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business > Business In The Real World > Flashcards

Business In The Real World Flashcards

1
Q

What is a business?

A

A business is an organisation which provides goods and services to customers who are willing to pay for them

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2
Q

What are the five reasons for starting a business?

A

Producing goods
Supplying services
Distributing products
Fulfilling a business opportunity
Providing a good or service to benefit others

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3
Q

What is the difference between goods and services?

A

A good is a tangible product such as a book, whereas a service is an intangible process that aids that customer such as a lawyer

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4
Q

What is the difference between needs and wants?

A

Needs are necessary for survival and fundamental for quality of life such as water, whereas wants are phenomena that can be lived without such as a mobile phone

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5
Q

What are the four factors of production? (THINK: CELL)

A

Capital
Enterprise
Land
Labour

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6
Q

Define labour

A

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

Different people have unique experience, education and training. These factors can make someone more ‘valuable’ or productive in the workplace than others

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7
Q

Define capital

A

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

Capital is different from land because capital has to be made first

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8
Q

Define enterprise

A

Enterprise refers to the people (entrepreneurs) who take calculated risks with primary and secondary market research to create phenomena from the other three factors of production

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9
Q

Define land

A

As well as the business site/location, land includes all of the Earth’s natural resources

Nearly all things in this category are scarce - there are not enough natural resources to satisfy the demands of everyone because they are finite

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10
Q

What is opportunity cost?

A

Opportunity cost is the sacrifice made when an alternative is chosen

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11
Q

When might businesses need to consider opportunity costs?

A

Most factors of production are limited. Therefore, managers will often look at the opportunity costs of a decision to ensure a logical comparison is made

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12
Q

What are the three sectors of business?

A

Primary sector
Secondary sector
Tertiary sector

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13
Q

What is the primary, secondary and tertiary sector?

A

The primary sector extracts and produces raw materials, which are used to make goods and services

The secondary sector manufacture goods by turning raw materials into finished goods

The tertiary sector provides services

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14
Q

Give examples of types of business that operate in each business sector

A

Primary: Mining and quarrying industry and the farming and fishing industry

Secondary: Chocolate factory that turns raw materials such as cocoa and milk into chocolate and the building and construction industries

Tertiary: Warehousing and advertising, hairdressers, shops, restaurants, banking and insurance services

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15
Q

What is an entrepreneur?

A

An entrepreneur is an individual who takes on mostly calculated risks of enterprise activity

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16
Q

What are the six objectives of an entrepreneur? (Think: TETFID)

A

To be their own boss
Earn more money
To pursue an interest
Flexible working hours
Identify a gap in the market
Dissatisfaction with their current job

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17
Q

What are the four characteristics of an entrepreneur?

A

Someone who is:

  • Innovative
  • Organised
  • Hardworking
  • Willing to take a calculated risk
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18
Q

Why do businesses face a constantly changing business environment? (THINK TELE)

A

Due to the dynamic nature of business:

Changes in technology, economy, legislation and environmental expectations (TELE)

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19
Q

What is the difference between an aim and objective?

A

An aim is the overall goal a business wants to achieve, whereas an objective are tasks that are sought out with purpose to reach that goal

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20
Q

What are the seven different business aims? (SAMIIGT)

A

Survival
Achieve customer satisfaction
Maximise profit
Increase market share
Increase shareholder value
Grow internationally or domestically, or through increasing the number of employees, products sold and income from sales
To do what’s right socially and ethically

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21
Q

What is the role of objectives in running a business?

A

Objectives are specific, measurable, achievable, realistic and time bound (SMART)

They function as clear targets for firms to work towards and can be later used to measure whether a firm has been successful or not

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22
Q

How and why might the objectives set differ between businesses?

A

The size of the business: small, local businesses depend on word of mouth to survive, so a major objective for them might be customer satisfaction. They are more concerned with survival and growth than increasing market shares

The level of competition faced: If a business is a highly competitive market, it may focus on customer satisfaction to ensure brand loyalty from customers. Increasing or holding onto its market share may be more important than maximising profits

Type of business: Not-for-profit businesses are more likely to focus on ethical and social objectives, rather than growth or profit

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23
Q

How and why can the objectives change as businesses evolve?

A

Established businesses’ objectives might differ from smaller start-up businesses. For example, becoming the dominant business in the market, international expansion, increasing shareholder value and ethical and environmental considerations

The dynamic nature of business and the changes it results in usually gives rise to changes of objective

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24
Q

How else can the success of a business be measured other than profit?

A

Could count the number of employees to see if its met its growth objectives

Look at the value of its shares on the stock market to see if it’s met its shareholder value objectives

(Profit can be reviewed at the end of a period to see if the business has reached its target for that time frame)

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25
Q

What is a stakeholder?

A

A stakeholder is anyone who is affected by a business

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26
Q

What are the five different stakeholders of a business?

A

Owners
Employees
Customers
Local community
Suppliers

27
Q

What are the main objectives for an owner?

A

Usually want high dividend payments and high share price

28
Q

________ are interested in their job security and promotion ______. These are improved if the business is prof_____ and growing. They also want a good wage and good working ______

A

Employees
Prospects
Profitable
Conditions

29
Q

_____ are the main stakeholders of a business. They make a _____ if the business is successful and decide what happens to the business

A

Owners
Profit

30
Q

The ______ _______ will suffer if the firm causes noise and ______. They may gain if the firm provides good jobs and ______ local activities. If the business employs these people, they will have more money to spend in local shops, which is good for the local community.

A

Local community
Pollution
Sponsors

31
Q

If a firm is profitable and grows, they’ll need more materials and so ______ will have an increased ______.

A

Suppliers
Income

32
Q

Advantages of being a sole trader

A

Easy to set up - great for start-up businesses

You can be your own boss and make key business decisions

You alone decide what happens to any profit

Financial records remain private

33
Q

Benefits of writing up a business plan

A
  • Can help raise finance by convincing financial backers to invest
  • Can help set objectives and aims
  • Details how the functions of a business will be organised
34
Q

Drawbacks of writing up a business plan

A
  • Time and money consuming. The benefit may not outweigh the cost
  • Some people will be too ambitious
  • Managers may stick too tightly to the plan and be unwilling to be flexible if any unexpected changes occur
35
Q

What is average unit cost?

A

How much each product costs to make

36
Q

Formula for average unit cost

A

Average unit cost = total cost/output

Average unit costs usually fall as the firm grows, due to economies of scale

37
Q

Disadvantages of being a sole trader

A
  • Unlimited liability (no limit to what can be lost - personal assets if business becomes insolvent)
  • Unincorporated (no separate legal identity from business). If sued, you are sued personally
  • Limited capital for investment. Often have to rely on family and friends
  • Lack of enterprise and specialist skills
38
Q

Advantages of being a partnership

A
  • More enterprise and skill sets
  • Work is shared and more productive
  • Each owner can bring up start-up capital to the business so it can grow faster
  • Deed of partnership reduces chances of conflict
  • Financial records kept private
39
Q

Disadvantages of being a partnership

A
  • Unlimited liability
  • Decision making can be time consuming and lead to disagreements, reducing productivity
  • The withdrawal of one partner means that the business will be dissolved
  • Profits are shared between partners
40
Q

Advantages of being a private limited company (LTD.)

A

Liability is limited

Setting up as a company is a good marketing move as people assume that a company is better in some way in comparison to a sole trader

Managers can be recruited to run day-to-day operations, while the owners retain control and the profits are distributed among the shareholders

41
Q

Disadvantages of being a private limited company (LTD.)

A

Various legal procedures need to be completed such as registering the company -> time consuming and expensive

A summary of the financial accounts must be produced and available to the general public. This looses the business privacy and makes them vulnerable to competitors

Any additional investors in the business become important stakeholders. They may not have the same values and objectives as the original owners as their styles clash, resulting in conflict

42
Q

Advantages of a public limited company (PLC)

A

Advertise shares to the general public on the stock exchange. This means it has access to greater number of potential investors than a private limited and therefore can make large sums of money. This could be used to finance expansion

Attract more media coverage because they usually have more shareholders. This provides a cheap form of publicity and advertising

43
Q

Disadvantages of a private limited company (PLC)

A
44
Q

Formula for total costs

A

Total costs = fixed costs + variable costs

45
Q

Formula for revenue

A

Revenue = sales x price

46
Q

Formula for profit

A

Profit = revenue - total costs

47
Q

What is internal growth (organic growth)?

A

Internal growth occurs when a business gets bigger by selling more of its products

48
Q

What is external growth (integration)?

A

Occurs when a business gets bigger by joining or buying other businesses

49
Q

What is the main disadvantages of internal and external growth?

A

Internal growth tends to be slower than external growth so profitability is slower, but may be more manageable because of this.

When businesses merge, their sizes change and it can be difficult to manage and coordinate with new staff and different ways of carrying out business activities

50
Q

How can the size of a business be measured?

A
  • Value of sales. This is called the revenue or turnover. Increasing sales may also increase a firm’s market share
  • Value of the business, by calculating assets minus its liabilities. Businesses can also consider their market capitalisation
  • Number of employees
51
Q

What are the different methods of internal growth?

A

Franchising, opening new stores, e-commerce and outsourcing

52
Q

What is franchising?

A

A franchise occurs when a franchisor sells the rights to its products to a franchisee, usually in return for a fee and percentage of turnover

53
Q

What are the advantages of selling a franchise?

A

Can grow quickly
Franchisee provides some of the finance
Franchisees are motivated and productive as they are running their own businesses

54
Q

What are the disadvantages of selling a franchise?

A

Lose some control
Dangers of reduced quality and decreased customer satisfaction, impacting brand image
Have to share profits

55
Q

What is the impact of opening new stores on internal growth?

A

Will require research to identify the right location and investment

HOWEVER, it increases the amount of outlets and increases brand awareness and publicity

56
Q

How might E-commerce impact internal growth?

A

Going online will add another channel to access the market and allow access to customers across the globe 24hrs a day.

If a business has physical products, it needs to ensure it can distribute these at a cost that does not outweigh the costs of going online. Depends on the operation’s sale process. The business also needs to make sure that going online does not affect its other sales by decreasing use of their physical outlets

57
Q

How might outsourcing impact internal growth?

A

If demand is growing and the business does not have the time or does not want to take the risk of expanding its own production facilities, it can outsource its production to another organisation. This enables the business to grow quickly as it does not need to invest in expanding its facilities

However, quality control needs to be in check and this may cost more than procuring the items itself

58
Q

What are the methods of external growth?

A

A merger occurs when two or more firms join together and create another joint business

A takeover or acquisition occurs when one business buys control of another one

59
Q

What are the types of external growth/integration?

A

Horizontal integration: when one firm joins with another firm at the same stage of the same production process

Vertical integration: When one firm joins with another firm at a different stage of the same production process. This can be backward vertical integration when a firm joins with its suppliers or forward vertical integration where a firm joins with its distributors

Conglomerate integration: Occurs when one firm joins another in a different type of production process

60
Q

What are the advantages of business expansion?

A
  • Can lead to economies of scale
  • Lead to more power in the market as retailers are likely to stock the products of a well-known brand
  • Brand reputation and publicity. Can launch more product ranges
  • Staff will be more motivated and productive as rewards for staff tends to be linked to the size of the business
61
Q

What are the disadvantages of business expansion?

A

Decision-making becomes slower because there are so many people to consult in a big business. This is because of the long chain of command within the hierarchy. As a result, communication is slow and may be distorted

  • Employees may feel isolated and not important in the organisation, so their motivation and productivity may decrease
  • Controlling and coordinating efficiently may become more difficult as the business is harder to manage. Quality may decline if franchising or takeovers occur

THEREFORE, ALL RESULTING IN DISECONOMIES OF SCALE

62
Q

What are technical economies of scale?

A

When large-scale production results in efficient use of technology

63
Q

How do you calculate average unit cost?

A

Unit cost = total costs/output

business (6 decks)

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