BUSINESS IN THE REAL WORLD Flashcards
what do business provide to customers?
what is goods and services?
what are needs?
what are wants?
what are three reasons why business’s are set up?
-Businesses sell products to customers who are willing to pay for them
-Products can be goods or services
Goods-physical items eg book
Services-actions performed by other people to aid the customer eg barbers
Needs= things that you can’t live without eg water,food
Wants= things you would like to have but can survive without eg holidays
3 reasons business are set up:
-Some people start business’s that distribute goods
-Some business’s are specifically set up to benefit other people,they could make goods or provide services eg not-for profit organisations
-Some people will start a business because they see a business opportunity and want to fulfil.Investment
what is the three sectors of economy?
PRIMARY SECTOR (produces raw materials):
-natural resources which are used to make goods/services
-Can be extracted/grown/collected
SECONDARY SECTOR (manufacture goods)
-Turn raw materials into finished goods
-Includes builiding and construction industries
TERTIARY SECTOR (provides services)
-Firms provide services for other business’s
-include resturants hairdressers advertising
what are 2 definitions of enterprise?
what is an entrepreneur?
what are 4 reasons why someone wants to become an entrepreneur?
what are 4 characteristics of a sucessful entrepreneur?
-Enterprise involves identifying new business opportunities and then taking advantage of them.There’s always a risk or failure but the reward for a sucessful enterprise is profit
-Enterprise involve starting up a new business or helping an existing one to expand by coming up with new ideas
-Entrepreneur is someone who takes on the risks of enterprise activity
4 reasons:
-Some people start a business when they identify a gap in the market
-Some people want to follow an interest - job satisfaction
-some people want the independence of being their own boss making their own decisions,flexible hours what to do on each day
-some people are simply dissatisfied with their current job starting a new business can make them feel happier more motivated
4 Characteristics of an entrepreneur:
-Hardworking= lots of hard work to turn ideas into practice,they work long hours could be working alone and they have all the different tasks
-Organised= entrepreneurs must have good organisational skills to keep on top of day to day tasks of running the business as well as planning for the future
-Innovative= come up with new ideas think of solutions to problems that come up
-Willingness to take risks- lots of unknowns in running a business
what are the 4 factors of production?
what is opportunity costs?
Resources are needed to make products can be divided into 4 factors of production
Land (earth’s natural resources)
- non-renewable resources eg oil coal
-water
-renewable resources tidal
Labour (work done by people who contribute to the production process)
-different people have levels of education experience or training
Capital (equipment factories schools) help to proudce goods or services
-capital is different from land because capital has to be made first
Enterprise
-Refers to entrepreneur who takes risks and create things from the other 3 factors of production
Opportunity costs= value of the next best alternative that’s been given up
what is sole trader?
what is 3 advantages?
what is 3 disadvantages?
-Sole traders have just one owner eg plumbers/hairdressers
Advanatges:
-Easy to set up great for a start up business
-Get to be your own boss
-You alone decide what happens to any profits
DISADVANTAGES:
-Might have to work long hours not get much holidays
-Unlimited liability (pay all the debts because you are liable sell eveyrthing you own)
-Unincorporated which means the business doesn’t have its own legal identity
-Can be hard to raise money banks see them as risky so it may be hard to get a loan you have to rely on your own savings friends
what is a partnership?
what are 3 advantages?
what are 3 disadvantages?
-Partnerships 2 or more people who own an unincorporated
ADVANTAGES:
-more owners more ideas and a greater range skills and expertise
-more people share the work
-more owners mean more money can be put into the business so it grows faster
DISADVANTAGES:
-each partner is legally responsible for what all the other partners do
-most have unlimited liability
-more disagreements
-profits are shared between the partners
what is a limited company?
what is limited liability?
who is it owned by?
-Limited company is incorporated it has a separate legal identity from the owners
-Being incorporated means you have limited liability if anything goes wrong it’s the company that’s liable not the owners the owners risk loosing the money that they have invested
- It is owned by shareholders more shares you own the more control you get
what is private limited company?
what do they have after their name?
what is public limited company?
what do they have after their name?
what is 3 advantages?
-Private ltd means that the shares can only be sold if shareholders agree
-They have ltd
ADVANTAGES:
-limited liability
-being incorporated means the company can continue trading after a shareholder dies
-its easier for an ltd to get a loan or mortage
DISADVANTAGES:
-More expensive to set up (lots of legal paperwork)
-comapny is legally obliged to publish it’s accounts every year
Public limited company their shares are traded on the stock exchange and can be bought and sold by anyone
-Firms often become public limited companies when they want to expand
-They have plc after their name
ADVANTAGES:
-Much more capital can be raised
-That help comapny to expand and diversify
-they also have the benefits of limited liability and being incorporated
DISADVANTAGES:
-Accounts have to be made public (competitors can see)
-More shareholders means there’s more people wanting a share of the profits
-it can be hard to get lots of shareholders to agree on how the business is run
what type of liability smaller business and larger business tend to have?
who tends to have more control?
-Smaller business (sole trader/partnership) tend to have unlimited liability
-Larger business’s have limited liability
-Sole traders and ltds tend to give an entrepreneur more control than plcs and partnerships
-Business structure can change over time eg sole trader might turn into a partnership
what is not for profit?
what do they need to generate?
what type of status do many of them have and what does it mean?
what is another type of npt for profit organisation?
why is not for profit hard to manage?
what are 2 different legal structres they can have?
-Not for profit don’t try to make a profit
-They need to generate enough income to cover their costs but any surplus is put back into the business
-Many not-for profit have charitable status this they get some tax relief and they’re able to apply for certain grants.Many charities are funded mainly by donations and grants
-Social enterprise are another type of not for profit organisation.These make money by selling products.Profits benefit society.As they make their own profit they don’t rely as heavily on donations
-Not for profits can be hard to manage uncertain about how much finance and if they rely on volunteers
MANY DIFFERENT LEGAL STRUCTURES:
-They can choose to be an unicorporated association.Easy to set up but the people who manage the organisation have unlimited liability
-Bigger organisations tend to be incorporated have limited liability.They are often ‘limited by gurantee’ meaning that some of it’s members gurantee they’ll pay a fixed amount of money if it goes bust
what are 5 aims a business can have?
what is objectives?eg?
-Survival=it’s important short-term aim of all new business’s
-Maxixmise profit
-growth=growth can mean different things eg increasing number of employees .Some firms want to grow domestically and others internationally
-increase shareholder value=(make their shareholders wealthy) by increasing the value of the firm eg making more profit
-Increase market share=when a bussiness first starts up it has 0 market share so one of it’s aims is to caputre a part of the market and establish itself it can then aim to increase market share by taking sales away from competition
-Achieve customer satisfaction=firms can do this measure this by carrying out customer opinion surveys a type of market research
Objectives are more specific than aims-measurable steps on the way to aims
-once they have been set they act as a clear target for firms to work towards
-they can be used later to measure whether fairm has been successful or not
what are 3 factors that affect the objectives of a business?
why do objectives change?(3)
how can business’ use objectives to monitor sucess?
-Size of the business=small local business depend word of mouth to survive iso a major objective would be customer satisfaction.Larger business’s get more attention from the public so they might set an objective about acting ethically
-Level of competition the business faces=if a business is in a highly competitive market it might focus on customer satisfaction so that it can win customers from it’s rivals.
-Type of business=eg not for profit might focus on social or ethical objectives
Objectives change:
-New legislation= companies may need to adjust their objectives when new laws are introduced
-Changes in the economy=eg if there’s a recession a company’s growth might be put on hold while it concentrates on survival
-Environmental expectations=people become more concerned the impact a business has on the environment
Business can use their objectives to montior sucess by checking after a period of time to see if they have achieved objectives
what is a stakeholder?
how are the 5 stakeholders affected by the business?
who are the most influential stakeholders?
what do they need to consider?
why might firms ignore the opinions of some stakeholders eg?
-Anyone who’s affected by a business they have different opinions about what makes a firm sucessful and what it’s objectives should be
-Owners=most important/make a profit if the business is sucessful and decides what happens to the business
-Employees=interested in their job security and promotion prospects.These are improved if the firm is profitable and growing.Also decent wage and good working conditions.benefit from the objectives of growth profitability ethics
-Government=receive taxes if the firm makes a profit they benefit when objectives are based on growth profitability
-Customers=want high quality products they benefit when objectives are based on customer satisfaction
-local community=where the business is based will suffer if the firm causes noise and pollution.may benefit when objectives are based on minimising environmental impacts growth ethical considerations
-A firm buys its raw materials from suppliers if firm is profitable and grows they will need more materials and supplier will get more business and therefore its income will increase,suppliers benefit when thhe firm set objectives based on profitability and growth
-The most influential stakeholder is the owners
-They need to consider the other interests of other stakeholders
-Firm may decide to ignore opinions of some stakeholders but they need to take others in accoount of they want to survive as a firm eg if a business doesn’t have happy workers may become unproductive
what is revenue?
how do you work out revenue?
what is fixed costs?
what is variable costs?
when are fixed costs fixed?
how do you work out total costs?
-Revenue is the income earned by the business in a given time period
-Revenue= sales(number of units sold) X price
-Fixed costs don’t vary with output (amount business produces) .They have to be paid even if the firm doesn’t produce anything eg rent insurance
-Variable costs costs that will increase as the firm expands output eg costs of factory labour,raw materials
-Fixed costs are only fixed over a short period of time an expanding firms fixed costs go up
Total costs= variable costs + fixed costs
what is average unit costs?
how do you work it out?
why do usually fall?
what is profit?
-Average unit cost is how much each product costs to make
-average unit costs=total costs divided by output
-Average unit costs usually fall as the firm grows due to economies of scale
-Profit=difference between revenue and costs over a period of time
profit=revenue-costs
-If the costs are higher than revenue the business will make a loss instead of a profit
