3.1 - WHAT IS BUSINESS? Flashcards
Business objectives - corporate objective
- Goals of a business as a whole
- Will depend on the size of the business
Business objectives - functional objectives
- sometimes departmental objectives
- objectives of each department
- more detailed and specific
- functional objectives often contribute to corporate objectives
SMART objective’s
- specific - more specific, more likely to achieve
- measurable - not measurable = not able to know if achieved
- agreed - everyone involved needed to know and agree on objectives
- realistic - can’t be too ambitious, impossible objectives may demotivate staff
- timely - without a specific time, staff may not see t as urgent
Different types of objectives :
- profit objectives
- growth objectives
- survival objectives
- cash flow objectives
Social and Ethical objectives :
Social - benefitting society and people in need
Ethical - based on moral principles (eg treatment of staff and environment)
Non-profit - eg charities, set up to achieve social or ethical goals
For-profit - usually focus on making a profit, however social and ethical objectives are becoming more important as society is starting to care more about these issues.
Mission statements
-The mission statement is a written description of the overall purpose or main corporate aims
-intends to make all stakeholders aware of what the business does and to encourage employees to work towards its aim
-statements should tell you the purpose of the business and gives clues about the. Companies beliefs
-can give staff a shared sense of purpose
Why is profit important?
- can motivate people
- good source of finance
- can be used to attract investors
Public sector
- organisations owned by and run by the government
- aim to provide services to public rather than make a profit
- eg - NHS
Private sector
- run by private individuals
- most aim to make profit
- eg - ASDA
Non - profit businesses
- not set up to make a profit
- charities (Oxfam, British Red Cross) make money from donations
- social enterprises - profits are used to pay for a social objectives
- mutual organisations - aim to offer best possible value on their services, profits are reinvested into the business in order to reduce prices
Unlimited liability
- business and owner are seen under one law
- means business debts become the personal debts of the owner and sole traders can be forced to sell personal assists such as their house to pay off debts
- a huge financial risk
Limited liability
- means the owner aren’t personally responsible for the debts of the business
- shareholders of both private and PLCs have limited liability as the business has a separate legal identity of the owners
- the most the shareholders can loose in a limited company is the money they have invested
Sole traders
- a sole trader is a self-employed individual trading in his/her name
- full responsibility and financial control over the business
- minimal legal formalities, just have started trading, however if the business isn’t under the owners name the trader has to comply with certain rules under the companies Act 2006
Advantages of a sole trader
- freedom
- profit
- simplicity
- savings on fees
Disadvantages of sole traders
- risk
- time
- expertise
- finance
- vulnerability
- unlimited liability
Private limed companies
- can’t sell shares to public
- don’t have share price quoted on stock market
- often small family businesses
- may not be able to sell shares without permission from other share holders
- no minimum share capital requirements
Public limited company
- can sell shares to public
- share prices can be quoted on the stock exchange
- shares a freely transferable
- usually start private then go public later to raise more capital
Ordinary share capital
- Money raised from selling shares
- usually used for long0term investment
- market capitalisation is the total of all ordinary shares by a company
Shareholders
- main role is to provide funds, not often involved n running the business
- AGM often held (PLC’s have too), shareholders have the right to vote on key decisions
- have the right to receive a dividend
- have limited liability - loose money they spent on shares
Share prices
- Ltd’s control share price as its traded privately (will be agreed upon)
- PLC’s shares are sold on the stock market, meaning the share price will be decided based on demand and supply
Effects of share price changes
- will have a big effect on those buying and selling shares for short-term game, an increasing share price will make shareholders money if they sell
- those buying for long-term gain will be less effected, however could be because of a change in company profits, effecting dividends
