on societal needs.

Question 31

How does competition influence costs and demand?

Answer 31

Competition generally decreases demand as consumers have more choices and may switch to competitors. —> businesses price their products competitively as a consequence. Competition can increase efficiency - businesses often seek cost cutting measures to maintain profit margins while keeping prices competitive.

Question 32

What is profit margin and what does it mean?

Answer 32

The percentage of revenue left after paying business expenses. Higher profit margin = more capital in your pocket.

Question 33

How do market conditions influence the costs and demand

Answer 33

Interest rates - when interest rates are low, borrowing money is cheaper, so businesses and consumers are more likely to spend, boosting demand. Inflation - high inflation increases costs for raw materials, which raises production costs often leads to higher prices which is more costly for the business and makes them seek cost cutting methods. Strong economy = more customer spending, demand rises, but costly for business to meet demand Weak economy = demand falls, businesses cuts costs to stay competitive

Question 34

How do incomes influence costs and demand?

Answer 34

When people earn more, they are more likely to spend more. Boosting demand for goods and services. However, high incomes can be costly to a business. When incomes fall, demand drops and businesses may lower prices to cut costs to attract customers and maintain sales.

Question 35

Examples of demographic factors?

Answer 35

- gender - location - age - income level

Question 36

How do demographic factors influence costs and demand

Answer 36

- younger population may increase demand for tech products, while an older population might increase demand in healthcare. - targeting specific demographics can also raise costs, businesses might need specialised market, product design to reach their target market effectively.

Question 37

How do environmental issues and fair trade influence costs and demand

Answer 37

- increase costs for business as eco friendly materials , fair wages cost more. - this can boost demand however as many consumers are willing to pay more for products that are environmentally friendly or ethically produced. Businesses can take advantage of this because fair trade practices may attract a loyal customer base, even if their prices are higher.