Business In The Real World Flashcards
What do businesses provide?
Businesses sell products to customers who are willing to pay for them. Products can be goods (physical items e.g. books or furniture) or services (actions performed by other people to aid the customer e.g hairdressers and plumbers)
Why do people set up their own business?
- To make a profit (risk for financial rewards)
- If they expect to make more money than they could earn as an employee of another company
- To be their own boss and make their own decisions
- Gives you an opportunity to do a job you’re really interested in
- To distribute goods (buy products from a manufacturer to sell them on to other businesses or individual customers)
- To benefit other people
What are the three sectors of economy?
Primary - raw materials: natural resources used to make goods or services. Can be extracted, grown or collected.
Secondary - manufactured goods ( + building and construction) e.g a chocolate factory
Tertiary - provides services e.g banking services are used by businesses and consumers
What is meant by “enterprise”?
Enterprise can mean either a business or organisation or the personal qualities that mean you can see and take advantage of new business opportunities.
Enterprise involves identifying new business opportunities and then taking advantage of them.
What are the 4 main qualities of an entrepreneur?
- Hardworking: putting an idea into practice, long hours, lots of tasks done on their own.
- Organised: keep on top of day-to-day while planning for the future.
- Innovative: to come up with new ideas and think of solutions to problems that arise.
- Willingness to take risks: lots of unknowns in business.
What are the 4 factors of production?
- Land (natural resources)
- Labour (work done by employees)
- Capital (investment in equipment)
- Enterprise (entrepreneurs that take risks)
What is Opportunity Cost?
The value of the next best alternative that’s been given up for doing something else.
What are the 4 types of business ownership structures?
- Sole Trader
- Partnership
- Public limited company (plc)
- Private limited company (ltd)
What are the pros and cons of being a sole trader?
Pros:
- easy to set-up
- get to be your own boss
- you alone decide what happens to any profit
Cons:
- long hours, not many holidays
- unlimited liability: you are liable for paying all of the debt of the business.
- you’re unincorporated: business doesn’t have a legal identity, so any legal issues means you’re sued personally
- it can be hard to raise money, often have to rely on your own savings
What are the pros and cons of being a partnership?
Pros:
- more ideas, greater range of skills and expertise.
- more people to share the workload
- more owners means more capital, so the business grows faster.
Cons:
- each partner is liable for what all of the other partners do.
- like sole traders, most partnerships have unlimited liability.
- more owners means more disagreements
- the profits are shared between the partners, less individual profits
What are limited companies?
Public and Private limited companies are incorporated, meaning the company has a separate legal identity from the owners. This means the owners have limited liability; if the company goes bust, they only lose what they invested into the company.
Limited companies are owned by shareholders; the more shares you own, the more control you have.
What are the pros and cons of being a PLC? (Public Limited Company)
Pros:
- significant amounts of capital can be raised by a PLC, helping the company to expand and diversify.
- limited liability, incorporated (like Ltd.)
Cons:
- can be hard to get lots of shareholders to agree on how the business is run.
- its easy for someone to buy enough shares to take over the company (if they can convince shareholders to sell)
- the accounts have to be made public - so everyone (including competitors) can see if a business is struggling.
- more shareholders = more people wanting a share of the products
What are the pros and cons of being a LTD? (Private Limited Company)
Pros:
- limited liability (can’t lose more than you invest)
- incorporated, separate legal identity. Can continue running after a shareholder dies.
- easier for a Ltd. company to get a loan or mortgage than sole trader or partnership
- all shareholders have to agree for someone to buy shares. This means the owners keep a lot of control over how the business is managed and how many people share the profits.
Cons:
- more expensive than partnerships because of all the legal paperwork you have to do.
- unlike sole traders or partnerships, the company is legally obliged to publish its accounts every year (although doesn’t have to be made public.)
Example of a Business’ legal structure changing over time (Morrisons)
- The supermarket chain Morrisons started when the sole trader William Morrison started trading from a market stall in Bradford. The business did well, and he decided to start opening stores in the Bradford area.
- In 1940, the company was incorporated - this would have protected William Morrison’s investments and would have made it easier to raise money so that the company could grow more.
- The company continued to expand. In 1967, the company became a public limited company to help raise the funds so it could expand further.
What’s a Not-For-Profit Organisation?
A not-for-profit business doesn’t try to make an income for its owners. They need enough income to cover their costs, and any surplus is put back into the business or used to fund projects that help the community.
Most not-for-profit organisations have a charitable status, meaning they get some tax relief and they’re able to apply for certain grants. Income can be unstable as they are mostly reliant on donations and grants.
