Business: Understanding Business Activity Flashcards
Chapter 1-5
1
Q
need
A
a good or service essential for living
2
Q
want
A
a good or service which people would like to have, but not essential for living
3
Q
economic problem
A
unlimited wants but limited resources to produce the goods and services to satisfy those wants
4
Q
factors of production
A
resources needed to produce goods or services (Capital, Enterprise, Land, Labour)
5
Q
scarcity
A
lack of sufficient products to fulfil the total wants of the population
6
Q
opportunity cost
A
the next best item given up by choosing another item
7
Q
specialisation
A
people and businesses focus on what they are good/best at
8
Q
division of labour
A
production process is split up into different tasks and each worker performs one of these tasks
9
Q
businesses
A
combine factors of production to make products (goods and services) which satisfy people’s wants
10
Q
added value
A
difference between selling price and cost of brought-in materials and components
11
Q
primary sector
A
industries that extracts and uses natural resources from the Earth to produce raw materials used by other businesses
12
Q
secondary sector
A
industries that manufactures goods using raw materials provided by the primary sector
13
Q
tertiary sector
A
industries that provides services to consumers and other sectors of the industry
14
Q
industrialisation
A
the decline in the importance of extracting raw materials and increase in the importance of manufacturing goods
15
Q
deindustrialisation
A
the decline in importance of the manufacturing sector of the industry and the increase in the importance of providing services to the consumer market
16
Q
mixed economy
A
has both a private sector and a public (state) sector
17
Q
capital
A
money invested into a business by the owners
18
Q
entrepreneur
A
a person who organises, operates and takes the risk for a new business venture
19
Q
business plan
A
a written document containing the business objectives and important details about the operations, finance and owners of the new business
20
Q
capital employed
A
the total value of capital used in a business
21
Q
internal growth
A
when a business expands its existing operations
22
Q
external growth
A
when a business takes over or merges with another business
23
Q
takeover
A
when one business buys out the owners of another business
24
Q
merger
A
when the owners of two businesses agree to join their businesses together to make one business
25
horizontal integration
when one business merges or takeovers another one in the same industry at the same stage of production
26
vertical integration
when one business merges or takeovers another one in the same industry at a different stage of production
27
conglomerate integration/diversification
when one business takes over or mergers with a business in a completely different industry
28
sole trader
a business that is owned by one person
29
advantages of being a sole trader
-makes all the decision
-keeps all the profit
-easy to set up
-requires little capital
30
disadvantages of being a sole trader
-unlimited liability
-difficult to raise finance
-long working hours
-no continuity
-no holiday pay/paid time off
31
unlimited liability
the owners of the business can be held responsible for the debts of the business they own
32
limited liability
the liability of shareholders in a company is limited to only the amount they invested
33
no continuity
can't sell off the business, owners have to reregister
34
partnership
a form of business in which two or more people agree to jointly own a business
35
partnership agreement
the written and legal agreement between business partners-not essential but recommended
36
deed of partnership
a legally binding document, drawn up by business partners
37
advantages of partnership
-more continuity
-more expertise
-less financial risks
-more access to capital
-can attract investment
38
disadvantages of partnership
-lack of capital
-unlimited liability
-conflict of interest
-sharing the profit
39
unincorporated business
one that does not have a separate legal identity
40
private limited company (LTD)
businesses owned by shareholders but they cannot sell shares to the public
41
incorporated business
companies that have separate legal identity from their owners
42
shareholders
wonders of a limited company- buy shares which represent part-ownership of the company
43
advantages of private limited company
-sell shares to raise capital
-run by a board of directors with expertise
-limited liability
44
disadvantages of private limited company
-must release financial accounts/information
-more legal restrictions
-only sell shares to friends and family
45
public limited company (PLC)
businesses owned by shareholders but they can sell shares to the public and their shares are tradable on the Stock Exchange
46
advantages of public limited company
-sell shares to the general public
-limited liability
-managerial economies of scale
47
disadvantages of public limited company
-hostile takeover risk
-dividends must be paid to the shareholders
-must release financial information
48
annual general meeting
a legal requirement for all companies- shareholders may attend and vote on. who they want to be on the Board of Directors for the coming year
49
dividends
payments made to shareholders from the profits (after tax) of a company- the return to shareholders for investing in the company
50
franchise
a business based upon the use of the brand names, promotional logos and trading methods pop an existing successful business- franchisee nits the license to operate this business from the franchisor
51
responsibilities of franchisors to franchisees
-brand standards and quality control
-marketing and promotional support
-supply chain and vendor access
0legal and compliance support
-initial training and onboarding
-operational support and guidance
-technology and infrastructure
-new product development and innovation
-ongoing communication and feedback channels
52
contributions of franchisee
-capital
-management
-enterprise
53
contributions of franchisor
-use of brand name and products
-original idea
-advertising and training
54
advantages of franchisee
-reduced chances of business failure
-franchisor pays for advertising
-training for staff and management provided by franchisor
55
advantages of franchisor
-franchisee buys a license from franchisor to use brand name
-supplies obtained from a central sources
-expansion of the business is much faster than if the franchisor had to finance all new outlets
-management of the outlets is the responsibility of the franchisee
56
disadvantages of franchisee
-less independence than with operating a non-franchised business
-unable to make decisions that would suit local area
-license fee must be paid to the franchisor and possibly a percentage of the annual turnover
57
disadvantages of the franchisor
-poor management of one franchised outlet could lead to bad reputation for the whole business
-franchisee keeps profit from the outlet
58
joint venture
two or more businesses start a new project together, sharing capital, risks and profits
59
advantages of joint venture
-sharing of costs-for expensive projects
-local knowledge when joint venture company is already based in the country
-risks are shared in case of failure
60
disadvantages of joint venture
-if project is successful, profits need to be shared
-disagreements over decisions
-different ways of running a business (different management styles)
61
Factors when choosing between a joint venture and franchise
-risk involved
-control
-experience
-continuity
62
public corporations
a business in the public sector that is owned and controlled by the government
63
advantages of public corporations
-reduced wastes in an industry
-rescue important businesses when they are failing through nationalisation
-provides essential services to the people
-some businesses are considered too important to be owned by an individual
-natural monopolies are controlled by the government
64
disadvantages of public corporations
-motivation may not be high- profit is not an objective
-subsidies lead to inefficiency
-no competition
-government popularity
65
business objectives
aims or targets that a business works towards
66
why do businesses need objectives
-act as a target/goal
-judge whether it has achieved its goals
-gives employees a sense of direction
-stakeholders use this as a judgement
67
types of business objectives
-survival
-profit
-returns to shareholders
-growth of the business
-market share
-service to community
68
profit
total income of a business (revenue) minus total costs
-aim for satisfactory level of profits which will avoid owners having to work too many hours or pay too much in tax to the government
69
purpose of profit
-pay a return
-provide finance
70
survival
new competitors make a business feel less secure
-owners of business may lower prices to survive, even though this would lower the profit on each item sold
71
purpose return to shareholders
discourage shareholders from selling shares and helps managers keep their jobs
72
how to increase return to shareholders
-increasing profit
-increasing share price
73
purpose of growth
-make jobs more secure if the business is larger
-increase the salaries and status of managers as the business expands
-open up new possibilities and help to spread the risks of the business by moving into new products and new markets
-obtain a higher market share from increase in sales
-economies of scales
74
market share
the percentage of total market sales held by one brand or business
75
what does increased market share give a business
-good publicity
-increased influence over suppliers
0increased influence over customers
76
social enterprise
includes social objectives as well as an aim to make profit to reinvest back into the business
77
goals in service to community
social: provide jobs and support and disadvantaged groups in society
environmental: protect the environment
financial: make a profit to invest back into the social enterprise ti expand the social work that it performs
78
why do business objectives change
-working towards higher profit
-earning higher returns for shareholders
-short-term objective of survival
79
stakeholder
any person or group with a direct interest in the performance and activities of a business
80
types of internal stakeholders
-owners
-sole traders
-manufacturers
-employees
-entrepreneurs
-shareholders
81
types of external stakeholders
-entrepreneurs
-manufacturers
-governments
-consumers
-suppliers
-creditors
-public interest groups
82
internal stakeholders
direct relationship/interest with the company through employment ownership or investment
83
external stakeholders
indirectly affected by the company's decisions and outcomes
84
why might internal stakeholders be interested in the business
-have invested money
-earn living through these business
-make important decisions
85
why might external stakeholders be interested in the business
-price many increase- continued supply
-job opportunities
-provide finance for businesses
-affected by business (higher standard of living)
86
expectations of internal stakeholders
-expanding sales
-profit/ success rate
-career progression
-higher wages
-being valued
-security
-status
-power
87
expectations of external stakeholders
-tax returns
-improved quality
-loan returns
88
objectives of public sector businesses
financial: meet profit targets set by government
service: provide a service to the public and meet quality targets set by government
social: protect or create employment in certain areas
89
what do consumers want
low prices and high quality
90
what do local community want
good environment and jobs
91
what do workers want
jobs and stability
92
what do directors want
growth of business
93
benefits of managing stakeholders effectively
-communication (alignment of expectations)
-decision making (diverse perspectives leads to reduced risks)
-reputation management (build trust leads to more public projects)
-sustainability and long-term value (partnerships lead to new opportunities)
-greater project success (fewer disruptions, create advocated leads to additional resources)
