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Business Studies > 3.1 What Is Business? > Flashcards

3.1 What Is Business? Flashcards

1
Q

What are the 4 main functional areas of a business?

A

Finance
Operations
Marketing
Human Resources

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2
Q

What is the role of Finance?

A

Manages a businesses’ finances (money, sales, budget and they help aid financial decision making)

Funding money for projects and commercial purposes

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3
Q

What is the role of Operations?

A

Find way to refine day-to-day workflows so teams can save time and cut down on costs

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4
Q

What is the role of Marketing?

A

integrates with various business functions to ensure cohesive operations

Product development - offers insights into products on the market and customer preferences and effectively converts marketing leads into sales.

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5
Q

What is the role of Human Resources?

A

Manages employee/recruitment processess and legaliyies. Also manages employee training and extermination.

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6
Q

/What are the external factors of a business

A

Tech
Competition
Economy
Govt
Society
Environment
Legislation

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7
Q

Why does a business exist?

A

To provide goods and services

To make profit

To help the community

To help the environment

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8
Q

What is a mission?

A

A vision for the business

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9
Q

What are the key aims / missions of a business?

A

Profit
Increase market share
Growth
Survival
Social/ethical
Cash flow

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10
Q

What does SMART stand for?

A

Specific
Measurable
Achievable
Realistic
Timely

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11
Q

What is the public sector of business?

A

Government run businesses on behalf of public

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12
Q

What is the private sector of business?

A

Businesses ran by private individuals, for their own personal means or for the shareholders

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13
Q

What are the types of ownership in a private sector business?

A

Sole Trader
Partnership
LTD
PLC

Non profit organisations:
Social enterprise

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14
Q

What types of businesses are usually unincorporated?

A

Sole Trader
Partnership

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15
Q

What types of businesses are usually incorporated?

A

PLC
LTD

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16
Q

What are the features of Sole Trader?

A

A business owned by 1 person but can employ workers
(small/local)

It is set up by by registering yourself as employed then pay income tax

The profits either go back to the owner or back into the business (the owner chooses what to do with it)

They have unlimited liability and therefore are and unincorporated business.

The common objectives are profit and survivial

Its cheap and easy to set up however you dont get holiday pay

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17
Q

What is a Partnership and list some key features?

A

A business set up by 2 or more people
It is owned by partners and is set up by a Deed of Partnership

The profits are divided amongst partners or put back into business
The partners run it and they make collective decisions for the business

They have unlimited liability (but sometimes can be limited) so they are usually unincorporated

Their common objectives are profit and survival

The pros are that it’s easy to set up but the cons are that there may be disputes over joint decisions

Common example would be a law firm

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18
Q

What is an LTD and list some key features ?

A

A company that operates privately, only people that are invited to the business can join

The shareholders own the company and it’s set up either by a
Memorandum of association
Articles of association
Register of members

What direction the profits go in depends on the directors or it can be put back into the business or given out as dividends

The directors run it and manage day to day decisions

An LTD usually has limited liability so it’s incorporated

Their common objectives are generating profit and ensuring long term sustainability

The pros are that it has limited liability and additional legal protection as it is a separate legal entity but the cons are that you have less total control over ownership as it’s shared between directors

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19
Q

What is a PLC and what are the key features of it?

A

A business ran by directors with shareholders in the business (anyone can be shareholders as long as u buy a share off public stock market)

The shareholders and directors own it and it needs atleast 2 directors to be set up and minimum of 50k capital and atleast 25% of shares have to be sold to the public , then they can register

The directors run it and they run it day it day to day and hold AGMs (anual meetings between shareholders to decide potential decisions)

They are incorporated so they have limited liability

The pros are it has limited liability and can get loans quite easily however the cons are it’s time consuming and there’s risk of hostile takeover and shares need to be bought

Common examples would be Rolls Royce and Sainsbury’s

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20
Q

What are the 3 other types of business forms?

A

Co-operative
Not-for-profit=
(Mutual/charity)
Social enterprise

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21
Q

What is a non profit organisation?

A

A business that trade in order to benefit the community

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22
Q

Why do these organisations exist (non profit or social enterprises )?

A

For social and ethical and as well as trying to make financial return. Examples of social and ethical aims include creating employment opportunities and providing community services.

There are many different type of social enterprises such as community development trusts and housing associations or cooperatives

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23
Q

What is a Mutual?

A

Mutual business have no shareholders and no owners. They exist solely for the best interest of its members - its customers.

Building societies and life assurance businesses are common examples

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24
Q

What is a charity?

A

Having a status that means you find the businesses that aren’t liable for any debts

There are significant tax benefits

For example:
Greenpeace, friends of earth

25
Q

What is flotation ?

A

Converting ur structure to a PLC and floating on the market (selling your shares publicly)

26
Q

What is an ordinary share?

A

Dividends are not guaranteed and are only paid after preference shareholders receive their fixed dividends

27
Q

What are preference shares?

A

Shareholders are entitled to fixed dividends, they are typically paid before ordinary shareholders

Fixed dividends may not be a good decision tho as if the business starts making more profit ordinary shareholders may receive more dividends than preference shareholders

28
Q

What is an institutional shareholder?

A

An organisation that invests a large amount of capital into a company by purchasing its shares

29
Q

Why do shareholders invest/exist?

A

Provide capital to survive and grow

Influence (vote at AGM)

Rewards (dividends, increase in share prices)

30
Q

How much influence do shareholders have?

A

Depends on % ownership
In theory- raise issues with board of directors
So they even attend AGM or vote by proxy?

They don’t really have much control if shares are divided between so many ppl in Ltd or rly popular PLC

31
Q

What influences share price?

A

Profit/loss

Launch of a new product

Confidence in a business

Takeover

Economic conditions

Current market share

32
Q

Significance of share price changes?

A

Short term - little impact, shareholders buy and sell through stock market, company not involved as they already have their money from flotation

Long term - high prices, rights issue, shareholders able to buy more shares at discounted sale (easier for company to obtain more share capital)

Long term - low prices, unlikely to raise more share capital, possible takeover in extreme cases, as shareholders start to sell

33
Q

What are the issues in understanding business forms?

A

Limited liability:

The company is now a separate legal entity and can be sued in its own right
Shareholders are not protected and can only lose the value of what they have invested, not their personal possessions

As a supplier you may not receive payment if supplying on credit and the business fails

34
Q

Issues in understanding business forms:
Ordinary share capital

A

Businesses issue shares in exchange for investors’ capital

Annual dividend is expected but dividend may not be paid if performance isn’t good or if the business wishes to retain profits for future investment

This may be a better source of finance than a bank loan where repayments and interest would have to be paid regardless of performance. Shareholders capital is never paid back, as shares are sold on to another member of the public

However it does dilute control of owner

35
Q

Issues in understanding business forms:
Market capitalisation

A

Is the market value of a company’s issued share capital - in other words, the number of shares multiplied by the current share of price of those shares on the stock market.

Number of shares X market value per share = market cap

36
Q

Issues in understanding business forms:
Dividends

A

Annual rewards to shareholders from profits.
As most companies grow over time, dividends also tend to grow, so can be a valuable return for shareholders who hold on to shares for a number of years.

Issues - the higher the dividend agreed by the directors, the lower the amount of profit retained for reinvestment into the business

37
Q

Issues in understanding business forms:
Dividend cover

A

If cover is 1: all profits have been paid out to shareholders
If cover is 2: half the profits have been paid out to shareholders (dividends can be covered twice by profits)
If cover is 3: one third of profits have been paid out (dividends can be covered 3 times by profits)

It is reccomended that companies should pay out no more then half of their profits

Low dividend cover could indicate short terminism. Paying high dividends now at the cost of future growth prospects (or even survival)

38
Q

What is privatisation?

A

Selling state owned assets to the private sector. This is often achieved through listing the new private company on the stock exchange.

Examples of companies who went thru privatisation are
BP
BT
BRITISH AIRWAYS
ROYAL MAIL
ELECTRICITY COMPANIES
GAS COMPANIES

39
Q

Pros of privatisation?

A

Improved efficiency:
Allows company to cut costs and be more effective. This has been shown in companies such as British airways and BT

Lack of political interference:
Instead of political decisions influencing the business, it’s now instead business influential decisions for the business, meaning more chance of survival and growth

Allows you to make long term decisions:
Short term decisions r usually made in state owned businesses as they usually make political decisions such as who’s in party ect

40
Q

What are the cons of privatisation?

A

Exploits consumers as a private firm, they may have less competition so they set higher prices

Less value for public interest:
Less ethics and values for doing everything for interest for consumers and now its heavily profit driven = maybe worse service / quality

Govt loses out on dividends as privatised organisations are quite profitable and now there’s gaps or fragments in the public sector industry

41
Q

What is demand?

A

Amount of goods/services consumers are willing and able to buy at a given price

This translates into revenue for businesses

42
Q

Market and Market conditions

A

All businesses operate within a market

The conditions of the market are very much connected to the state of the economy - the economic climate

The economic conditions are measured by Gross domestic product (GDP)

GDP- the value of all services and goods sold in an economy in a given period of time (quarterly/annually)

43
Q

What is a recession?

A

Two consecutive declines in GDP

44
Q

What happens when GDP rises or falls?

A

When GDP rises, employment rises and income rises, therefore so does spending.

When GDP falls, employment falls and income falls too, therefore so does spending.

45
Q

Economic growth?

A

If economic growth is positive, the general expectation that underlying market conditions will he positive, with the size of the markets expanding.

Why?
Consumer confidence or job security
Higher employment
Real incomes rise

These all mean they go spend more, which leads to higher GDP

Not all markets may see an increase tho (inferior/normal goods)

46
Q

What is a Normal good?

A

A normal good is one who’s demand increases as people’s incomes or economy rise

Eg
Branded items
TV’s
Holidays

47
Q

What is an Inferior good?

A

A type of food for which demand declines as the level of income or real GDP in the economy increases. This occurs when a food has more costly substitutes that see an increase in demand as the society’s economy improves.

Eg
Less branded items
Cheaper quality cosmetics
Cheaper quality food

48
Q

What is real income?

A

Your salary/wage/pay rise compared to inflation percentage

People may save money if their real income doesn’t match inflation (is lower than it) in fear or redundancy, therefore GDP falls

49
Q

3 other factors affecting the market conditions?

A

Consumer tastes and fashions - free from food? Carried bag manufacturing?

Disruptive change - radical innovation or technological change can mean old established producers struggle to remain competitive in very different market conditions ( whole market moves on without you)

Competitive structure - market share of firms, barriers to entry (things that make it harder to join)

Eg, if track bought out Aldi, the structure changes, market conditions change - perhaps even making it harder for a new small firm to enter the market

50
Q

In competitive markets, what can businesses do to stay ahead?

A

Price cutting

Uniqueness/ differentiation

R & D : Drive the business forward

51
Q

How could/did supermarkets respond to the economic downturn?

A

Promotions
Loyalty schemes
Differentiation
Value goods
Advertising
Cost cutting
Diversification
Expansion

52
Q

What is disposable income?

A

Income after taxes have been deducted

53
Q

What is discretionary income?

A

Income after taxes and necessities have been paid

54
Q

What is real income?

A

Income compared to inflation, if your % increase of wages is higher than inflation, your real income HAS increased, if your % increase of wages is lower than inflation, your real income HAS decreased

55
Q

What is Fair trade and why is it important ?

A

Selling goods at a higher prices to donate some profits to developing countries.

It’s important as it’s sustainable/eco friendly, reduces global warming and it’s fair and equal with its pay (pays suppliers on credit fair and equally = less chance of legal misconduct)

56
Q

What does demographics of a population look at?

A

Size
Age
Gender
Ethnicity

57
Q

What is happening to demographics in the UK and why is it a problem?

A

It’s rapidly changing, more immigration means wider ranges or heavier percentages of certain ethnicities, due to more migration too there’s less birth rates, this means there’s an unproportional amount of older people to younger people.

58
Q

How does change in demographics affect /influence costs and demands?

A

More population may mean more people are buying your goods and services which means your costs increase as your selling to a bigger audience hence you need to make more products, more so, if there’s a disproportionate ratio of adults to younger children, products for adults might sell more therefore demands will increase rapidly for some businesses and therefore costs will too.

Business Studies (3 decks)

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