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Business > Business in the Real World (1) > Flashcards

Business in the Real World (1) Flashcards

1
Q

Define Goods and Services

A

Goods are physical items like books and furniture whereas Services are actions performed by other people for the customer eg. barbers and plumbers

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2
Q

Define Needs and Wants

A

Needs are things you can’t live without like water and food whereas Wants are things you would like to have but can survive without like holidays or jewellery

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3
Q

What are the main reasons that a business is set up?

4 reasons

A
  1. Making a good or providing a service that they think
    customers would pay for
  2. To distribute goods
  3. To benefit other people. They could make goods or provide a service
  4. Fufil a business opportunity
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4
Q

What are the 3 sectors of the economy?

A

The Primary Sector, The Secondary Sector and The Tertiary Sector

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5
Q

What happens in the Primary Sector?

A

The Primary Sector produces raw materials- any natural resources that are used to make goods or services

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6
Q

Where can the raw materials in the Primary Sector be found?

A

They can be extracted from the ground by the mining industry, grown by the farming industry, or collected by the fishing industry

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7
Q

What happens in the Secondary Sector?

A

The Secondary Sector manufactures goods. They turn raw materials into finished goods

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8
Q

What happens in the Tertiary Sector?

A

The Tertiary Sector provides services

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9
Q

Who can the services be provided for?

A

Some firms provide services for other businesses like warehousing and advertising. Some firms provide services for consumers like hairdressers, shops and restaurants

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10
Q

What is an entrepreneur?

A

An entrepreneur is somebody who comes up with a business idea. This can be by themselves or with a partner

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11
Q

What qualities make a successful entrepreneur?

4 qualities

A

Hardworking, organised, innovative and a risk taker

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12
Q

What are the Four Factors of Production?

A

Land, Labour, Capital and Enterprise

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13
Q

Define Land

A

Land includes all the Earth’s natural resources such as natural gas, oil and coal, materials extracted by mining like diamond and gold, water and animals found in an area

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14
Q

What is the problem with using natural resources?

A

They’re all scarce, there aren’t enough resources to satisfy the demands of everyone

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15
Q

Define Labour

A

Labour is the work done by the people who contribute to the production process

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16
Q

What factors can affect how ‘valuable’ a person is in a workplace?

A

Their level of education, experience or training

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17
Q

Define Capital

A

Capital is the equipment, factories and schools that help to produce goods or services

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18
Q

How is Capital different to Land?

A

Capital has to be made first

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19
Q

Define enterprise

A

Enterprise refers to the entrepreneurs who take risks and create things from the other 3 factors of production

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20
Q

What is opportunity cost?

A

Opportunity cost is the value of the next best alternative that’s been given up

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21
Q

Describe a business owned by a sole trader

A

Sole trader businesses have one owner but that owner can employ people to work for them. Most small businesses are sole traders. Businesses like plumbers, hairdressers, newsagents and fishmongers are all examples of sole traders

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22
Q

What are the advantages of being a sole trader?

3 advantages

A
  • They’re easy to set up
  • You get to be your own boss
  • You can decide what happens to any profit
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23
Q

What are the disadvantages of being a sole trader?

4 disadvantages

A
  • You may have to work long hours with little holidays
  • You have unlimited liability meaning that if the business
    goes into debt, you are liable for paying back and may
    have to sell personal possessions
  • You’re unincorporated which means the business doesn’t
    have its own legal identity so if anyone sues the
    business, they’ll sue you personally
  • It can be hard to raise money or get a bank loan
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24
Q

Describe a business owned by a partnership

A

Business like accountancy firms, solicitors and doctors’ surgeries. Partnerships generally have two or more partners. Each partner has an equal say in making decisions and an equal share of the profits- unless they have an agreement in the deed of partnership that says different

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25
Q

What are the advantages of being in a partnership?

3 advantages

A
  • More owners means more ideas and a greater range of
    skills and expertise
  • More people to share the work
  • More owners means more capital (money) can be put
    into the business, so it can grow faster
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26
Q

What are the disadvantages of being in a partnership?

4 disadvantages

A
  • Each partner is legally responsible for what all other
    partners do
  • Most partnerships have unlimited liability
  • Potential disagreements by including more partners
  • The profits are shared between the partners resulting in
    less money than a sole trader could earn
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27
Q

Who are Limited Companies owned by?

A

Shareholders

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28
Q

What are 2 types of Limited companies?

A

Private (ltd) Public (plc)

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29
Q

What are the differences between these ownerships and sole traders and partnerships?
(3 differences)

A
  • A limited company is incorporated (it has a separate
    legal identity from the owners) so any money, property,
    tax bills etc. in the company’s name belong to the
    company , not the owners
  • Being incorporated means the owners have limited
    liability. If anything goes wrong, its the company thats
    liable not the owners, they can only lose money that they
    invested in the business
  • Because its owned by shareholders, the more shares
    you own, the more control you get
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30
Q

Describe a Private Limited Company (ltd)

A

Private means that shares can only be sold if all the shareholders agree. The shareholders are often all members of the same family.

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31
Q

What are the advantages of a Private Limited Company?

4 advantages

A
  • They have limited liability- you can’t lose more than you
    have invested
  • Being incorporated, the company can continue trading
    after a shareholder dies- unlike a partnership
  • Its easier for a ltd company to get a loan or mortgage
    than it is for a sole trader or partnership
  • For someone to buy shares, all the other shareholders
    have to agree so the owners get a lot of control on how
    the business is managed
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32
Q

What are the disadvantages of a Private Limited Company?

2 disadvantages

A
  • They’re more expensive to set up than partnerships
    because of all the legal paperwork needed
  • Unlike sole traders or partnerships, the company is
    legally obliged to publish its accounts every year
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33
Q

Describe a Public Limited Company (plc)

A

The companies shares are traded on a stock exchange, and can be bought and sold by anyone. Firms often become Public Limited Companies when they want to expand

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34
Q

What are the advantages of being a Public Limited Company?

3 advantages

A
  • More capital can be raised by a PLC than any other type
    of business
  • More capital helps the company to expand and diversofy
  • They have limited liability and being incorporated
35
Q

What are the disadvantages of being a Public Limited Company?
(4 disadvantages)

A
  • It can be hard to get lots of shareholders to agree on
    how the business is run. Each shareholder has very little
    say unless they own a lot of shares
  • It’s easy for someone to buy enough shares to take over
    the company
  • The accounts have to be made public so it is made
    public if a business is struggling
  • More shareholders means there’s more people wanting
    a share of the profits
36
Q

What is the difference between a business aim and objective?

A

A business aim is something you want to do as a business and a business objective is what your business is going to do

37
Q

What are some examples of business aims?

7 examples

A
  • Survival
  • Maximise Profit
  • Growth
  • Increase Shareholder Value
  • Increase Market Share
  • Do What’s Right Socially and Ethically
  • Achieve Customer Satisfaction
38
Q

How can objectives help businesses to achieve their aims?

A

Once objectives have been set they act as clear targets for firms to work towards. They can then be used to measure whether a firm has been successful or not

39
Q

What different factors affect what objectives a business chooses?
(3 factors)

A
  • The size of a business
  • The level of competition
  • The type of business (e.g not-for-profit businesses would
    are more likely to set social or ethical objectives
40
Q

What factors can create a dynamic business environment?

4 factors

A
  • The Law
  • The Economy
  • Technology
  • Expectations of customers may change
41
Q

How can a business use objectives to monitor success?

3 reasons

A
  • Profit e.g If the firm met a yearly profit target it can show
    signs of success
  • Number of employees can show if it’s met its growth
    objectives
  • The value of shares can see if its met its shareholder
    value objectives
42
Q

What is a Stakeholder?

A

A Stakeholder is anyone who is affected by a business

43
Q

What are examples of Stakeholders?

6 examples

A
  • Owners
  • Employees
  • Suppliers
  • Customers
  • Government
  • Local Community
44
Q

What is revenue?

A

Revenue is the income earned by the business before the costs are paid out

45
Q

How do you calculate revenue?

A

Revenue= sales x price

46
Q

What are costs?

A

Costs are the expenses paid out to run the business e.g materials

47
Q

How do you calculate costs?

A

Total costs= variable costs + fixed costs

48
Q

What are fixed costs?

A

Fixed costs don’t vary with output (the amount a business produces). They have to paid even if the firm produces nothing. For example, the rent, insurance, and fixed salaries for employees

49
Q

What are variable costs?

A

Variable costs are costs that will increase as the firm expands output. For example, the costs of factory labour, raw materials and running machinery

50
Q

What is average unit cost?

A

Average unit cost is how much each product costs to make

51
Q

How can you calculate the average unit cost?

A

Average unit cost= total cost / output

52
Q

What is profit/loss?

A

Profit is any money the business still has after their costs have been paid from the revenue. Loss is when the costs are higher than the revenue and no money is left over

53
Q

How do you calculate profit/loss?

A

Profit/loss= revenue - costs

54
Q

Why is it important for a business to make a business plan?

4 reasons

A
  • Identify costs
  • Organise resources
  • Anticipate risk
  • Calculate turnover
55
Q

What are the 7 sections most business plans include?

A
  • Personal Details
  • Mission Statement
  • Objectives
  • Production Description
  • Production Details
  • Staffing Requirements
  • Finance
56
Q

What potential problems occur in business plans?

3 reasons

A
  • They take a lot of time and money to write
  • Some people will be too optimistic when writing a
    business plan leading to problems later on
  • Some managers stick too tightly to the plan so if
    something unexpected happens they may struggle
57
Q

What are the 5 factors that can influence where a business chooses to locate?

A
  • Location of Raw Materials
  • Labour Supply
  • Competition
  • Location of the Market
  • Cost
58
Q

What is economies of scale?

A

When the level of production is increased, the unit cost decreases therefore saving in costs

59
Q

What are the 2 reasons that economies of scale can happen?

A
  1. Purchasing economies of scale - These happen when a
    large firm buys its supplies in bulk and so gets them at a
    cheaper unit price than a small firm
  2. Technical economies of scale - These occur because a large firm can afford to buy and operate more advanced machinery than smaller firms
60
Q

How can larger firms benefit from economies of scale?

3 benefits

A
  • As the average unit cost of making each product is
    lower, firms can make more profit on each item they sell
  • Lower average unit costs means larger firms can charge
    their customers less for products than smaller firms can,
    making potential customers more likely to buy their
    products
  • More profit can be made which can be reinvested into
    the business so it can expand even further
61
Q

What is diseconomies of scale?

A

When expanding leads to an increase in average unit cost

62
Q

What are the risks of diseconomies of scale?

4 risks

A
  • The bigger the firm, the harder and more expensive it is
    to manage properly
  • More people makes communication difficult to each
    layer of the hierarchy
  • Members at the bottom can feel insignificant and
    become demotivated causing productivity to go down
  • The production process may become more complex and
    more difficult to coordinate
63
Q

What are the 2 main types of expansion?

A

Internal and External

64
Q

What is internal expansion or organic growth?

A

When a business expands using its own internal resources without having to borrow from or merge with other firms

65
Q

Why can internal expansion be good?

3 benefits

A
  • It’s relatively inexpensive
  • It’s less likely to go wrong because the firm is expanding
    by doing what it’s already good at
  • The firm grows slowly, so it’s easier to make sure quality
    doesn’t suffer and new staff are trained well
66
Q

Why could it be bad?

A

Because it grows slowly, it takes a long time to achieve growth- some owners don’t want to wait a long time to start making money

67
Q

What are the 3 methods of organic growth?

A
  • E-commerce
  • Opening new stores
  • Outsourcing
68
Q

What is E-commerce?

A

This is where a firm sells products via the internet

69
Q

Why can E-commerce be good?

A

It’s cheaper than opening up a new store because the firm doesn’t have to pay rent and won’t have to hire as many staff

70
Q

What is a disadvantage to E-commerce?

A

The technology e.g websites or apps has to be regularly updated and any technical problems can cause customers to become unsatisfied

71
Q

What is the advantage to opening new stores?

A

It’s fairly low risk. If it operates the same way the existing stores do, it should be a success so the business can increase sales

72
Q

What is a disadvantage to opening new stores?

A

Opening new stores means lots of extra costs e.g rent and staff pay. The company needs to make sure it can afford these new costs

73
Q

What is outsourcing?

A

This is when a business could pay another firm to carry out tasks it could to itself

74
Q

Why would a firm use outsourcing?

A

The outsourcing firm might be able to do these tasks more quickly, cheaply or to a higher standard than the business can do itself

75
Q

What are the disadvantages of outsourcing?

3 disadvantages

A
  • The business loses some control over parts of its
    operations
  • The firm they’ve outsourced might not prioritise their
    work if they’ve also got other customers
  • The business could also get a bad reputation if the firm it
    outsources to has poor standards
76
Q

What is Franchising?

A

A franchise works when a company has one original owner/founder. A person/franchisee who wants to run one of the firms has to ask the franchiser for permission to run one of them. Ex. fast food chains

77
Q

What are the advantages of franchising?

3 advantages

A
  • It increases the franchisors income as they get money
    from the franchisee
  • It increases market share
  • The firm doesn’t have the usual risks and costs of
    running a new outlet- the franchisee is responsible for
    them
78
Q

What is the disadvantage of a franchise?

A

If a franchisee has poor standards the franchisors brand could get a bad reputation

79
Q

What is external expansion?

A

External expansion means expanding by working with other businesses

80
Q

What is a merger?

A

A merger is when two firms join together to form a new but larger firm

81
Q

What is a takeover?

A

A takeover is when an existing firm expands by buying more than half the shares in another firm

82
Q

What are the 4 basic ways a firm can merge with or takeover other firms and what are the advantages of each?

A
  • Supplier: A firm joins with a supplier. This allows the firm
    to control the supply, cost and quality of its raw materials
  • Competitor: A firm joins with one of its competitors. This
    creates a firm with more economies of scale and a
    bigger market share. It will be more able to compete than
    before
  • Customer: A firm takes over a customer. This gives the
    firm greater access to customers. Owning all its retail
    outlets will make it easier to sell its products
  • Unrelated firm: Two unrelated firms join together. This
    means the firm will expand by diversifying into new
    markets. This reduces the risks that come from relying on
    just a few products
83
Q

Why don’t all mergers and takeovers work?

A
  • It’s very hard to make 2 different businesses work as one
  • Employees can be used to one firms management style
    that they can become demotivated in a different one
  • Mergers and takeovers lead to cost-cutting. This could
    mean making people redundant causing tension and
    uncertainty in the workplace

Business (5 decks)

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