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Business > Business Environment > Flashcards

Business Environment Flashcards

1
Q

What is need and want?

A

Need is good/service essential for living. Want is good/service people would like, but not essential.

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2
Q

What is business activity?

A

Process of producing goods and services to satisfy consumer demand.

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3
Q

Economic problem?

A

Unlimited wants cannot be met as there are limited resources to produce goods and services.

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4
Q

State and explain all factors of production.

A

Land:Natural resources available for production
Labour:Human input into production process
Capital:Machinery, finance, equipment needed for production of goods and services.
Enterprise:People who organise FOP and are prepared to risk setting up a business.

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5
Q

What is scarcity?

A

This is when there are not enough goods and services to meet the demand of the population.

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6
Q

What is opportunity cost?

A

The cost of the next best alternative foregone. Benefit that could have been gained from using the same resource.

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7
Q

What are consumer goods?

A

These are goods that can be sold to the public that they can see and are tangible. Durable goods are goods that can be used again and again like mobile phones, non durable goods can only be used once, like food, medication, fuel etc.

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8
Q

What are consumer services?

A

Consumer services are products which are sold to the public but are intangible, like banking or hairdressers.

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9
Q

What is adding value?

A

Businesses aim to sell their products at a higher price than what it cost them to make, this is adding value. They can do this through branding, good service quality, product features, and convenience.

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10
Q

What is creating value?

A

This is identifying what would be of value to an individual buyer and then finding or making a way for that unique value to be realised.

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11
Q

What is an entrepreneur?

A

An entrepreneur is someone who sets up a business, taking on financial risks in the hope to make a profit. Characteristics include, innovation, multi skilled, self confident, leadership, and commitment.

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12
Q

Reasons why businesses fail?

A

Lack of record keeping, lack of cash, poor management, changes in business environment.

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13
Q

Production diagram

A

Inputs (FOP)->Production(Adding value)->Outputs(Final product)

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14
Q

Primary sector

A

Businesses whose activity involves the extraction of raw materials are in primary sector.

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15
Q

Secondary sector

A

Secondary businesses take raw materials produced by the primary sector and process them into manufactured goods and products. Heavy/light manufacturing, food processing, oil refining etc.

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16
Q

Tertiary sector

A

Tertiary sector also called the service sector involves the selling of services and skills. They can also involve selling goods and products from primary and secondary industries. Health service, transportation, education, tourism etc.

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17
Q

What is a social enterprise?

A

Seek to maximise profits profits while maximising benefits to society and environment.

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18
Q

Main objectives of social enterprise

A

Profit, planet, people. Accounting framework that incorporates social, environmental and financial factors

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19
Q

What is industrialisation?

A

As a country begins to develop and their secondary sector begins to grow, this process is industrialisation.

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20
Q

Benefits of industrialisation?

A

GDP increases so average standard of living increases.
Increasing output of goods can result in lower imports and higher exports. Expanding and profitable firms will pay more tax to the government.

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21
Q

What is deindustrialisation?

A

This is a process in which there is a decline in the importance of secondary sector activity and an increase in the tertiary sector.

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22
Q

Public sector

A

Organisations accountable to and controlled by the central government.

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23
Q

Private sector

A

Businesses owned and controlled by individuals or groups of individuals.

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24
Q

Mixed economy

A

Economic resources are owned and controlled by both the public and the private sector.

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25
Q

Free market economy

A

Economic resources are owned largely by the private sector with very little state intervention.

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26
Q

Command economy

A

Economic resources are owned and controlled by the state.

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27
Q

Limited liability

A

The only liability a shareholder has if the company fails is the amount invested in the company, not the total wealth of the shareholder.

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28
Q

Unlimited liability

A

If the company fails, a shareholder may have to give up some of his personal assets alongside the amount invested.

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29
Q

Unincorporated business

A

The owner is the business - no legal difference
Owner has unlimited liability for business actions (including debts)
Most unincorporated businesses operate as sole traders
A small number operate as partnerships

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30
Q

Incorporated business

A

There is a legal difference between the business (company) and the owners
The company has a separate legal identity
Owners (shareholders) have limited liability
Most incorporated businesses operate as private limited companies
A smaller number operate as public limited companies

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31
Q

What is a sole trader?

A

A business in which one person provides the finance and in return has full control of the business and is able to keep all of the profits. Is unincorporated business and has unlimited liability.

32
Q

Advantages/Disadvantages of ST

A 
Easy to set up.
Owner keeps all profits.
/
Unlimited liability, owners assets potentially at risk.
Intense competition from bigger firms.
Difficult to raise additional capital.
33
Q

What is a partnership?

A

This is a business formed by two or more people to carry on a business together, with shared capital investment and shared responsibilities. Unincorporated and unlimited liability.

34
Q

Advantages/disadvantages of partnership

A 
Shared decision making.
Business losses shared between partners.
Additional capital.
/
Unlimited liability.
Profits are shared.
Cant raise capital by selling shares.
35
Q

What are limited companies?

A

There are two types, public and private limited companies. They have limited liability and are incorporated businesses.

36
Q

Private limited company (Ltd)

A

Owned by shareholders who are often members of the same family, cannot sell shares to general public.

37
Q

Advantages/disadvantages of Ltd

A

Shareholders have limited liability.
Separate legal personality.
Able to raise capital from sale of shares to family, friends and employees.
/
Legal formalities involved in establishing business.
Capital cannot be raised by sale of shares to general public.
Difficult for shareholders to sale shares.

38
Q

Public limited company (Plc)

A

A limited company, with legal right to sell shares to general public, share prices are quoted on national stock exchange.

39
Q

Advantages/disadvantages of Plc

A

Better access to capital.
Separate legal identity.
Liquidity, shareholders able to buy and sell their shares.
/
Risk of takeover.
Cost of business consultants and financial advisors.
Share prices can fluctuate.

40
Q

What is a share?

A

A certificate confirming part ownership of a company and entitling the shareholder to dividends and other rights.

41
Q

How does a business become a company?

A

A memorandum of association must be complete. This states the name of the company, the address of the head office, max share capital for which company seeks authorisation and the declared aims of the business.

A document called the articles of association should be complete. This covers internal workings of the business eg. name of directors, procedures to be followed at meetings.

42
Q

What is a cooperative?

A

Co ops are owned and run by their members, who can be customers, employees or groups of businesses. They are run on the principles of shared ownership, shared voice & shared profits.

43
Q

Adv/Dis of Co-ops

A

Buying in bulk.
Working together to solve problems and make decisions.
Good motivation for all members to work hard as they benefit from shared profits.
/
Poor management skills, unless professional managers are employed.
Capital shortages as no sale to non member of general public.
Slow decision making if all members are to be consulted on important issues.

44
Q

What is a franchise?

A

A business that uses the name, logo, and trading systems of an existing successful firm.

45
Q

Adv/Dis of franchise

A

Fewer chances of new business failing as an established brand is being used.
Advice and training offered by franchiser.
National advertising paid for by franchiser.
/
Share of profits has to be paid to franchiser each year.
Franchise licence fee can be expensive.
Local promotions may have to be paid for by the franchisee.

46
Q

What is a joint venture?

A

When two or more businesses agree to work closely together on a particular project and create a separate business division to do this.

47
Q

Adv/Dis of joint ventures

A

Costs and risks of a new business venture are shared.
Different companies might have different strengths so they go well together.
/
Styles of management may be too different that the businesses don’t work well together.
Mistakes might lead to blame.
Business failure of one partner would put whole project at risk.

48
Q

What is a holding company?

A

A business organisation that owns and controls a number of separate businesses, but does not unite them into a unified company.

49
Q

What is a public corporation?

A

A business enterprise owned and controlled by the state.

50
Q

Adv/Dis of public corporations

A

Managed with social objectives rather than only profit objectives.
Finance raised mainly from government.
Loss making services may still be kept operating if the social benefit is great enough.
/
Tendency towards inefficiency due to lack of strict profit targets.
Subsidies from government can encourage inefficiency.
Government may interfere in business decisions for political reasons, for example by opening a new branch in certain areas to gain popularity.

51
Q

What can you use to measure business size?

A 
Market share.
Revenue.
Market capitalisation.
Capital employed.
Number of employees.
(Mr. McN...)
52
Q

Market capitalisation.

A

The total value of a company’s issued shares.

Market capitalisation= current share price x total number of shares issued.

53
Q

Market share.

A

Sales of the business as a proportion of total market sales.

MS= total sales of a business/total sales of an industry x 100

54
Q

Capital employed

A

Value of capital used by the business

55
Q

Sales value

A

Total value of goods sold in a time period

56
Q

How do governments help small businesses

A

Lower rate of corporation tax, loan guarantee schemes,

grants, advice and information

57
Q

How do small businesses help the economy

A

Provide jobs reduce unemployment, create competition and choice, new suppliers for other businesses, new business ideas, new services for customers.

58
Q

Strengths of family business

A

Common strengths: Family members take on different roles, they are flexible.

Greater sense of commitment and accountability because the needs of the family are at stake.

Non family firms want goals this quarter but family business think years or decades ahead. This patience and long term perspective allows for good strategy and decision making.

59
Q

Weaknesses of family business

A

Family favouritism may lead to unqualified family members in jobs.

Cannot keep family issues out of business, could lead to rivalries. Because family members are involved, conflict can be more difficult to solve and can result in difficult endings.

60
Q

Advantages of small businesses

A

Often managed by owners.
Adapts quickly.
Easy to set up and adaptable to change.
Employs fewer workers so it is easier to control and there are fewer costs than in a large business

61
Q

Disadvantages of small businesses

A

Few economies of scale.
Limited finance.
Unlikely to be able to expand range of products.

62
Q

Advantages of large businesses

A

Can employ specialist managers.
May benefit from economies of scale.
More options and scope for raising finance.

63
Q

Disadvantages of large business

A

Difficult to manage.
Diseconomies of scale.
Slow decision making.

64
Q

How do businesses grow?

A

Can take place in two ways:

Internal growth: Expansion of a business by means of increasing sales and opening new branches, shops, or factories.

External growth: Integration with another business.

65
Q

Why should businesses set objectives?

A

So they can have a sense of direction or focus for the management team and or employees.
Employees will not know what they are aiming to achieve.
There would be no way of assessing success or failure.

66
Q

What are SMART objectives?

A 
S-Specific to business
M-Measurable to allow for comparisons
A-Achievable
R-Realistic
T-Time specific
67
Q

Mission statement

A

Statement of the businesses aims and purpose

68
Q

Adv and Dis of mission statements

A

Advantages:

Tells stakeholders what the business is about.
The process of creating it can bring managers together.
It provides a sense of purpose for managers and workers.

Disadvantages:

It can be very general.
It does not provide SMART objectives for use within business.
It may need to be revised frequently if the nature of the business changes.

69
Q

What influences business objectives

A 
Size
Age of business
Competition
Economic situation
Sector
Culture
70
Q

Conflicts between objectives

A

Maximum sales growth may conflict with profit maximisation because more sales does not necessarily mean higher profit.

Short term objectives and long term objectives. Investing capital for long term expansion may conflict with short term profit objectives.

71
Q

Arguments for ethical decisions

A

May give business positive publicity.
Attracts customers who are ethical
Attracts employees who want to work for an ethical business

72
Q

Arguments against ethical decisions

A

May add to business costs.
May make the business uncompetitive if other firms in the industry are not acting ethically.
Most customers want low prices and are not worried about how products are made or how workers are treated.

73
Q

What is a stakeholder

A

Someone who can be affected by a businesses decisions

74
Q

Responsibilities stakeholders have to stakeholders

A

Customers - Good value, safe products, and fair competition.

Workers - Fair pay, job security, safe working conditions

Suppliers - Get paid on time

Local community - Pollution kept to minimum, support for local groups.

75
Q

Roles, rights and responsibilities of stakeholders

A

Stakeholder

  • role
  • right
  • responsibility

Customer

  • Buying products provides revenue for business
  • Receive good/service that meets national legal standards, to be offered replacements, repairs, compensation in event of failure of the product/service
  • To be honest, not to steal, not to make false claims about poor service, or failed items

Supplier

  • Deliver agreed quantity and quality of resources
  • Paid on time, treated fairly by purchasing business
  • Supply goods /services ordered by business in the time and condition as laid down by purchase contract

Employees

  • Work according to agreed conditions of employment
  • To be paid at least national minimum wage, given employment contract with reasonable terms, in most countries to be allowed to join a trade union, involved in business activity
  • To be honest, meet conditions and requirements of employment contract, to cooperate with management.

Local community

  • Provide local facilities to business
  • Consulted about major changes that affect it, not have lives of local residents very badly affected by the businesses’ activities
  • To cooperate with the business, to meet reasonable requests from business for local services such as public transport

Government

  • Control business activity and provide secure and stable economic/political/legal environment
  • Businesses have the duty to government all legal constraints such as producing only legal goods, and to pay taxes on time
  • Treat businesses equally under the law, prevent unfair competition, establish good trading links with other countries

Business (5 decks)

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