Business Topic 1 Flashcards
What is a business?
A business is an organization that exists to provide goods and services on a commercial basis to customers.
What are goods in the context of a business?
Goods are physical or tangible products, such as consumer electronics, industrial components, and cars.
What are services in the context of a business?
Services are intangible products, such as insurance, dental services, and cleaning.
Who are the potential customers of a business?
Customers can be individuals, businesses, or other organizations.
Why do most businesses exist?
Most businesses exist to earn a return for the owners, with the potential for profit being a key motive for entrepreneurial activity.
What are some of the roles businesses play in society?
Businesses create and sustain employment, drive innovation, contribute to the infrastructure, pay taxes, and create wealth by providing returns on investment.
What is the role of entrepreneurs in business?
Entrepreneurs spot business opportunities, take calculated risks for potential returns, and act as catalysts for creating and growing new business enterprises.
How do businesses contribute to the government?
They pay taxes on profits and collect taxes on behalf of the government.
Why is innovation important in business?
Innovation is driven through research and development, leading to new products and advancements in various sectors.
What is one way businesses create wealth?
By providing returns on investment to owners and shareholders.
What is the hierarchy of objectives in a business?
Individual, Unit/Team, Functional, Corporate, Mission.
At what levels are objectives set within a business?
Objectives are set at various levels, including corporate (top), functional, and unit levels.
How are business objectives often expressed?
Objectives are often set in financial terms, aiming for specific financial outcomes.
What are examples of financial objectives for a business?
Examples include desired sales or profit levels, growth rates, cash generated, business value, and dividends paid to shareholders.
Do all business objectives have to be expressed in financial or measurable terms?
No, some objectives are non-financial and difficult to measure but still important, such as being innovative or a leader in customer service quality.
What is the “Mission” of a business?
The mission is the overall purpose of the business.
What is the “Vision” of a business?
The vision is the overall aspiration of the business.
What are “Aims or Goals” in a business context?
Aims or goals are general statements of what the business intends to achieve.
What are “Objectives” in a business context?
Objectives are more precise and detailed statements of the aims or goals.
What is the mission of a business?
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.
What is one role of an effective mission statement?
It differentiates the business from its competitors.
How does an effective mission statement define a business?
It defines the markets or business areas in which the business wants to operate.
Why should a mission statement be relevant to all major stakeholders?
Because it should address the interests of stakeholders, not just shareholders and managers.
How should a mission statement impact employees?
It should excite, inspire, motivate, and guide employees.
Why are mission statements often criticized?
They are sometimes not supported by business actions, are too vague, or seen as statements of the obvious.
How are mission statements sometimes viewed by employees?
They may be regarded cynically by employees.
What is a common issue with senior management regarding mission statements?
Mission statements may not be supported wholeheartedly by senior management.
Q: What does the acronym SMART stand for in business objectives?
Specific, Measurable, Achievable, Realistic, and Timely.
Why are SMART objectives used in business?
They help set clear and actionable goals, ensuring objectives are well-defined, achievable, and measurable for effective resource allocation.
What does “Specific” mean in SMART objectives?
Objectives should clearly define what is to be achieved, avoiding vague or general statements.
What does “Measurable” mean in SMART objectives?
Objectives should be quantified to allow progress tracking and success measurement.
What does “Achievable” mean in SMART objectives?
Objectives should be realistic and attainable, given the business’s resources and capabilities.
What does “Realistic” mean in SMART objectives?
Objectives should align with the business’s mission and values and avoid being overly ambitious.
What does “Timely” mean in SMART objectives?
Objectives should have a specific deadline or timeframe, creating urgency and focus.
What are corporate objectives?
Corporate objectives are goals that relate to the business as a whole.
Who usually sets corporate objectives?
Corporate objectives are usually set by the top management of the business.
What is the purpose of corporate objectives in a business?
They provide the focus for setting more detailed objectives for the main functional activities of the business.
What do corporate objectives tend to focus on?
Corporate objectives focus on the desired performance and results of the business.
Why is it important for corporate objectives to cover multiple areas?
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.
What are functional objectives?
Functional objectives are goals related to specific functions of a business, like marketing, operations, HRM, and finance, designed to support corporate objectives.
Why do businesses set functional objectives?
Functional objectives ensure that each major business function contributes to achieving the overall corporate objectives.
What are some common business functions that have their own objectives?
Common functions include finance & administration, marketing & sales, production & operations, and human resource management.
How should functional objectives be aligned within a business?
Functional objectives should be consistent with the higher-level corporate objectives.
Why is it important to consider connections between functional areas in a business?
Functional activities are interconnected, so each area’s activities impact and support the others in achieving corporate goals.
Give an example of a functional objective for the marketing function.
An example would be, “We aim to build a customer database of at least 250,000 households within the next 12 months.”
What is an example of a functional objective related to market share?
“We aim to achieve a market share of 10%.”
What is an example of a functional objective related to customer awareness?
“We aim to achieve 75% customer awareness of our brand in our target markets.”
What is profit in the context of business?
Profit is the reward or return for taking risks and making investments, and a key business objective for most businesses.
What are some roles of profit in a business?
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.
How is profit calculated?
Profit is calculated as Total Sales (Revenues) minus Total Costs.
What is the difference between absolute and relative profit?
Absolute profit measures the monetary value of profit (e.g., £1 million), while relative profit measures profit as a percentage of sales or investment.
How do you calculate a profit margin?
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.
How do you calculate the return on investment (ROI)?
ROI is calculated by dividing profit by the total investment. For example, £50,000 profit from a £1 million investment gives a 5% ROI.
Why is profit important for business owners?
Profit is the reward for taking risks and investing, and it provides incentive for setting up or expanding a business.
What role does profit play in a business’s cash flow?
Profit is a crucial source of cash flow and finance, essential for the business’s survival and growth.
What is an example of a business with a motive other than profit?
Social enterprises aim to make a return that can be reinvested to achieve societal goals, rather than prioritizing profit.
How does Elkington’s Triple Bottom Line model view profit?
In this model, profit is one of three key performance indicators alongside People and Planet, reflecting broader corporate social responsibility.
What is revenue in a business context?
Revenue is the amount (value) of a product that customers actually buy from a business.
What is demand?
Demand is the amount of a product that customers are prepared to buy.
How can demand be measured?
Demand can be measured in terms of volume (quantity bought) and/or value (£ value of sales).
Name a factor that affects the level of demand.
Prices & incomes.
How do tastes and fashions influence demand?
Changes in tastes and fashions can increase or decrease the demand for certain products.
How do competitor actions affect demand?
Competitor actions, such as new product launches or pricing changes, can impact the demand for a business’s products.
What is an example of social and demographic change affecting demand?
Changes in population age, size, or lifestyle can influence the demand for certain products.
How do seasonal changes impact demand?
Demand for some products fluctuates with the seasons, such as winter clothing in colder months.
How does changing technology affect demand?
New technology can create demand for innovative products while reducing demand for outdated ones.
How can government decisions influence demand?
Government policies, taxes, and regulations can increase or decrease demand for certain products.
What is another term for revenue in a business context?
Sales, Revenues, Income, Turnover, Takings.
What does revenue represent for a business?
The value of what a business sells through its trading activities.
How is total revenue calculated?
Total Revenue = Volume Sold × Average Selling Price.
True or False: “Turnover” is a different concept from “Revenue.”
False. “Turnover” is another term for “Revenue.”
What two factors determine the value of revenue in a given period?
The quantity of product sold and the price paid by customers.
What are costs in a business context?
Costs are the amounts incurred by a business to make goods or provide services.
Why are costs important to a business?
They drain profits, affect profit margins, cause cash flow issues, and change with business output.
What are variable costs?
Costs that change as the level of output varies.
Give three examples of variable costs.
Raw materials, wages based on hours worked, and marketing costs based on sales.
What are fixed costs?
Costs that do not change with the level of output.
Give three examples of fixed costs.
Rent & rates, salaries, and insurance.
How are total costs calculated?
Total Costs (TC) = Fixed Costs (FC) + Variable Costs (VC).
True or False: Fixed costs never change.
False. Fixed costs can change but not in relation to output.
What does it mean if a business is “unincorporated”?
The owner is the business, with no legal distinction between them.
What kind of liability does the owner of an unincorporated business have?
Unlimited liability for business actions, including debts.
What types of businesses are usually unincorporated?
Most are sole traders, with a small number operating as partnerships.
What does it mean if a business is “incorporated”?
There is a legal distinction between the business (company) and its owners.
What is a key legal feature of incorporated businesses?
The company has a separate legal identity from its owners.
What kind of liability do owners (shareholders) of an incorporated business have?
Limited liability.
Which types of businesses are usually incorporated?
Most are private limited companies, with a smaller number as public limited companies.
What is the main difference in liability between incorporated and unincorporated businesses?
In an incorporated business, the company itself is liable for debts, whereas in an unincorporated business, the owner is personally liable for debts.
Why is an incorporated business considered a separate legal entity?
It exists separately from its owners (shareholders), with its own legal identity.
What does limited liability mean for shareholders of an incorporated business?
Shareholders can only lose the value of their investment in the company, not personal assets, unless wrongful or fraudulent trading is involved.
Does limited liability protect shareholders from all risks?
No, limited liability does not protect against wrongful or fraudulent trading or personal guarantees made by directors.
Why do shareholders in an incorporated business have limited liability?
Because the company has a separate legal identity from its shareholders.
What type of liability does an unincorporated business have?
Unlimited liability, meaning the owner is fully responsible for all business debts.
What can happen to the personal assets of an unincorporated business owner if the business fails?
Creditors can recover debts from the owner’s personal assets, regardless of the amount owed.
Why might someone choose to operate as a sole trader or partnership despite the risks of unlimited liability?
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.
What is the most common type of unincorporated business?
Sole trader.
Who owns and is responsible for the business in a sole trader setup?
The sole trader owns all business assets personally and is responsible for all business debts.
True or False: A sole trader can employ people who share ownership of the business.
False. Employees do not share ownership; the sole trader is the sole owner.
What type of liability does a sole trader have?
Unlimited liability.
List two advantages of being a sole trader.
Quick and easy to set up, and minimal paperwork.
What is a key benefit of sole trader control?
The owner has complete control over decision-making.
List two drawbacks of being a sole trader.
Full personal liability and difficulty raising finance.
Why might a sole trader pay a higher tax rate than a company?
Sole traders are taxed on personal income, which can result in higher rates compared to corporate tax rates.
Why do many small or part-time businesses choose to operate as sole traders?
Because it’s simple and informal to set up, making it ideal for small or start-up businesses.
What is the main characteristic of an incorporated business regarding legal identity?
It is a separate legal entity from its owners, the shareholders.
Who owns an incorporated business?
Shareholders who own the share capital of the company.
What are the two main types of incorporated businesses?
Private Limited Company and Public Limited Company.
What is a key characteristic of a Private Limited Company?
It is privately owned, and shares cannot be traded publicly.
True or False: A Private Limited Company usually has many shareholders.
False. It usually has just one or a few shareholders.
What is the minimum share capital required for a Public Limited Company?
£50,000.
Can shares of a Public Limited Company be traded on a public stock market?
Yes, shares may be traded publicly, though it is not required.
How do shareholders earn rewards from share ownership?
Through dividends and capital growth.
What are dividends?
Payments made to shareholders from the company’s earned profits, often calculated per share held.
What is capital growth (or capital gain)?
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.
True or False: There is a guarantee that the value of shares in a company will always increase.
False. Share value can increase or decrease depending on business performance.
Who determines the ownership of an incorporated business?
The shareholders, who own the company’s shares.
What is a “share” in a company?
A share is an individual part of the total issued share capital of a company.
What are “ordinary shares”?
Shares that provide equal voting rights based on the number of shares held and may qualify for dividends if paid.
How is a shareholder’s percentage ownership in a company determined?
By the number of shares they hold relative to the total number of shares issued.
How is the value of a company determined?
By the price at which its shares are bought and sold on the stock market.
What is “market capitalisation”?
The total value of a quoted company, calculated by multiplying the share price by the total number of shares issued.
Do all businesses exist to earn profits for owners?
No, some organizations engage in business activities with aims other than profit, such as mutual businesses, social enterprises, and charities.
What are mutual businesses?
Businesses without shareholders or owners, existing solely to serve their “members.”
Give an example of a mutual business in the UK.
Nationwide Building Society, one of the few large mutual building societies remaining.
What does it mean to “de-mutualise”?
For a mutual business to convert into a public company, which happened to many UK building societies in the late 1980s and 1990s.
What are social enterprises?
Businesses with social objectives that reinvest their surpluses into the business or community, rather than maximizing profits for shareholders.
True or False: Social entrepreneurs cannot earn profits.
False. Social entrepreneurs can make a profit, but their business model is also designed to benefit others.
Name two examples of well-known social enterprises.
Divine Chocolate and Cafedirect.
What distinguishes charities from other businesses?
Charities must spend proceeds according to their stated charitable aims and are regulated by the Charity Commission.
What types of business activities might a charity engage in?
Running charity shops, providing services, and organizing fund-raising events.
What does the “P” in PESTLE stand for, and give an example.
Political; examples include competition policy and government spending & tax policies.
Give two examples of Political factors in the PESTLE framework.
Industry regulation and business policy & incentives.
What does the “E” in PESTLE stand for (first “E”), and give an example.
Economic; examples include interest rates and consumer spending & income.
List two Economic factors from the PESTLE framework.
Exchange rates and economic growth (GDP).
What does the “S” in PESTLE stand for, and give an example.
Social; examples include demographic change and consumer tastes & fashions.
Name two Social factors in the PESTLE framework.
Impact of pressure groups and changing lifestyles.
What does the “T” in PESTLE stand for, and give an example.
Technological; examples include disruptive technologies and the adoption of mobile technology.
List two examples of Technological factors from the PESTLE framework.
New production processes and big data with dynamic pricing.
What does the “L” in PESTLE stand for, and give an example.
Legal; examples include employment law and health & safety laws.
Give two examples of Legal factors in the PESTLE framework.
Minimum/living wage and environmental legislation.
What does the “E” in PESTLE stand for (second “E”), and give an example.
Ethical/Environmental; examples include sustainability and pollution & carbon emissions.
List two Ethical/Environmental factors in the PESTLE framework.
Tax practices and ethical sourcing in the supply chain.
What do market conditions refer to?
The attractiveness (or lack thereof) of the overall market in which a business operates.
What are two key indicators of market conditions?
Economic growth (GDP) and market demand.
What does economic growth (GDP) measure?
The value of output (activity) in the economy.
How does economic growth impact market demand?
The level of demand in most markets is influenced by the rate of economic growth.
What is the long-term growth rate for a mature economy like the UK?
Around 2-3%.
How does the economic cycle affect GDP growth?
GDP growth will vary depending on the state of the economic cycle (e.g., expansion, recession).
hat does market demand measure?
How much of a good or service a consumer wants and is able to pay for.
How does market demand impact a business?
Market demand turns into revenues (sales) for the business.
Why is the size and growth rate of a market important?
It is a key indicator of market conditions, with a larger and faster-growing market being more attractive.
How do fast-growing markets affect businesses?
They encourage new entrants and benefit existing competitors.
What happens in slow-growing or declining markets?
Market conditions become tougher, with competitors fighting for their share of weak demand.
What do market conditions refer to?
Market conditions relate to the attractiveness of the overall market in which a business operates.
How do market conditions affect businesses within an industry?
Market conditions affect all businesses in an industry, although each business’s ability to respond to or take advantage of changes will vary.
What are two key indicators of market conditions?
Economic Growth (GDP) and Market Demand.
What does economic growth (GDP) measure?
Economic growth measures the value of output (activity) in the economy.
How does economic growth influence market demand?
The level of demand in most markets is influenced by the rate of economic growth.
Do all economies have the same long-term growth rate?
No, economies vary in terms of their “normal” long-term growth rate.
What is the typical long-term growth rate for a mature economy like the UK?
Around 2-3%.
How does GDP growth fluctuate?
GDP growth varies depending on the state of the economic cycle.
What does market demand measure?
Market demand measures how much of a good or service a consumer wants and is able to pay for.
How does market demand affect a business?
For a business, market demand translates into revenues (sales).
Why is the size and growth rate of a market important?
They are key indicators of market conditions.
What impact does a fast-growing market have on competition?
A fast-growing market will encourage new entrants and benefit existing competitors.
How does a slow-growing or declining market affect competition?
It makes market conditions tougher, with competitors fighting for a share of weak demand.
What do real incomes measure?
Real incomes measure the amount of disposable income available to consumers, such as households and individuals.
What are some factors that impact real incomes?
Price inflation, wage growth, employment levels, interest rates, and government tax policy.
Are there regional differences in household disposable incomes in the UK?
Yes, for example, in 2013, London had the highest disposable income per head (£22,516), while Northern Ireland had the lowest (£14,347).
How are real incomes related to market demand?
Real incomes are closely linked to market demand, as they affect consumers’ ability to spend, which influences demand.
What do real incomes measure?
Real incomes measure the amount of disposable income available to consumers, including households and individuals.
What factors impact real incomes?
Real incomes are influenced by price inflation, wage growth, employment levels, interest rates, and government tax policy.
How do regional differences affect household disposable incomes in the UK?
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).
Why are real incomes closely linked to market demand?
Real incomes affect consumers’ spending ability, making them a key factor in market demand.
What is real disposable income, and why is it important?
Real disposable income is the amount households have to spend after taxes and inflation, directly impacting their purchasing power.
How do employment levels and job security influence market demand?
When employment and job security improve, consumer confidence and incomes increase, boosting market demand.
How does household wealth affect consumer demand?
Increases in household wealth, such as higher house or share prices, can raise consumer demand.
What role do expectations and sentiment play in consumer spending?
Economic uncertainty can lead to reduced spending as consumers become cautious, weakening market demand.
How do market interest rates impact consumer behavior?
Interest rates influence both the incentive to save and the cost of borrowing, affecting consumer spending and saving patterns.
What is an interest rate?
An interest rate is the reward for saving and the cost of borrowing, expressed as a percentage of the money saved or borrowed.
What are some types of interest rates found in the external environment?
Interest rates on savings accounts, borrowing, mortgages, credit cards, payday loans, and government and corporate bonds.
What is the role of the Bank of England in setting interest rates?
The Bank of England uses policy interest rates to help regulate the economy and meet economic policy objectives.
What has been the trend for the Bank of England Base Rate in recent years?
The Bank of England Base Rate has been very low and stable for several years.
What might happen if interest rates start to rise?
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.
How does a rise in interest rates affect the cost of servicing loans and debt?
If interest rates rise, the cost of servicing loans and debt increases, which can reduce spending power.
What is one way rising interest rates might impact consumer confidence?
Rising interest rates can reduce consumer confidence, potentially leading to decreased spending.
How could higher interest rates impact effective disposable income?
Higher interest rates can reduce effective disposable income, as mortgage and other borrowing costs increase.
How might rising interest rates affect business investment?
Rising interest rates could reduce business investment due to higher borrowing costs and potentially lower demand.
What effect might rising interest rates have on the housing market?
Higher interest rates can reduce demand in the housing market and slow property price growth.
How could changes in interest rates impact the exchange rate and exports?
Higher interest rates might strengthen the currency, potentially making exports more expensive and less competitive internationally.
What does demography study?
Demography is concerned with the size and composition of a population.
How do changes in population dynamics impact businesses?
Although population dynamics change slowly, they can significantly impact demand, labor supply, and business strategies over time.
What are two key demographic changes in the UK affecting businesses?
An ageing population and high levels of net immigration.
What is one business implication of an ageing population in the UK?
Greater demand for services to support older people, such as healthcare.
How might the ageing population affect demand for certain goods and services?
Older people may have increasing disposable incomes, leading to higher demand for goods and services like holidays and leisure activities.
What is one impact of high levels of net immigration on public services?
Higher costs and greater demand for public services, such as education, healthcare, and housing.
How can immigration affect the UK labor force?
It increases the size of the labor force, which can help keep wage rates lower.
How does a larger labor supply benefit businesses, particularly in certain sectors?
A larger labor supply allows businesses, especially in agriculture and services, to grow faster due to easier access to workers.
