3.1 - What is business? Flashcards
What are business objectives?
Specific intended outcome of business strategy and activity.
They are expressed as targets which a business sets to help it achieve its aims.
What are the main functions of business objectives?
- State what needs to be achieved
- A focus for all activity
- Targets for individual and group achievement
- A way to measure performance
What is another name for business objectives?
Corporate objectives
What are typical corporate objectives?
- Sales Revenue
- Profit
- ROI
- Growth
- Market share
- Cash flow
- Value of the business
- Corporate image and reputation
- Survival
Most business have a couple of these but they may not have all.
What does SMART mean?
Business Objectives should be SMART
Specific - The objective should state what exactly is to be achieved
Measurable - The objective should be capable of measurement so that it is possible to determine whether it’s been achieved
Achievable - The objective should be realistic given the circumstances of the business
Relevant - The objectives should be relevant to the people responsible for achieving them
Time bound - The objectives should be set within a time frame which is realistic.
What is the hierarchy of objectives in businesses?
Highly strategic
- Aim
- Misssion
- Corporate/ Strategic
- Functional
- Team
-Individual
Highly detailed
Business and Corporate objectives could feed into other objectives (functional and individual)
Give 3 examples of how corporate objectives can feed into functional objectives.
Increased Market Share - Impacts marketing.
Reduced Unit Costs - Impacts Operations
Increased Cash Flow - Impacts Finance
What are mission statements?
The overriding purpose for the business and reason for its existence.
It is a strategic perspective which supports the states vision for the future.
What is the mission statement not intended to be?
A statement of goals, objectives or core values.
It shouldn’t be a statement of how the business intends to compete or position itself in the market.
Where is the mission statement on the hierarchy of objectives?
At the top level after Aims.
Who is the mission statement for?
-Employees
-Customers
-Current or Potential Investors
-Society
What makes a good mission statement?
- Clear sense of business purpose
- Excites, Inspires, Motivates and Guides
- Easy to understand and remember
- Differentiates business from competition
- For all stakeholders
What are common criticisms of mission statements?
- Statements of the obvious
- Often too vague and general
-Not always supported by actions of the business - To be effective everyone in the business must buy in
- Just PR tools, which can cause them to be regarded cynically by staff
What are costs?
The amounts that a business incurs in order to make goods and provide services.
Why are costs important?
- They drain away the profits from the business
- They are the difference between making a good and poor profit margin
- Main cause of cash flow problems
- Change as the output of activity of a business changes
What are fixed costs?
Costs which do not change in relation to output
- Rent, Salaries and Advertising
What are variable costs?
Costs that do change in relation to output.
- Raw materials, Wages and Marketing costs based on sales
What are total costs?
Fixed costs plus variable costs
What happens as output increases?
The fixed costs are spread over a larger number of units, which allows unit costs to fall.
What are liabilities referring to?
Who is liable for the debts of a business if it fails?
What are unincorporated businesses?
This is when the owner is the business and there is no legal difference. This tends to be businesses which operate as sole traders and partnerships.
The owner would have unlimited liability for the business actions.
What are incorporated businesses?
There is a legal difference between the business and the owners. This tends to be businesses which operates as PLC’s and LTD’s.
The owners (shareholders) have limited liability.
These businesses are companies
What is unlimited liability?
This is when businesses are personally responsible for the debts and liabilities of the business.
It adds risk to the operating as a sole trader or partnership
What is limited liability?
This is when businesses are not personally responsible for the debts and liabilities of the business.
It removes risk to the operating as a PLC’s or LTD’s
Shareholders can only lose the value of their investment
