Business in the real world Flashcards
Business plan
A detailed statement of how the business intends to operate, either at start-up or during a given period of time. Business plans are based on forecasts and so cover only a short time.
Tangible
an asset that has physical substance
Need
The human wants that are essential to survival; clothing, food, shelter, warmth or water.
Want
Things that people would like to have; not limited to the things they need to survive.
Land
the natural resources used to create a good or service
Labour
the effort that people contribute to the production of goods and services
Capital
resources or machinery needed for the production of a good or service
Enterprise
the entrepreneur that takes the first risk of starting a business
Market share
The proportion of the whole market for a product that is held by the business.
Market growth
The percentage growth in the size of the market, measured over a specific period.
Stakeholder
Those with an interest in the way that a business operates.
Shareholder
Those people who own shares in a limited company; each shareholder is a part owner of the business.
Franchising
The sale of the rights to use/sell a product by a franchisor to a franchisee. A fixed amount is paid in return.
External growth
The growth of a business by joining with another by merger or takeover.
Merger
When two or more businesses agree to join together.
Takeover
One business takes control of another.
e.g: through 51% or more shares
Backward Vertical
when a business takes control of another business that operates at an earlier stage in the supply chain
Forward Vertical
occurs when a business takes control of another that operates at a later stage in the supply chain
Horizontal
occurs when two competitors join through a merger or takeover.
Conglomerate
occurs when businesses in unrelated markets join through a takeover or merger
Diversification
occurs when businesses in unrelated markets join together through a takeover or merger
Primary sector
A business that extracts the earth’s natural resources.
Secondary sector
A business that uses raw materials to manufacture goods or construct items.
Tertiary sector
A business that provides services to consumers or other businesses.
External factors (TELE)
Technology
Economy
Legislation
Environment
Limited liability
The owners are not responsible for the debts of the business. The limit of their liability for the business’ debts is the amount they invested.
Unlimited liability
When the owner(s) are responsible for all the debts of the business. Their personal funds would be used to settle the business’ debts if the business’ funds were insufficient.
Opportunity cost
The cost of making one choice concerning the use of limited resources at the expense of an alternative choice.
Sole traders
A business that is owned and operated by one person.
Public limited company (plc)
A business that is owned by shareholders. Anyone can buy shares in the business. Shareholders have limited liability.
Private limited company (ltd)
A business that is owned by shareholders; the shares are not available to the general public. Shareholders have limited liability.
Partnerships
A business that is owned and operated by a group of between 2 or more people.
Factors of ownerships structures (PLUMS)
Profit distribution
Liability
Unlimited Liability
Management and Control
Sources of finance
PLUMS in Sole trader
P - 100% yours
LU - Unlimited Liability
M - Full control (no support)
S - No access to share capital
PLUMS in Partnerships
P - Shared through ‘Deeds of Partnership’
LU - Unlimited Liability
M - Shared through ‘Deeds of Partnership’
S - Access to each others finance
PLUMS in Private Limited Company
P - Shareholders receive dividends
LU - Limited Liability
M - Founder (divorce less likely)
S - Access to share capital from KNOWN shareholder
PLUMS in Public Limited Company
P - Shareholders receive dividends
LU - Limited Liability
M - Directors manage (divorce more likely)
S - Access to STOCK EXHANGE
Aim
The intention to reach a goal.
Examples of aims
Maximise profit
Gain independence
Personal satisfaction
Survival
Objective
A specific statement that defines a precise goal that can be measured and delivered within a given time.
Factors for Location (RECIPF)
near to Raw Materials
near to Employment
Competitors
Infrastructure
Proximity 2 target market
Finance (New or Established business)
Pros of Business Plans
- Help understand finance
- Increase chances of obtaining external finance
- Gaps within your company
Cons of Business Plans
- Reality can be different
- Is the plan even good?
Economies of scale
The cost advantage of producing on a large scale. As output increases the unit cost decreases.
Diseconomies of scale
When a business grows too large, leading to a possible increase in unit cost.
Technical economies of scale
The benefits that large businesses gain from having the funds to invest in expensive machinery that brings cost savings.
Internal Growths (I-FONE)
- Franchising
- Outsourcing
- New stores
- E-commerce
Pros of Franchising
- Additional revenue stream
- Less risk as other businesses pays your say to day costs
Cons of Franchising
- Lose control of sales
- Inconsistent quality
Pros of outsourcing
- May reduce costs (machinery)
- Specialists (so better quality)
Cons of outsourcing
- More risk as less control over production
- Possibly not great quality
Pros of New stores
- Replicate look and feel of original stores
Cons of New stores
- New costs
Pros of E-commerce
- 24/7 open
- cheaper (less rent)
Cons of E-commerce
- High initial costs
- cheaper (less rent)
