Business ownership, sectors, enterprise etc. (1.1 - 1.5) Flashcards
Characteristics of a needs business
- Prices are low
- Competitors are plentiful
Characteristics of a wants business
- Trends are temporary
- More competitors
- Premium price points
Definition of Opportunity cost
The benefits you forego by not choosing the alternatives.
Definition of Added value
The increased worth that a business creates for a product.
Sectors of the industry
Primary (Extracting raw materials e.g farming, agriculture, mining, fishing etc.)
Secondary (Manufacturing a finished product out of the raw materials e.g factories, construction/building etc.)
Tertiary (Provision of goods or services to the customer.)
Quaternary (innovation, benefiting the future.)
Business classification
Private sector - (looking for profit) (funded by personal money) e.g Mcdonalds, Adidas, Private schools etc. (any global organisations are classified as private)
NGOs - a combination of both
Public sector - Government owned (funded by public money, taxpayers) (profit is not a priority) e.g, public hospitals, public schools, parks etc.
Definition of entrepreneur
Entrepreneur - Generate ideas and further ideas into a physical manifestation or service that creates profit.
Characteristics of a successful entrepreneur:
- Innovative
- Hard working
- Determined
- Motivated
- Risk taker
- Knowledge
- Connections
- Able to visualise
- Confidence
- Resilience
- Self-assured
How to measure a company:
- Number of employees
- Revenue
- Capital employed
- Market capitalisation
- Total industry sales
Formula for marker share %
total business / total industry sales x 100
Definition of capital employed
total value of long term finance invested in the business
Definition of market capitalisation
how much your company is worth based on sales.
Reasons for growth:
- To achieve economies of scale and see the average cost of production decline.
- To achieve a greater market share.
- To satisfy the ego of the businessman.
- To achieve security by becoming more diversified.
- To survive in an increasingly competitive market.
Definition of internal growth (organic)
A situation where a business increases its size through investing in its existing product range, or by developing new products.
- Tends to be funded by retained profits, loans etc.
- Is considered a safe option
- Is generally quite slow
Definition of external growth
Growth via mergers and takeovers.
- Often involves raising large amounts of money
- Allows quick growth
- Is considered risky due to the problems of integrating 2 different companies
Characteristics of a merger:
- Mutual decision of two companies to combine and become one entity
- A decision made by “two” equals.
- The goal of producing a company that is worth more than the sum of its parts.
- Shareholders usually have their shares in the old company exchanged for an equal number of shares in the merged entity.
Characteristic of a takeover and its alternative name:
- Also known as an acquisition
- The purchase of a smaller company by a much larger one.
- The purchasing company essentially finances the purchase of the target company, buying it outright from its shareholders.
- Can be ‘hostile’ or ‘friendly’
Advantages and disadvantages of a sole trader:
Advantages:
- 1 owner keeps all profits
- Their own boss
- Easy to set up
- Privacy
Disadvantages:
- if sick/ill nobody can run business
- limited profit
- unlimited liability
Definition of unlimited liability
Business owner and business treated as one entity, if business goes bankrupt the loaders can from owner’s personal assets.
Advantages and disadvantages of a partnership:
(2 - 20 owners)
Advantages
- shared risk
- shared expertise
- each partner brings revenue for growth
Disadvantages
- shared profits
- decision making difficult
- unlimited liability
Advantages and disadvantages of a private limited company (LTD) :
(20+ owners)
Advantages
- sells shares to private individuals
- can achieve large investments and growth
- protected from takeovers
- limited liability
Disadvantages
- set up costs with becoming a limited company
- must publish financial reports
- limited growth (200 people)
Advantages and disadvantages of a public limited company (PLC)
Advantages
- sell shares on stock market
- limited liability
- trust
Disadvantages
- share profits
- must publish financial reports
- no privacy
- risk of takeover
Advantages and disadvantages of a franchise
Advantages
- reputation
- free marketing
Disadvantages
- pay a franchise fee
- % profits
- no autonomy (no right to self ownership)
S.M.A.R.T targets:
Specific, measurable, achievable, relevant, time- based
