3.1 What is business?

Question 1

What is business?

Answer 1

Business is the creation of a customer; in other words conceiving a product or service that people will pay enough for to generate a profit.

Question 2

Mission and objectives

Answer 2

Mission is the aim for the business that is settled upon by the boss or by the board of directors in a large one.

Question 2

Why businesses exist?

Answer 2

Business exist because human spirit and a sense of adventure lead people to ‘show what they can do’ and to create an income that is not dependent on a specific outside force.

Question 3

Aim

Answer 3

An aim is a general statement of where the business is heading

Question 4

What is SMART (objectives)

Answer 4

Specific, Measurable, Achievable, Realistic and Time bound.

Question 5

Why businesses set objectives?

Answer 5

You can not make every decision by yourself if you are a big company so giving more junior staff the authority to get on and make middle ranking decisions motivates them to have a clear goal to aim towards managers and for staff.

Question 6

Profit optimisation

Answer 6

That the surplus of revenue over costs should be just right: neither to high in the short term nor too low to finance long term success.

Question 7

Profit maximisation

Answer 7

Profit maximisation is a process business firms undergo to ensure the best output and price levels are achieved in order to maximise its returns.

Question 8

Growth

Answer 8

Business growth refers to the expansion of a business measured by total revenue, profits, employment, investment and other metrics.

Question 9

Cash Flow

Answer 9

Cash flow is the way that money moves in and out of a business and its bank accounts.

Question 10

Survival

Answer 10

Survival is about the business living within its means. To survive, the business needs to have enough cash to pay the debts of the business as they arise

Question 11

Social and ethical objectives

Answer 11

Social and ethical objectives are linked to doing things in an ethical or environmentally friendly manner, or having a business whose sole purpose is to meet a social need.

Question 12

budgets

Answer 12

an agreed ceiling on the monthly spending by any department or manager.

Question 13

Mission Statement

Answer 13

a short, powerfully-expressed sentence or two that explains the business aims clearly yet motivationally.

Question 14

Delegated

Answer 14

having passed authority down the hierarchy so that the local or more expert person makes the decision.

Question 15

Strategy

Answer 15

a medium-long term plan for meeting your objectives.

Question 16

Entrepreneur

Answer 16

a person with the initiative and drive to make a business idea happen.

Question 17

Bankrupt

Answer 17

when an individual is unable to meet personal liabilities, some or all of which can be as a consequence of business activities.

Question 18

Creditors

Answer 18

those owed money by a business, for example, suppliers and bankers.

Question 19

Incorporation:

Answer 19

establishing a business as a separate legal entity from its owners, and therefore giving the owners limited liability.

Question 20

Limited liability

Answer 20

owners are not liable for the debts of the business; they can lose no more than the sum they invested

Question 21

Monopoly

Answer 21

where the sales of one business have a dominant share of its marketplace.

Question 22

Registrar of Companies

Answer 22

the government department which can allow firms to become incorporated. It is located at Companies House, where Articles of Association, Memorandums of Association and the annual accounts of limited companies are available for public scrutiny.

Question 23

Sole trader

Answer 23

a one-person business with unlimited liability.

Question 24

Unlimited liability

Answer 24

owners are liable for any debts incurred by the business, even if it requires them to sell all their assets and possessions and become personally bankrupt.

Question 25

Annual General Meeting:

Answer 25

a yearly meeting in which company directors invite all shareholders to come to quiz the board and vote on new resolutions. A legal requirement for plos.

Question 26

Dividend cover

Answer 26

measures how well a firm's dividends are covered by its profits for the year. Accountants recommend a figure of at least 2, i.e., that the company should pay out no more than half its profits to shareholders.

Question 27

Market capitalisation

Answer 27

the value placed on the business by the stock market, calculated as share price x number of shares issued

Question 28

Consumer demand

Answer 28

the levels of spending by consumers in general (not just the demand from one consumer).

Question 29

Discretionary income

Answer 29

a person's income after deducting taxes and fixed payments such as rent and utility bills.

Question 30

Disruptive change:

Answer 30

a new initiative that changes the rules within a market or within factory production; its radically different design meant that the iPad did exactly that within the market for tablet computers.

Question 31

Economic climate

Answer 31

the atmosphere surrounding the economy (for example, 'gloom and doom' or 'optimism and boom'). GDP (Gross Domestic Product) is the value of all the goods and services sold throughout the economy over a period of time (annually or perhaps per quarter), Inferior goods suffer falling sales when people are better off, and rising sales when people are worse off. (Think Poundland or Iceland frozen foods.)

Question 32

Real

Answer 32

changes in money (for example, wages) excluding the distorting effect of changes in prices. So a fall in real wages might mean that wages are unchanged but prices have risen.

Question 33

Recession

Answer 33

a downturn in sales and production that occurs across most parts of the economy, perhaps leading to six months of continuous economic decline.

Question 34

Co-ordinate

Answer 34

the management task of ensuring that staff carrying out different parts of a project are all working to the same time schedule and quality standards.

Question 35

Subordinates

Answer 35

those working for a manager and therefore under his or her command.

Question 36

Leadership

Answer 36

Leadership means taking the initiative to set clear objectives and to motivate or guide staff towards their achievement. Management means organising and galvanising staff to implement the strategies needed to achieve the objectives. Key terms

Question 37

Autocratic leadership

Answer 37

when the boss keeps all key decisions to him or herself, and gives orders, rather than power, to subordinates.

Question 38

Charismatic leadership

Answer 38

a leader whose dynamic or magnetic personality makes people willing to follow. The widely held view is that leaders require a dynamic or magnetic personality in order to succeed. Research does not support this.

Question 39

Democratic leadership.

Answer 39

this implies empowering people. That is, delegating full power over the design and execution of substantial tasks.

Question 40

Laissez-faire leadership

Answer 40

this means allowing people to get on with things themselves, but without the co-ordination and control implicit within democratic leadership.

Question 41

Paternalistic leadership

Answer 41

this means 'fatherly. That is, the boss treats staff as part of the family. Typically, this shows through as consultation, but with decision-making remaining at the top ('Dad' decides).

Question 42

Intuition

Answer 42

judgement made on qualitative criteria, perhaps experience and strength of market understanding, or perhaps little more than guesswork.

Question 43

Strategic decision

Answer 43

one that is made in circumstances of uncertainty and where the outcome will have a major impact on the medium- to long-term future of the organisation.

Question 44

Tactical decision

Answer 44

deciding what to do in circumstances that are immediate (short term and where a mistake is unlikely to have a major impact on the business.

Question 45

Actual values:

Answer 45

although known as 'actual values' or 'payoffs', these are the forecasts of the net cash flows which result from following a sequence of decisions and chance events through a decision tree. They should always be shown at the ends of the branches of the tree.

Question 46

Node

Answer 46

a point in a decision tree where chance takes over. It is denoted by a circle, and at that point it should be possible to calculate the expected value of this pathway.

Question 47

Expected values

Answer 47

these are the forecast actual values adjusted by the probability of their occurrence.

Question 48

Net gains (or losses):

Answer 48

subtracting the initial outlay fri the expected value to find out whether or not a decisi is likely to produce a surplus.

Question 49

Probability

Answer 49

the likelihood of something occurring, usually expressed as a decimal (for example 0.5). The probability of something certain is 1. The probabily® something impossible is zero.