Business In Real World

Question 1

What is a business

Answer 1

A business is an organisation
which trades to make money,
these come in all shapes and sizes

Question 2

What is a product

Answer 2

A product is anything that is
capable of satisfying
customer needs, it is
tangible and can be
touched

Question 3

What is a service

Answer 3

A service is an act that a business person carries
out for you in exchange for money

Question 4

Factors of production

Answer 4

• To produce goods and services 4 things are needed:
• Land– somewhere to produce the goods e.g. a farm
• Labour– people to work in the business e.g. farm
workers
• Capital– money to get the business started
• Enterprise– This is the drive or motivation from
the owners to start a business

Question 5

Opportunity cost

Answer 5

• The problem:
• Land, labour, capital and
enterprise are limited
resources
• However our wants are
unlimited
• This causes scarcity
• As business people we
need to decide how best to
use those scarce resources,
we make choices

Question 6

Reasons for starting a business

Answer 6

-produce good
-to supply a service
-distribute products
-fulfill a business opportunity
-providing a good or service to benefit others
-

Question 7

What is primary sector

Answer 7

The primary sector
extracts raw materials
from the planet

Question 8

What is secondary sector

Answer 8

In the secondary
sector goods are
manufactured from raw
materials into finished
goods

Question 9

What is tertiary sector

Answer 9

In the secondary
sector goods are
manufactured from raw
materials into finished
goods

Question 10

What is a enterpirse

Answer 10

This can be defined as: A company or
business. It also can mean a complex project.

Question 11

What is a entrepreneur

Answer 11

An entrepreneur can be defined as: A person
who starts a business and takes on financial
risk in the hope of making a profit

Question 12

Characteristics of entrepreneurs and objectives

Answer 12

-initiative
-organised
-risk taker

-to be own boss
-flexible hours
-to pursue interest
-earn more money
-identify gap in market
-dissatisfaction with current jobs

Question 13

Inflatian rates

Answer 13

Inflation is: The rate
of increase in prices
for goods and services
– If these go up in the
UK then raw materials
required to make
goods may increase
– This will increase the
costs of the business
– This will have an
impact on profit

Question 14

Interest rates

Answer 14

Interest rates are the cost of borrowing
rise interest rates will impact a business because if they
have loans or overdrafts these will now cost them more
Also their customers may now have less money as the
cost of their borrowing has increased, so sales may suffer

Question 15

Unemployment rates

Answer 15

• The rate of unemployment in
the UK is those people without
a job who have been actively
seeking work in the past 4
weeks and are available to
start work in the next 2 weeks.

Question 16

Exchange rates

Answer 16

Exchange rates are the cost of one currency expressed in terms of another

Question 17

Employment laws

Answer 17

The National Living Wage is
higher than the National
Minimum Wage - workers
get it if they’re over 25.

Question 18

Health and safety laws

Answer 18

• Health and Safety at work Act
1974
• All workers have a right to work in
places where risks to their health
and safety are properly controlled
• Health and safety is about
stopping you getting hurt at work
or ill through work
• The employer is responsible for
health and safety, but the
employees must help

Question 19

Consumer laws

Answer 19

Goods must be; as
described, fit for purpose
and satisfactory quality
This will have an impact on
costs for a business as they
need to make sure the goods
are “satisfactory quality”

Question 20

What is a sole trader

Answer 20

A sole trader is a business
which has only one owner
▪ Also known as a sole
proprietor
▪ Can employ people but
they will not be involved in
control of business
▪ Sole traders must pay tax
on their profits
▪ Has unlimited liability
(more on this later)

Question 21

Advanatges of sole traders

Answer 21

. Easy to set up – no
complicated forms
2. Make decisions quickly –
no agreement needed
from other people
3. Less capital needed

Question 22

Disadvanatges of sole trader

Answer 22

1. Unlimited liability
2. 3. 4. 5. 6. 7. Difficult to raise money – seen as a risk
                  Don’t have economies of scale (buying in bulk)

Question 23

Unlimited liability

Answer 23

This means that the
business and the owner are
ONE legal entity.
In short if a customer sues
the business, they will in
fact sue the owner
• If the business gets into
financial trouble, and
needs to pay off debts,
then the owner could lose
their:
– House
– Car
– Personal possessions
If the business gets into
debt, the owner gets into
debt

Question 24

Partnerships

Answer 24

• Partners are all joint
owners of the business
• The partners of the
business may do decision
making themselves or they
may employ manager

Question 25

Advanatges of partnerships

Answer 25

• Easy to set up
• Capital needed is small
• Easier to raise extra capital than a sole trader as there are more partners to invest
• Profits go to partners which means motivated
workers

Question 26

Disadavantges of parternships

Answer 26

• Partnerships have unlimited liability
• Trust and reliability can be an issue
• Partners can have disagreements;

Question 27

Private limited company

Answer 27

Shares cannot be bought by the public, the share
issue is limited (hence the ltd) to friends and
family who can buy shares in the business
• Owners control who buys the shares
• Minimum 2 people – no maximum
• Expand by selling more shares, giving the
business more capital
• Limited liability, t

Question 28

Advanatges of LTD

Answer 28

• Protection of limited liability for investors, they
cannot lose their own assets on the value of the
investment
• Easy to raise capital – issue more shares to
friends and family
• Banks more willing to lend money to a ltd
company than a sole trader

Question 29

Ltd-disadvanatges

Answer 29

• Business has to issue more information about
itself which can be expensive to produce
• Business has to prepare Annual Accounts and
have these printed and sent to all
shareholders

Question 30

Plc

Answer 30

• Shares can be bought and sold by
anyone on the Stock Exchange
• Can expand by selling more shares
• Limited liability
• Company has its own legal status
• Normally start as LTD then become
PLC
• Normally very large businesses

Question 31

Plc-advanatges

Answer 31

• Protection of limited liability for owners and
investors
• Easy to raise capital – issue more shares
• Banks more willing to lend money to a large
well-established company – less risk

Question 32

Plc-disadvanatges

Answer 32

• Expensive to produce accounts every year
• Has to publish annual accounts which means
the public and competitors can see all their
financial information
• Expensive process to become a plc

Question 33

Non-for-profit

Answer 33

• A not-for-profit organisation is one that has
the objective of something other than making
a profit (but it still might make a profit)
• They are dedicated to a social cause
-limited liability

Question 34

Survival objective

Answer 34

The objective is to reach
a sustainable level of
sales that allows the
business to reach its
break-even point

Question 35

Profit maximisation

Answer 35

Profit is total revenue (revenue into a
business) minus total costs (costs out of a
business)
• A business will aim to maximise profit,
they must do this therefore in only two
ways:
– Increase revenue into the business
– Reduce costs out of the business

Question 36

Growth

Answer 36

The business may wish
to increase the number
of shops or outlets that
they have in the UK
(this is the domestic or
home market)
• The business may wish
to expand into other
countries, for example
Europe (this is the
international market)

Question 37

Market share

Answer 37

A business may aim to increase their market
share. This is the percentage of sales held by
a business in a market.
• They will have to take sales away from
competitors to achieve this aim

Question 38

Social objectives

Answer 38

• Social enterprises are
businesses trading for social
or environmental purposes

Question 39

Ethical objectives

Answer 39

• Ethics is the principal of
knowing right decisions
from wrong ones in
business
• Having ethical
objectives is expensive
and will cost the
business money

Question 40

Shareholder value

Answer 40

• Shareholder value is; where shareholders, in a
business, earn a return from their investment
which is greater than their required rate of
return

Question 41

What is a stakeholder

Answer 41

• A stakeholder is defined as anyone who has an
interest in a business and is affected by the
actions of the business

Question 42

Stakeholder-owners

Answer 42

Role; to start and run a
business to make a
profit
• Objectives; to get a
good return on any
money they have
invested in the business
• To make a profit
• To survive

Question 43

Stakeholder-employees

Answer 43

• Role; to work in a
business in return for
wages
• Objectives; To have job
satisfaction, to have job
security so they can pay
their bills, to get
promoted

Question 44

Stakeholder-customers

Answer 44

• Role; to buy goods or
services from the
business
• Objectives; to get a
good choice of goods or
services, to get value for
money, to get quality
products at low prices,
to have the opportunity
to buy innovative
products

Question 45

Stakeholder-local community

Answer 45

• Role; For those who live
near a business who may be
affected by its operations
• Objectives; They want the
business to provide jobs,
they want the business to
operate in an ethical way,
they may also want them to
buy from local suppliers and
to not pollute the local
atmosphere

Question 46

Stakeholder-suppliers

Answer 46

Role; to provide the
business with goods or
services that they might
need
• Objectives; they want to
charge high prices to
make a profit, they want
customer loyalty with
repeat orders, they also
want payment on time,
they may also want larger
orders

Question 47

Costs of location

Answer 47

Cost of premises-cost of rent for shops in town centres shopping centres will be more exprnsive
Grant- do not need to be paid back as encouraged to ste up with areas with high unemployment

Question 48

Proximity to market

Answer 48

The location will depend on the type of goods:
– bulky or perishable goods manufacturers need to
be close to their customers as the goods cannot
be transported long distances e.g. abroad
– consumer goods manufacturers (such as Unilever)
can reduce the costs of transport by locating close
to customers

Location close to customer traffic is important
as it is good for the customers (convenience)
and good for the business as it may need
more sales

Question 49

Labour factors

Answer 49

Adequate supply of
cheap and skilled labour
is necessary for
businesses
• Some businesses may
move to areas of high
unemployment so there
is a large pool of
applicants for any jobs
they advertise

Some businesses may
decide to set up near a
cluster of other similar
businesses or close to
very skilled staff

Question 50

Prupose of a bsuiness plan

Answer 50

-help set up a new business
- to help the business raise finance
-to help business set objectives
-to outline how functions of business will be organised

Question 51

Main section of business plan

Answer 51

Goals
Pricing
Knowing market
Customers
Competitors
Location
Promotion
Finance

Question 52

Fixed costs

Answer 52

Fixed costs are costs that do NOT vary with the level of
business
• These are all running costs of the business that do not
fall into variable costs. These are costs that you need to
pay no matter how much goods or services you
produce.

Question 53

Variable costs

Answer 53

Variable costs are costs that DO vary
with the level of trade
• These are the direct costs associated
with the production of the
goods/services which will be sold

Question 54

Formula lf total costs

Answer 54

Fixed costs + variable costs