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Business Topic 1 Flashcards

1
Q

What is a business?

A

A business is an organization that exists to provide goods and services on a commercial basis to customers.

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2
Q

What are goods in the context of a business?

A

Goods are physical or tangible products, such as consumer electronics, industrial components, and cars.

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3
Q

What are services in the context of a business?

A

Services are intangible products, such as insurance, dental services, and cleaning.

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4
Q

Who are the potential customers of a business?

A

Customers can be individuals, businesses, or other organizations.

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5
Q

Why do most businesses exist?

A

Most businesses exist to earn a return for the owners, with the potential for profit being a key motive for entrepreneurial activity.

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6
Q

What are some of the roles businesses play in society?

A

Businesses create and sustain employment, drive innovation, contribute to the infrastructure, pay taxes, and create wealth by providing returns on investment.

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7
Q

What is the role of entrepreneurs in business?

A

Entrepreneurs spot business opportunities, take calculated risks for potential returns, and act as catalysts for creating and growing new business enterprises.

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8
Q

How do businesses contribute to the government?

A

They pay taxes on profits and collect taxes on behalf of the government.

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9
Q

Why is innovation important in business?

A

Innovation is driven through research and development, leading to new products and advancements in various sectors.

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10
Q

What is one way businesses create wealth?

A

By providing returns on investment to owners and shareholders.

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11
Q

What is the hierarchy of objectives in a business?

A

Individual, Unit/Team, Functional, Corporate, Mission.

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12
Q

At what levels are objectives set within a business?

A

Objectives are set at various levels, including corporate (top), functional, and unit levels.

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13
Q

How are business objectives often expressed?

A

Objectives are often set in financial terms, aiming for specific financial outcomes.

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14
Q

What are examples of financial objectives for a business?

A

Examples include desired sales or profit levels, growth rates, cash generated, business value, and dividends paid to shareholders.

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15
Q

Do all business objectives have to be expressed in financial or measurable terms?

A

No, some objectives are non-financial and difficult to measure but still important, such as being innovative or a leader in customer service quality.

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16
Q

What is the “Mission” of a business?

A

The mission is the overall purpose of the business.

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17
Q

What is the “Vision” of a business?

A

The vision is the overall aspiration of the business.

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18
Q

What are “Aims or Goals” in a business context?

A

Aims or goals are general statements of what the business intends to achieve.

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19
Q

What are “Objectives” in a business context?

A

Objectives are more precise and detailed statements of the aims or goals.

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20
Q

What is the mission of a business?

A

The mission is the overriding goal of the business and the reason for its existence, providing a strategic perspective and a vision for the future.

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21
Q

What is one role of an effective mission statement?

A

It differentiates the business from its competitors.

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22
Q

How does an effective mission statement define a business?

A

It defines the markets or business areas in which the business wants to operate.

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23
Q

Why should a mission statement be relevant to all major stakeholders?

A

Because it should address the interests of stakeholders, not just shareholders and managers.

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24
Q

How should a mission statement impact employees?

A

It should excite, inspire, motivate, and guide employees.

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25
Q

Why are mission statements often criticized?

A

They are sometimes not supported by business actions, are too vague, or seen as statements of the obvious.

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26
Q

How are mission statements sometimes viewed by employees?

A

They may be regarded cynically by employees.

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27
Q

What is a common issue with senior management regarding mission statements?

A

Mission statements may not be supported wholeheartedly by senior management.

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28
Q

Q: What does the acronym SMART stand for in business objectives?

A

Specific, Measurable, Achievable, Realistic, and Timely.

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29
Q

Why are SMART objectives used in business?

A

They help set clear and actionable goals, ensuring objectives are well-defined, achievable, and measurable for effective resource allocation.

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30
Q

What does “Specific” mean in SMART objectives?

A

Objectives should clearly define what is to be achieved, avoiding vague or general statements.

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31
Q

What does “Measurable” mean in SMART objectives?

A

Objectives should be quantified to allow progress tracking and success measurement.

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32
Q

What does “Achievable” mean in SMART objectives?

A

Objectives should be realistic and attainable, given the business’s resources and capabilities.

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33
Q

What does “Realistic” mean in SMART objectives?

A

Objectives should align with the business’s mission and values and avoid being overly ambitious.

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34
Q

What does “Timely” mean in SMART objectives?

A

Objectives should have a specific deadline or timeframe, creating urgency and focus.

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35
Q

What are corporate objectives?

A

Corporate objectives are goals that relate to the business as a whole.

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36
Q

Who usually sets corporate objectives?

A

Corporate objectives are usually set by the top management of the business.

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37
Q

What is the purpose of corporate objectives in a business?

A

They provide the focus for setting more detailed objectives for the main functional activities of the business.

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38
Q

What do corporate objectives tend to focus on?

A

Corporate objectives focus on the desired performance and results of the business.

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39
Q

Why is it important for corporate objectives to cover multiple areas?

A

Corporate objectives should cover a range of key areas to ensure the business achieves results in various aspects, rather than focusing on a single objective.

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40
Q

What are functional objectives?

A

Functional objectives are goals related to specific functions of a business, like marketing, operations, HRM, and finance, designed to support corporate objectives.

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41
Q

Why do businesses set functional objectives?

A

Functional objectives ensure that each major business function contributes to achieving the overall corporate objectives.

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42
Q

What are some common business functions that have their own objectives?

A

Common functions include finance & administration, marketing & sales, production & operations, and human resource management.

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43
Q

How should functional objectives be aligned within a business?

A

Functional objectives should be consistent with the higher-level corporate objectives.

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44
Q

Why is it important to consider connections between functional areas in a business?

A

Functional activities are interconnected, so each area’s activities impact and support the others in achieving corporate goals.

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45
Q

Give an example of a functional objective for the marketing function.

A

An example would be, “We aim to build a customer database of at least 250,000 households within the next 12 months.”

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46
Q

What is an example of a functional objective related to market share?

A

“We aim to achieve a market share of 10%.”

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47
Q

What is an example of a functional objective related to customer awareness?

A

“We aim to achieve 75% customer awareness of our brand in our target markets.”

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48
Q

What is profit in the context of business?

A

Profit is the reward or return for taking risks and making investments, and a key business objective for most businesses.

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49
Q

What are some roles of profit in a business?

A

Profit acts as a return on investment, a reward for taking risks, a key source of finance, a measure of success, and a motivating factor.

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50
Q

How is profit calculated?

A

Profit is calculated as Total Sales (Revenues) minus Total Costs.

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51
Q

What is the difference between absolute and relative profit?

A

Absolute profit measures the monetary value of profit (e.g., £1 million), while relative profit measures profit as a percentage of sales or investment.

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52
Q

How do you calculate a profit margin?

A

Profit margin is calculated by dividing profit by total sales. For example, £50,000 profit from £500,000 of sales gives a 10% profit margin.

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53
Q

How do you calculate the return on investment (ROI)?

A

ROI is calculated by dividing profit by the total investment. For example, £50,000 profit from a £1 million investment gives a 5% ROI.

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54
Q

Why is profit important for business owners?

A

Profit is the reward for taking risks and investing, and it provides incentive for setting up or expanding a business.

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55
Q

What role does profit play in a business’s cash flow?

A

Profit is a crucial source of cash flow and finance, essential for the business’s survival and growth.

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56
Q

What is an example of a business with a motive other than profit?

A

Social enterprises aim to make a return that can be reinvested to achieve societal goals, rather than prioritizing profit.

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57
Q

How does Elkington’s Triple Bottom Line model view profit?

A

In this model, profit is one of three key performance indicators alongside People and Planet, reflecting broader corporate social responsibility.

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58
Q

What is revenue in a business context?

A

Revenue is the amount (value) of a product that customers actually buy from a business.

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59
Q

What is demand?

A

Demand is the amount of a product that customers are prepared to buy.

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60
Q

How can demand be measured?

A

Demand can be measured in terms of volume (quantity bought) and/or value (£ value of sales).

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61
Q

Name a factor that affects the level of demand.

A

Prices & incomes.

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62
Q

How do tastes and fashions influence demand?

A

Changes in tastes and fashions can increase or decrease the demand for certain products.

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63
Q

How do competitor actions affect demand?

A

Competitor actions, such as new product launches or pricing changes, can impact the demand for a business’s products.

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64
Q

What is an example of social and demographic change affecting demand?

A

Changes in population age, size, or lifestyle can influence the demand for certain products.

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65
Q

How do seasonal changes impact demand?

A

Demand for some products fluctuates with the seasons, such as winter clothing in colder months.

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66
Q

How does changing technology affect demand?

A

New technology can create demand for innovative products while reducing demand for outdated ones.

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67
Q

How can government decisions influence demand?

A

Government policies, taxes, and regulations can increase or decrease demand for certain products.

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68
Q

What is another term for revenue in a business context?

A

Sales, Revenues, Income, Turnover, Takings.

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69
Q

What does revenue represent for a business?

A

The value of what a business sells through its trading activities.

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70
Q

How is total revenue calculated?

A

Total Revenue = Volume Sold × Average Selling Price.

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71
Q

True or False: “Turnover” is a different concept from “Revenue.”

A

False. “Turnover” is another term for “Revenue.”

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72
Q

What two factors determine the value of revenue in a given period?

A

The quantity of product sold and the price paid by customers.

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73
Q

What are costs in a business context?

A

Costs are the amounts incurred by a business to make goods or provide services.

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74
Q

Why are costs important to a business?

A

They drain profits, affect profit margins, cause cash flow issues, and change with business output.

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75
Q

What are variable costs?

A

Costs that change as the level of output varies.

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76
Q

Give three examples of variable costs.

A

Raw materials, wages based on hours worked, and marketing costs based on sales.

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77
Q

What are fixed costs?

A

Costs that do not change with the level of output.

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78
Q

Give three examples of fixed costs.

A

Rent & rates, salaries, and insurance.

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79
Q

How are total costs calculated?

A

Total Costs (TC) = Fixed Costs (FC) + Variable Costs (VC).

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80
Q

True or False: Fixed costs never change.

A

False. Fixed costs can change but not in relation to output.

81
Q

What does it mean if a business is “unincorporated”?

A

The owner is the business, with no legal distinction between them.

82
Q

What kind of liability does the owner of an unincorporated business have?

A

Unlimited liability for business actions, including debts.

83
Q

What types of businesses are usually unincorporated?

A

Most are sole traders, with a small number operating as partnerships.

84
Q

What does it mean if a business is “incorporated”?

A

There is a legal distinction between the business (company) and its owners.

85
Q

What is a key legal feature of incorporated businesses?

A

The company has a separate legal identity from its owners.

86
Q

What kind of liability do owners (shareholders) of an incorporated business have?

A

Limited liability.

87
Q

Which types of businesses are usually incorporated?

A

Most are private limited companies, with a smaller number as public limited companies.

88
Q

What is the main difference in liability between incorporated and unincorporated businesses?

A

In an incorporated business, the company itself is liable for debts, whereas in an unincorporated business, the owner is personally liable for debts.

89
Q

Why is an incorporated business considered a separate legal entity?

A

It exists separately from its owners (shareholders), with its own legal identity.

90
Q

What does limited liability mean for shareholders of an incorporated business?

A

Shareholders can only lose the value of their investment in the company, not personal assets, unless wrongful or fraudulent trading is involved.

91
Q

Does limited liability protect shareholders from all risks?

A

No, limited liability does not protect against wrongful or fraudulent trading or personal guarantees made by directors.

92
Q

Why do shareholders in an incorporated business have limited liability?

A

Because the company has a separate legal identity from its shareholders.

93
Q

What type of liability does an unincorporated business have?

A

Unlimited liability, meaning the owner is fully responsible for all business debts.

94
Q

What can happen to the personal assets of an unincorporated business owner if the business fails?

A

Creditors can recover debts from the owner’s personal assets, regardless of the amount owed.

95
Q

Why might someone choose to operate as a sole trader or partnership despite the risks of unlimited liability?

A

Setting up a private company may be quick and cheap, but operating as a sole trader or partnership can offer simplicity, control, and fewer regulatory requirements.

96
Q

What is the most common type of unincorporated business?

A

Sole trader.

97
Q

Who owns and is responsible for the business in a sole trader setup?

A

The sole trader owns all business assets personally and is responsible for all business debts.

98
Q

True or False: A sole trader can employ people who share ownership of the business.

A

False. Employees do not share ownership; the sole trader is the sole owner.

99
Q

What type of liability does a sole trader have?

A

Unlimited liability.

100
Q

List two advantages of being a sole trader.

A

Quick and easy to set up, and minimal paperwork.

101
Q

What is a key benefit of sole trader control?

A

The owner has complete control over decision-making.

102
Q

List two drawbacks of being a sole trader.

A

Full personal liability and difficulty raising finance.

103
Q

Why might a sole trader pay a higher tax rate than a company?

A

Sole traders are taxed on personal income, which can result in higher rates compared to corporate tax rates.

104
Q

Why do many small or part-time businesses choose to operate as sole traders?

A

Because it’s simple and informal to set up, making it ideal for small or start-up businesses.

105
Q

What is the main characteristic of an incorporated business regarding legal identity?

A

It is a separate legal entity from its owners, the shareholders.

106
Q

Who owns an incorporated business?

A

Shareholders who own the share capital of the company.

107
Q

What are the two main types of incorporated businesses?

A

Private Limited Company and Public Limited Company.

108
Q

What is a key characteristic of a Private Limited Company?

A

It is privately owned, and shares cannot be traded publicly.

109
Q

True or False: A Private Limited Company usually has many shareholders.

A

False. It usually has just one or a few shareholders.

110
Q

What is the minimum share capital required for a Public Limited Company?

A

£50,000.

111
Q

Can shares of a Public Limited Company be traded on a public stock market?

A

Yes, shares may be traded publicly, though it is not required.

112
Q

How do shareholders earn rewards from share ownership?

A

Through dividends and capital growth.

113
Q

What are dividends?

A

Payments made to shareholders from the company’s earned profits, often calculated per share held.

114
Q

What is capital growth (or capital gain)?

A

It is an increase in the value of the business, reflected in a rise in share price, which is only realized when shares are sold.

115
Q

True or False: There is a guarantee that the value of shares in a company will always increase.

A

False. Share value can increase or decrease depending on business performance.

116
Q

Who determines the ownership of an incorporated business?

A

The shareholders, who own the company’s shares.

117
Q

What is a “share” in a company?

A

A share is an individual part of the total issued share capital of a company.

118
Q

What are “ordinary shares”?

A

Shares that provide equal voting rights based on the number of shares held and may qualify for dividends if paid.

119
Q

How is a shareholder’s percentage ownership in a company determined?

A

By the number of shares they hold relative to the total number of shares issued.

120
Q

How is the value of a company determined?

A

By the price at which its shares are bought and sold on the stock market.

121
Q

What is “market capitalisation”?

A

The total value of a quoted company, calculated by multiplying the share price by the total number of shares issued.

122
Q

Do all businesses exist to earn profits for owners?

A

No, some organizations engage in business activities with aims other than profit, such as mutual businesses, social enterprises, and charities.

123
Q

What are mutual businesses?

A

Businesses without shareholders or owners, existing solely to serve their “members.”

124
Q

Give an example of a mutual business in the UK.

A

Nationwide Building Society, one of the few large mutual building societies remaining.

125
Q

What does it mean to “de-mutualise”?

A

For a mutual business to convert into a public company, which happened to many UK building societies in the late 1980s and 1990s.

126
Q

What are social enterprises?

A

Businesses with social objectives that reinvest their surpluses into the business or community, rather than maximizing profits for shareholders.

127
Q

True or False: Social entrepreneurs cannot earn profits.

A

False. Social entrepreneurs can make a profit, but their business model is also designed to benefit others.

128
Q

Name two examples of well-known social enterprises.

A

Divine Chocolate and Cafedirect.

129
Q

What distinguishes charities from other businesses?

A

Charities must spend proceeds according to their stated charitable aims and are regulated by the Charity Commission.

130
Q

What types of business activities might a charity engage in?

A

Running charity shops, providing services, and organizing fund-raising events.

131
Q

What does the “P” in PESTLE stand for, and give an example.

A

Political; examples include competition policy and government spending & tax policies.

132
Q

Give two examples of Political factors in the PESTLE framework.

A

Industry regulation and business policy & incentives.

133
Q

What does the “E” in PESTLE stand for (first “E”), and give an example.

A

Economic; examples include interest rates and consumer spending & income.

134
Q

List two Economic factors from the PESTLE framework.

A

Exchange rates and economic growth (GDP).

135
Q

What does the “S” in PESTLE stand for, and give an example.

A

Social; examples include demographic change and consumer tastes & fashions.

136
Q

Name two Social factors in the PESTLE framework.

A

Impact of pressure groups and changing lifestyles.

137
Q

What does the “T” in PESTLE stand for, and give an example.

A

Technological; examples include disruptive technologies and the adoption of mobile technology.

138
Q

List two examples of Technological factors from the PESTLE framework.

A

New production processes and big data with dynamic pricing.

139
Q

What does the “L” in PESTLE stand for, and give an example.

A

Legal; examples include employment law and health & safety laws.

140
Q

Give two examples of Legal factors in the PESTLE framework.

A

Minimum/living wage and environmental legislation.

141
Q

What does the “E” in PESTLE stand for (second “E”), and give an example.

A

Ethical/Environmental; examples include sustainability and pollution & carbon emissions.

142
Q

List two Ethical/Environmental factors in the PESTLE framework.

A

Tax practices and ethical sourcing in the supply chain.

143
Q

What do market conditions refer to?

A

The attractiveness (or lack thereof) of the overall market in which a business operates.

144
Q

What are two key indicators of market conditions?

A

Economic growth (GDP) and market demand.

145
Q

What does economic growth (GDP) measure?

A

The value of output (activity) in the economy.

146
Q

How does economic growth impact market demand?

A

The level of demand in most markets is influenced by the rate of economic growth.

147
Q

What is the long-term growth rate for a mature economy like the UK?

A

Around 2-3%.

148
Q

How does the economic cycle affect GDP growth?

A

GDP growth will vary depending on the state of the economic cycle (e.g., expansion, recession).

149
Q

hat does market demand measure?

A

How much of a good or service a consumer wants and is able to pay for.

150
Q

How does market demand impact a business?

A

Market demand turns into revenues (sales) for the business.

151
Q

Why is the size and growth rate of a market important?

A

It is a key indicator of market conditions, with a larger and faster-growing market being more attractive.

152
Q

How do fast-growing markets affect businesses?

A

They encourage new entrants and benefit existing competitors.

153
Q

What happens in slow-growing or declining markets?

A

Market conditions become tougher, with competitors fighting for their share of weak demand.

154
Q

What do market conditions refer to?

A

Market conditions relate to the attractiveness of the overall market in which a business operates.

155
Q

How do market conditions affect businesses within an industry?

A

Market conditions affect all businesses in an industry, although each business’s ability to respond to or take advantage of changes will vary.

156
Q

What are two key indicators of market conditions?

A

Economic Growth (GDP) and Market Demand.

157
Q

What does economic growth (GDP) measure?

A

Economic growth measures the value of output (activity) in the economy.

158
Q

How does economic growth influence market demand?

A

The level of demand in most markets is influenced by the rate of economic growth.

159
Q

Do all economies have the same long-term growth rate?

A

No, economies vary in terms of their “normal” long-term growth rate.

160
Q

What is the typical long-term growth rate for a mature economy like the UK?

A

Around 2-3%.

161
Q

How does GDP growth fluctuate?

A

GDP growth varies depending on the state of the economic cycle.

162
Q

What does market demand measure?

A

Market demand measures how much of a good or service a consumer wants and is able to pay for.

163
Q

How does market demand affect a business?

A

For a business, market demand translates into revenues (sales).

164
Q

Why is the size and growth rate of a market important?

A

They are key indicators of market conditions.

165
Q

What impact does a fast-growing market have on competition?

A

A fast-growing market will encourage new entrants and benefit existing competitors.

166
Q

How does a slow-growing or declining market affect competition?

A

It makes market conditions tougher, with competitors fighting for a share of weak demand.

167
Q

What do real incomes measure?

A

Real incomes measure the amount of disposable income available to consumers, such as households and individuals.

168
Q

What are some factors that impact real incomes?

A

Price inflation, wage growth, employment levels, interest rates, and government tax policy.

169
Q

Are there regional differences in household disposable incomes in the UK?

A

Yes, for example, in 2013, London had the highest disposable income per head (£22,516), while Northern Ireland had the lowest (£14,347).

170
Q

How are real incomes related to market demand?

A

Real incomes are closely linked to market demand, as they affect consumers’ ability to spend, which influences demand.

171
Q

What do real incomes measure?

A

Real incomes measure the amount of disposable income available to consumers, including households and individuals.

172
Q

What factors impact real incomes?

A

Real incomes are influenced by price inflation, wage growth, employment levels, interest rates, and government tax policy.

173
Q

How do regional differences affect household disposable incomes in the UK?

A

Disposable incomes vary by region; for example, in 2013, London had the highest income per head (£22,516), while Northern Ireland had the lowest (£14,347).

174
Q

Why are real incomes closely linked to market demand?

A

Real incomes affect consumers’ spending ability, making them a key factor in market demand.

175
Q

What is real disposable income, and why is it important?

A

Real disposable income is the amount households have to spend after taxes and inflation, directly impacting their purchasing power.

176
Q

How do employment levels and job security influence market demand?

A

When employment and job security improve, consumer confidence and incomes increase, boosting market demand.

177
Q

How does household wealth affect consumer demand?

A

Increases in household wealth, such as higher house or share prices, can raise consumer demand.

178
Q

What role do expectations and sentiment play in consumer spending?

A

Economic uncertainty can lead to reduced spending as consumers become cautious, weakening market demand.

179
Q

How do market interest rates impact consumer behavior?

A

Interest rates influence both the incentive to save and the cost of borrowing, affecting consumer spending and saving patterns.

180
Q

What is an interest rate?

A

An interest rate is the reward for saving and the cost of borrowing, expressed as a percentage of the money saved or borrowed.

181
Q

What are some types of interest rates found in the external environment?

A

Interest rates on savings accounts, borrowing, mortgages, credit cards, payday loans, and government and corporate bonds.

182
Q

What is the role of the Bank of England in setting interest rates?

A

The Bank of England uses policy interest rates to help regulate the economy and meet economic policy objectives.

183
Q

What has been the trend for the Bank of England Base Rate in recent years?

A

The Bank of England Base Rate has been very low and stable for several years.

184
Q

What might happen if interest rates start to rise?

A

Potential effects include increased costs of servicing loans, higher consumer confidence, increased disposable income, boosted business investment, higher demand in the housing market, and changes in the exchange rate.

185
Q

How does a rise in interest rates affect the cost of servicing loans and debt?

A

If interest rates rise, the cost of servicing loans and debt increases, which can reduce spending power.

186
Q

What is one way rising interest rates might impact consumer confidence?

A

Rising interest rates can reduce consumer confidence, potentially leading to decreased spending.

187
Q

How could higher interest rates impact effective disposable income?

A

Higher interest rates can reduce effective disposable income, as mortgage and other borrowing costs increase.

188
Q

How might rising interest rates affect business investment?

A

Rising interest rates could reduce business investment due to higher borrowing costs and potentially lower demand.

189
Q

What effect might rising interest rates have on the housing market?

A

Higher interest rates can reduce demand in the housing market and slow property price growth.

190
Q

How could changes in interest rates impact the exchange rate and exports?

A

Higher interest rates might strengthen the currency, potentially making exports more expensive and less competitive internationally.

191
Q

What does demography study?

A

Demography is concerned with the size and composition of a population.

192
Q

How do changes in population dynamics impact businesses?

A

Although population dynamics change slowly, they can significantly impact demand, labor supply, and business strategies over time.

193
Q

What are two key demographic changes in the UK affecting businesses?

A

An ageing population and high levels of net immigration.

194
Q

What is one business implication of an ageing population in the UK?

A

Greater demand for services to support older people, such as healthcare.

195
Q

How might the ageing population affect demand for certain goods and services?

A

Older people may have increasing disposable incomes, leading to higher demand for goods and services like holidays and leisure activities.

196
Q

What is one impact of high levels of net immigration on public services?

A

Higher costs and greater demand for public services, such as education, healthcare, and housing.

197
Q

How can immigration affect the UK labor force?

A

It increases the size of the labor force, which can help keep wage rates lower.

198
Q

How does a larger labor supply benefit businesses, particularly in certain sectors?

A

A larger labor supply allows businesses, especially in agriculture and services, to grow faster due to easier access to workers.

Business (10 decks)

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