BUSINESS IN THE REAL WORLD Flashcards
What are goods?
physical items to be sold
What is a service?
actions done by the business to aid the customer
Why are businesses set up?
to benefit others
fill a gap in the market
to make a profit
to be your own boss
What are the three sectors of the economy?
primary
secondary
tertiary
What is the primary sector?
where raw materials are extracted by mining, growing or collected (fishing)
What is the secondary sector?
where the goods are manufactured - building and construction
What is the tertiary sector?
where the service is provided
What is enterprise?
the process of identifying new business opportunities and taking advantage of them
What are some qualities of an entrepreneur?
innovative - new ideas and solutions
hardworking
organised
prepared to take risks
What are the factors of production?
Capital - equipment, factories etc that help the production of goods
Enterprise - the people that create things and take risks
Land - all the earth’s natural resources
Labour - the work done
What is opportunity cost?
the benefit that is given up in order to do something else -> puts a value on the product/business
What is a sole trader?
a company with only one owner
Advantages of a sole trader?
easy to set up - good start up business
be your own boss
decide what happens to profit
make your own decisions
Disadvantages of a sole trader?
work long hours
not many holidays
unlimited liability - liable for paying back a debt
unincorporated - the business doesn’t have its own legal identity -> if the business is sued, you’ll be sued personally
What is a partnership?
a company with 2-20 partners
Advantages of a partnership?
more owners -> more ideas and larger range of skills
work can be shared
more capital (money) is put into the business -> grow faster
Disadvantages of a partnership?
each partner is legally responsible
unlimited liability
more owners -> more disagreements
profit is shared
What are the two types of limited companies?
private and public
What is a limited company?
a company owned by shareholders
more shares -> more control
What is the difference between a public and private limited company?
public (PLC)- shares are sold on the stock exchange by anyone
private (LTD) - shares are only sold is all shareholders agree
Advantages of a ltd?
limited liability - you can’t lose more than what you invest
incorporated - continue trading after a shareholder dies
easier to get a loan/morgage
owners get control over decisions
Disadvantages of a ltd?
expensive to set up - lots of legal paperwork
legally obliged to publish its accounts
Advantages of a plc?
more capital -> help expand
limited liability
incorporated
Disadvantages of a plc?
hard to come to agreements
easy for someone to buy enough shares to take over
accounts have to be publicised - people can see if they’re struggling
more people wanting a share
What is a not-for-profit business?
a business that doesn’t try to make a profit
What are the type of legal structures (limited/unlimited) a not-for-profit business can have?
unincorporated association - easy to set up, unlimited liability
incorporated - are ‘limited by guarantee’ (each member pays a fixed amount if it goes bust)
What are the disadvantages of a not-for-profit business?
hard to manage/set up - rules to follow, apply for certain grants
uncertainty about finance
unreliable - no permanent staff
mainly funded by grants - not stable income
What is another type of not for profit business?
social enterprises
What is a business aim?
overall goals they want achieve
What are some types of aims?
survival
maximise profit
growth
increase market share, shareholder value
achieve customer satisfaction
What is a business objective?
helps business achieve their aim
What should objectives be? (smart)
Specific
Measurable
Achievable
Realistic
Time
What factors affect business objectives (pestle)
Politics
Economy
Social
Technology
Laws
Environmental expectations
What is a stakeholder?
anyone who’s affected by a business e.g manager, customer, employees, supplier, owner
What is revenue?
income earned
=sales x price
What is a fixed cost?
a cost that don’t vary with output e.g rent, insurance
What is a variable cost?
costs that increase as the firm expands output e.g raw materials, machinery
Total costs =
variable + fixed
Average unit cost =
total cost / output
What does the average unit cost show?
how much each product costs to make - for a profit to be made, they must charge more than this
Profit =
revenue - costs
What is a business plan?
outline of what the business will do and how it plans to
Why is a business plan useful?
makes the owner plan carefully
shows what resources are needed
calculate how much money is needed
plan objectives
What is part of a business plan?
personal details
mission statement - describes aims
objectives
product description
production details
staff requirements
finance
What are the disadvantages of a business plan?
take lots of time and money
some may be too optimistic
stick too tightly - if something unexpected happens and the manager doesn’t want to change the plan
What influences the location of a business?
access to raw materials
competition
cost
transport
location of the market
The average unit cost is lower when the business is?
What is this called?
larger - economies of scale
Why does economies of scale happen?
purchasing economies of scale - large firm buys in bulk -> cheaper unit price
technical economies of scale - large firms can afford to buy/operate more advanced machinery than small firms
What is diseconomies of scale?
when growth leads to increased average unit cost as it is more expensive to manage
What are the disadvantages of diseconomies of scale?
more people -> hard to communicate
demotivated workers -> less productivity
production process becomes complex -> hard to coordinate
How can businesses expand internally?
outsourcing - pay another firm to carry out tasks for it -> quicker, possible higher standard, loss of control over its operations, bad rep if done badly
open new stores -> low risk but extra costs
eccomerce - selling on internet
-> cheaper (no rent, no costs that opening a new store would have), regularly updated technology, technical problems
What is franchising?
expansion by giving other firms the right to sell its products (in return for a fee)
What are the advantages of franchising?
increases the franchisors income, market share, brand awareness
no risks for franchisor
How can businesses expand externally?
merging - two firms join to create a larger firm
takeovers - when a firm buys over half of the shares in another firm
Why is external expansion better than internal?
the business grows much faster
How can a business merge/takeover?
with a supplier, competitor, customer, unrelated firm
Why is external expansion not always successful?
less than half of them are successful -> hard to make 2 different businesses work as 1
