Business In Contemporary Society Flashcards
0
Q
Sectors of Business Activity
A
Primary
Secondary
Tertiary
Quaternary
1
Q
Factors of Production
A
Land
Labour
Capital
Enterprise
2
Q
Primary sector
A
Extraction of raw materials and natural resources e.g.fishing, mining, oil/gas extraction
3
Q
Secondary sector
A
Manufacturing and construction e.g. Oil refinery, ship building
4
Q
Tertiary sector
A
Services provided e.g. Retailing, nursing, selling
5
Q
Quaternary sector
A
Information and environmental technology e.g.
6
Q
Private sector organisations
A
Are owned by private individuals with the prime objective of making a profit
7
Q
A Sole trader is:
A
A business owned and controlled by one person e.g. Newsagents, hairdresser
8
Q
Advantages of a sole trader include:
A
Simple to set up. Owner has complete control of decisions. Owner keeps all profits. Owner chooses work hours/holidays More personal service offered to customers No legal formalities to set up business
9
Q
Disadvantages of a sole trader:
A
Sole trader has Unlimited Liability.
Borrowing from banks is more difficult.
Owner has no one to share workload with.
Taking holidays/falling ill will effect business.
10
Q
Unlimited liability:
A
The owners are personally responsible for debts of the business. This may result in the owner losing their car/house/possessions or becoming bankrupt.
11
Q
Objectives of a sole trader:
A
Survival
Good image in community
Maximise profits
Improve owner’s personal status
12
Q
A Partnership is:
A
A business that is owned and controlled by 2-20 people (except for solicitor/accountant firms). They should have a Legal Agreement stating how profits are to be shared etc.
13
Q
Advantages of a Partnership
A
Partners can specialise and bring expertise.
Partners can share responsibilities.
More money can be invested as there is more owners.
14
Q
Disadvantages of a Partnership
A
The partners have unlimited liability.
Profits have to be shared.
Partners may disagree.
If a partner leaves a new agreement must be set up which can upset running of business
15
Q
Objectives of a Partnership include:
A
Survival
Maximise profits
Improve status of partners
Good image in community
16
Q
(Sole Trader) Finance raised from:
A
Owner's savings, Retained profits, Borrowing from friends & family, Bank loan/overdraft, Trade credit, Redundancy package Debt factoring
17
Q
(Partnership) Finance raised from:
A
Partners' savings/profits New partners, Redundancy payments Bank loan/overdraft Government grant Trade credit Debt factoring
18
Q
A Private Limited Company (Ltd) is:
A
A company whose shares are owned privately with friends or family. Owned by shareholders and run by a board of directors
19
Q
Advantages of Ltd
A
Shareholders have limited liability (only lose amount invested)
Control of company is not lost to outsiders
Mores finance can be raised from lenders and shareholders
Expertise/experience from shareholders & directors
20
Q
Disadvantages of LTD
A
Profit shared between more people.
Shares cannot be sold to public.
Abide to Companies Act.
Annual Accounts to Companies House in Edinburgh
21
Q
(LTD) Finance is from:
A
Company profits New shareholders: selling shares to family & friends Bank loan/overdraft Government grant Trade credit Debt factoring
22
Q
Objectives of a LTD:
A
Maximise profits
Growth
Strong status
Highest possible sales revenue
23
Q
A Public Limited Company (PLC) is:
A
A company whose shares are available for purchase by the public on the Stock Market. Owned by shareholders, controlled by Board of Directors
24
Private sector organisations include:
Sole Trader
Partnership
LTD
PLC
25
Advantages of a PLC
Large amounts of finance can be raised.
Often dominate markets.
Easy to borrow money from lenders because of large size.
Shareholders have limited liability
26
Disadvantages of PLC
Set-up costs can be high.
Must abide by Companies Act.
No control over who buys shares.
Must publish Annual Accounts.
27
Objectives of a PLC
```
Maximise profits
Expand output
Growth
Higher sales revenue
Dominate market
Strong image
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28
(PLC) Finance from:
```
Company profits
Selling shares to general public via stock market
Bank loan/overdraft
Issue debentures
Government grants
Trade credit
Debt factoring
```
29
A multinational is:
A PLC which has its headquarters in one country but its manufacturing plants in more than one country
30
Being a multinational allows a company to:
Take advantage of economies of scale.
Avoid restrictions no. of products imported.
Avoid restricting legislation in home country.
Receive tax advantages & grants from other governments.
31
MNCs have developed because:
See notebook
31
MNCs support the UK economy through:
Providing jobs which reduces unemployment
Bringing in new expertise & new technology
Bringing in new ideas (successful work practices from Far East)
32
Drawbacks of multinationals operating in an economy
They are in a strong bargaining position & can influence government policies,
Different work practices can lead to disputes,
They may export their profits (go back to home country)
34
Financial economies of scale
Obtaining loans can often be easier because of their size as MNCs will own assets worth a considerable amount of money which can be used as a collateral/security for a loan. They are also able to obtain better interest rate margins
35
Non-profit making organisations
Charities
| Voluntary organisations
36
Purchasing economies of scale
Bulk-buying discounts, reduced costs for retailer/business
37
Charities are:
Exempt from paying some taxes.
Set up as trusts with no individual owner.
Control and management by Board of Trustees.
38
Marketing economies of scale
Being a large organisation usually means that you will be able to strike better rates for advertising
39
Objectives of charities
Provide a service
Relieve poverty
Fund research
40
Voluntary organisations
Are run and staffed by volunteers.
E.g. Youth groups, scouts
Bring together people with similar interests.
Run by a committee of elected volunteers.
41
(Charities) Finance from:
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Donations from public/businesses
Government/lottery grants
Profits from own shops
Sale of goods through mail order/internet
Fundraising
```
42
(Voluntary organisations) Finance from:
Lottery/Local authorities/sports council grants
| Subscription fees to become a member/use facilities
43
Publicly-funded organisations are:
Owned by the taxpayer and controlled by local/central government
44
Publicly-funded organisations include:
Local government organisations
Central government organisations
Public corporations
45
Local government organisations provide:
A range of services including local education, recreation, housing and refuse collection
46
Local government organisations' objectives include:
Meet local needs
Provide a wide range of services
Make cost savings
Stick to agreed budgets
47
(Local gov. organisations) Finance from:
Central government
Business rates
Council tax
Charge for services - leisure centres, parking
48
Central government organisations provide:
Important national services by government departments such as the Treasury, Defence, Health and Transport
49
Central government organisations' objectives include:
Provide a service
Improve society
Make effective use of funds and taxes
49
(Central gov. organisations) Finance from:
Mainly Taxation
| Central government
50
Public corporations are:
Companies that are owned by central government e.g. BBC
50
Advantages of Public Corporations
Little competition
Provides service to all consumers
Provides service which may be unprofitable if provided in private sector
51
Objectives of public corporations include:
Provide a quality service
Make best use of funds
Be better than rivals
Serve the public interest
51
(Public corporations) Finance from:
Government grants
Raise finance from public - BBC charges for TV licence and products
Merchandise
55
Franchises are...
Business arrangements where one organisation pays for the right to run under the trading name of another
56
Franchisee
The person or firm who runs and owns the business. Buys into the business. Buys the rights to trade as the franchising business in a way agreed with franchiser.
57
A stakeholder is:
A person, organisation or group that has an interest in the success of an organisation
58
Franchiser
The firm that owns the names
59
Internal stakeholders
Owners, shareholders, managers, employees
60
Benefits to the franchiser
See notebook
61
External stakeholders
Customers, banks, suppliers, local community, central government, local government, charities, tax payers
62
Disadvantages to the franchiser
The franchiser's reputation depends in how good the franchisees are. Any bad publicity about a product or branch will affect all the branches
63
Interest of owners
Want firm to be profitable to provide them with a good financial return and improved value
64
Advantages for the franchisee
See notebook
65
Influence of owners
They make all the decisions on behalf of the business
66
Disadvantages for the franchisee
See notebook
67
Interest of shareholders
They want the company to be profitable to provide them with good dividends and improved share value
68
Influence of shareholders
They can exert influence on the company by voting for particular directors and approving dividend payments at the AGM
69
Interests of managers
They receive salaries and perhaps bonuses so they will want the business to be successful
70
Influence of managers
They make important decisions regarding hiring staff, product portfolio which may or may not be successful
71
Interest of employees
They want good salaries/wages, job satisfaction, good working conditions and job security
72
Influence of employees
They can exert influence by the standard of their work. They can also take part in various forms of industrial action
73
Interest of customers
They want best quality products or services from the business at the lowest prices
74
Influence of customers
Can choose to buy or not buy an organisation's products or services. This influences the products/services an organisation makes/provides. They may also recommend the organisation to family/friends
75
Interest of banks
Want to ensure that a business applying for a loan or with an existing loan has sufficient funds to make agreed repayments
76
Influence of banks
They can exert influence by granting or withholding loans, setting loan rates, or requesting repayments of loans if an organisation's ability to make repayment is in doubt
77
Interest of suppliers
Wants a business to be a success to ensure repeat custom as they depend on their custom for survival
78
Influence of supplier
Can offer trade credit (39/60/90 days), changing prices, offering discounts, reliability - quality/delivery time
79
Internal stakeholders
Owners, shareholders, managers, employees
80
External stakeholders
Customers, banks, suppliers, local community, central government, local government, charities, tax payers
81
Interest of owners
Want firm to be profitable to provide them with a good financial return and improved value
82
Influence of owners
They make all the decisions on behalf of the business
83
Interest of shareholders
They want the company to be profitable to provide them with good dividends and improved share value
84
Influence of shareholders
They can exert influence on the company by voting for particular directors and approving dividend payments at the AGM
85
Interests of managers
They receive salaries and perhaps bonuses so they will want the business to be successful
86
Influence of managers
They make important decisions regarding hiring staff, product portfolio which may or may not be successful
87
Interest of employees
They want good salaries/wages, job satisfaction, good working conditions and job security
88
Influence of employees
They can exert influence by the standard of their work. They can also take part in various forms of industrial action
89
Interest of customers
They want best quality products or services from the business at the lowest prices
90
Influence of customers
Can choose to buy or not buy an organisation's products or services. This influences the products/services an organisation makes/provides. They may also recommend the organisation to family/friends
91
Interest of banks
Want to ensure that a business applying for a loan or with an existing loan has sufficient funds to make agreed repayments
92
Influence of banks
They can exert influence by granting or withholding loans, setting loan rates, or requesting repayments of loans if an organisation's ability to make repayment is in doubt
93
Interest of suppliers
Wants a business to be a success to ensure repeat custom as they depend on their custom for survival
94
Influence of supplier
Can offer trade credit (39/60/90 days), changing prices, offering discounts, reliability - quality/delivery time
95
Interest of local community
Business organisations produce employment therefore generating wealth for an area, communities also have an interest that their environment is not harmed by noise or pollution
96
Influence of local community
They can exert influence by petitioning businesses, involving press in matters and making complaints to their local authority
97
Interest of central government
Want businesses to be successful as they provide jobs, generate wealth & provide government with finance through taxation (income tax from working individuals & corporation tax from businesses)
98
Influence of central government
Produce legislation which businesses must comply to e.g. Minimum wage act, health & safety procedures etc. Economic policies e.g. Changes in interest rates, inflation
99
Interest of local government
Want businesses to be successful as they provide jobs & pay business rates. Want services it provides e.g. Schools, to be successful, meet central gov targets, provide good image & justify budget spending
100
Influence of local government
By granting/not granting licenses for hotels/pubs, providing subsidised premises, granting planning permission. Influence services they provide (schools...) by allocating funding from council budgets & setting operational policies
101
Interest of charities
Corporate donors want a charity that they donate to to be successful as it may provide them with good public relations
102
Influence of charities
They can exert their influence by giving or not giving donations. Donors of large amounts of money may specify the use to which their donation is put.
103
Interest of tax payers
They have an interest in publicly funded organisations to ensure that the taxes that they have paid are used effectively
104
Influence of tax payers
They can exert their influence by voting for political parties at national and local government elections
105
Short term finance
Paid back within a year. Bank overdraft, trade credit, debt factoring, grant, retained profits
106
Advantages of bank overdraft
Borrow more than you have in your account - up to agreed overdraft limit. Easy to arrange. Relatively cheap as you only pay debit interest on the days that you are overdrawn.
107
Disadvantages of bank overdraft
Can be expensive over a period of time. If limit is exceeded, the overdraft facility may be withdrawn and expensive charges incurred.
108
Advantages of trade credit
Buy and revive raw materials/finished goods immediately but pay later (30/60/90 days). Useful when cash flow is a problem.
109
Disadvantages of trade credit
No discount received before paying promptly. If you don't pay when agreed, the creditor (the other business) may refuse to supply your business in the future
110
Advantages of debt factoring
Gives a cash injection so that the company doesn't have to chase debtors to solve debts. Improves cash flow. Factoring company chases all the unpaid invoices, saving your business time & money
111
Disadvantages of debt factoring
Factors usually only deal with large quantities/invoices. Business does not receive full amount of invoice
112
Advantages of a grant
Don't normally have to pay it back. New business incentive particularly in areas of high unemployment
113
Disadvantages of a grant
There is often conditions on what you can spend the money on. One-off payment that is not usually repeated
114
Advantages of retained profits
Nothing to pay back
115
Disadvantages of retained profits
Could slow any growth development
116
Medium term finance
Paid back between 1- 3 years. Bank loan, leasing, hire purchase (HP)
117
Advantages of a bank loan
Repaid in fixed instalments. Budgeting and planning easier
118
Disadvantages of a bank loan
Often higher rates of interest paid for a small business because it is unlikely to have many assets for security.
119
Advantages of leasing
Cheaper than buying in the short term. Avoids using up limited finance on an outright purchase. Leased equipment can be changed when obsolete - this is particularly useful regarding technology
120
Disadvantages of leasing
Business does not own the equipment. Rental charges build over time - could work out more expensive than buying
121
Advantages of Hire Purchase (HP)
Cost is spread, making it easier to afford. Equipment owned by business once final instalment paid
122
Disadvantages of hire purchase (HP)
The goods are owned by the finance company until the final instalment is paid. Can be an expensive form of borrowing
123
Long term finance
Can be paid back over many years. Owner's savings, share issue, debentures, Venture Capital
124
Advantages of Owner's savings (sole trader/partnership)
This can reduce the amount to be borrowed if funding is required. It also allows the owners to keep control without bringing in others.
125
Disadvantages of owner's savings (sole trader/partnership)
Once invested, owner's capital can be difficult to withdraw. Owner's capital is at risk if business fails
126
Advantages of share issue (PLC or LTD)
Limited liability & annual dividend for shareholders. Large sums can be raised. Does not need to be repaid.
127
Disadvantages of share issue (PLC or LTD)
PLC could lose control of business. Issuing additional shares can be expensive. May be difficult to estimate an appropriate selling price.
128
What is a debenture?
Individuals/organisations lend a company money. Can only be issued by PLCs. E.g. Fans in a football club
129
Advantages of debentures
Won't lose control of company. Debenture holders receive a fixed interest payment over the loan period & at the end of the loan period receive the original amount of the loan back e.g. 25 years. Large amounts of finance can be raised.
130
Disadvantages of debentures
Debenture interest must be paid even if the business makes a loss. If the debenture dials, debenture holders have a relight to sell its assets in order to have the loans repaid.
131
Advantages of Venture Capital (Venture Capitalists) e.g. dragon's den
VCs will often provide finance when banks decide a loan is too risky
132
Disadvantages of Venture Capital (Venture Capitalists) e.g. dragon's den
VCs are usually only interested in large loans. Fees often high. VCs often want part ownership on exchange for the finance.
133
Sources of assistance
Scottish Enterprise including Highland & Islands Enterprise, Business Gateway, Careers Scotland, Scottish Chamber of Commerce, Youth .business Scotland, Banks
134
Scottish Enterprise including Highland & Islands Enterprise
Government funded and offer advise for business start-ups, help existing businesses grow, provide training courses & contracts, assist with obtaining grants e.g. EU grants, promote exporting
135
Careers Scotland
Part of Skills Development Scotland. Provides assistance with recruitment & training, sources of information on local labour market, gives advice on employment law
136
Youth Business Scotland
Charity providing low cost loans & grants to young people aged 18-25 interested in starting up a Business in Scotland. Also provides business mentoring, training & professional advice
137
Banks
Provide source of finance, advice in financial planning, assistance in drawing up a business plan
138
Methods of growth
Horizontal, vertical, diversification, de-integration, de-merger, divestment, asset stripping, outsourcing, management buy-out & buy-in
139
Horizontal integration
Firms producing the same type of product/service combine together (e.g. 2 florists merging) goods/services become cheaper due to bulk buying, economies of scale & lower admin costs. Firms tend to dominate market
140
Vertical integration
Firms at different stages of production in the same industry combine together e.g. Oil refinery integrating with a petrol station. Can be forward or backward
141
Forward vertical integration
When business takes over a customer. Allows a firm to increase profits & control supply & distribution of their product e.g. Jam maker combining with the shop
142
Backward vertical integration
When a business takes over a supplier. This gives a guaranteed source of stock. As stock will be cheaper, increased profits are possible e.g, jam maker taker over berry farm
143
Diversification integration
When businesses operating in different markets merge. Reduced risk of business failure. Makes a larger & more financially secure business. E.g. Virgin (trains, active, Atlantic)
144
De-integration
When a business cuts back on or sells minor areas of their business in order to concentrate on core areas. Also provides funds from selling off less profitable areas
145
De-merger
Occurs when a business splits into 2 separate organisations to raise cash for investment. It concentrates its efforts on its core activities & cuts costs to make it more efficient
146
Divestment
Occurs when a business sells its business assets or a subsidiary company to raise finance. E.g. When Morrisons purchased Safeway they identified a number of surplus stores to divest & sold them to other supermarkets
147
Asset stripping
Occurs when a business buys another and then sells off profitable sections bit by bit & closes down the loss-making sections. A business may be worth more when sold off bit by bit than for the sum of what it was purchased for.
148
Outsourcing
Involves 1 firm hiring another to supply parts or do part of a job instead of the firm doing it themselves. E.g. Printing, catering. Business may not possess specialist equipment, expertise or enough staff
149
Advantages of outsourcing
See notebook
150
Disadvantages of outsourcing
Less control over outsourced work, communication between businesses needs to be very clear, may have to share sensitive info (accounts, legal)
151
Internal factors
Finance available, ability of staff, info available, ability of management, changes in costs
152
How finance available affects a business
Lack of finance may mean that a business has to consider cost cutting measures such as staff redundancies, downsizing, delaying equipment replacement of new product developments
153
How ability of staff affects a business
Expert and capable staff will be more productive in their work
154
How information available affects a business
If a business possesses good quality market research information a business will be more capable of responding to consumer needs
155
How ICT availability affects a business
The degree of ICT used within a business can influence the quality and quantity of products produced
156
How ability of management affects a business
Good decisions made by management can have a positive influence on a business
157
How changes in costs affects a business
Increases in wage rates or stock thefts would have a negative impact on a business' profitability
158
External factors - PESTEC
Political, economic, social, technological, environmental, competitive
