Business Activity Flashcards
Business Activity
What a business does to provide its customers with a product/service
Enterprise
Spotting an opportunity to provide a product or service that people are willing to buy
Entrepreneur
An individual who has the skills and knowledge to set up and run their own business, and is willing to take risks
What are the characteristics of an entrepreneur?
Takes risks
Uses their initiative
Is determined
Able to make decisions
Never gives up
Has ideas
Isn’t afraid of failure
Spots an opportunity
Initiative
The ability to use your judgement to make decisions and do things without needing to be told what to do
Risks include…
Financial, strained relationships and health
Rewards include…
Financial, self-satisfaction and independence
Aim
Long-term goal
Objective
Short-term measurable target
Sole trader
A sole trader describes any business that is owned and controlled by one person. However, although the business is owned by one person, it doesn’t stop it from employing other people to work in the business
Partnership
Partnership is a business which is owned and controlled by a minimum of two partners
E.g. surgeons, dentists etc
Companies
Businesses where the owners are shareholders
Shareholders
The owners of private and public limited companies
Shares
A unit of ownership in a limited company
Limited liability
This is when the responsibility for the debts of the company is limited to the amount that the shareholder has put in
Private limited companies (Ltd)
Shares can only be purchased by family and friends
Public limited companies (PLC)
Shares can be purchased by anyone
Advantages of being a private limited company
Limited liability - protects the personal wealth of the shareholders
Easier to raise finance as can sell shares
Continuity - the company continues to exist even when shareholders change
Original owners are likely to retain control
Disadvantages of being a private limited company
Shareholders have to agree about how dividends are distributed
Greater administrative costs than setting up as a sole trader or partnership
Finance limited to “friends and family”
Less privacy - public disclosure of financial information, but not as extreme as for a PLC
Advantages of being a public limited company
Limited liability - protects the personal wealth of the shareholders
Can raise large sums of finance via the stock exchange
Continuity - business continues to exist even when shareholders change
Borrowing money from a bank will be easier because they will be seen as less of a risk
Disadvantages of being a public limited company
Greater costs to set up and operate than a Ltd. A PLC must have £50,000 of shares as a minimum
Public can see company information and accounts
May be inefficient because of its size
Risk of company being taken over
Stakeholders
A stakeholder is an individual or organisation who has a vested interest in the activities and decision making of a business
Examples of stakeholders
Shareholders or business owners
Managers & employees
Customers
Suppliers
Banks & other financial providers
Local community
Government
Competitors
Business Growth
The process of a firm getting bigger
Organic / Internal Growth
When the business grows naturally by selling more
External Growth
Growth of a business by takeover or merger
Merger
Two or more firms join to create a new business
Takeover (Acquisition)
This is when one business buys another business. In case of a limited company, this means buying more than 50% of shares
Disadvantages of growth
Slower decision making
Control becomes more difficult
Employees may become demotivated
Increased costs
Communication more difficult
Types of Growth and Merger
Horizontal growth
Backwards vertical
Forwards vertical
Diversification
Horizontal growth
Taking over a business doing exactly the same job
Backwards vertical
Taking over a supplier
Forwards vertical
Taking over who you supply to
Diversification
Taking over a completely new business
How might businesses grow organically / internally?
Introducing new products
Opening new stores
Lowering price
Advertising and promotion
Hire more employees
Automation
Advantages of External Growth
Cost savings
Gain new customers and sales
Eliminate competition
More ideas through combining teams
Spread the risk/ reduce reliance on existing business/market
Quicker than organic growth
