CHAPTER 1: Business activity Flashcards
what is added value?
the difference between selling price and the cost of production
how do you add value?
reduce the cost of production
increase price
increase quality
improve packaging
what are the factors of production?
land
labor
capital
enterprise
what is opportunity cost?
the next best alternative given up by choosing another item
what is division of labor?
when production process is split up into different tasks where each task is done by one person
what are the external factors that effect a business?
PEST
Political issues - laws by government
Economic issues - economic changes
Social issues - increase in population size
Technological issues - changes in technology
what is creating value?
increasing the difference between the cost of purchasing bought in materials and the price the finished goods are sold for
why do some businesses fail?
lack of power in the market - hard to survive
poor management skills
lack of finance - costs too high and not enough profit to survive
lack of record keeping - making it hard to pay taxes and debts
what is an entrepreneur?
a person willing to take the financial risk of starting and managing a new business venture
what are the characteristics of a successful entrepreneur?
risk taker creative hard working independent multi-skilled leader confident motivated
what is a social enterprise?
a business with mainly social objectives and aims to produce high quality goods and services that reinvests most of profits back into the business benefiting the society rather than maximizing returns to owners
what is the triple bottom line?
three objectives of a social enterprise, economic, social and environmental
Economic - profit to reinvest back into the business
Social - provide jobs or support local, often disadvantaged, communities
Environmental - manage the business in an environmentally sustainable way and protect the environment
how is the business environment dynamic?
internal environment: the operating environment of the business like the structure, leadership and management
external environment: dynamic changes that are hard to control: PEST
what is the primary sector? and what are examples?
involved in extracting natural resources
farming, fishing and oil extractions
what is the secondary sector? and what are examples?
involved in manufacturing and the process of producing a product using natural resources
construction, car manufacturing and baking
what is the tertiary sector? and what are examples?
provides services to consumers and other businesses
retail, hotels and banking
what is the private sector?
business owned and controlled by 1 or more person
what is the public sector?
organisations owned and controlled by the government and provide essential services
what is a mixed market?
a market with both private and public sector
what is a sole trader?
one person who provides the finance and has full control over the business
what are the advantages and disadvantages of a sole trader?
advantages: easy to set up owner is their own boss owner keeps all profits owner has complete control
disadvantages:
unlimited liability
hard to raise additional capital
lacks continuity
what is a partnership?
when 2 or more people share the ownership, capital and responsibilities of a business
what are the advantages and disadvantages of a partnership?
advantages:
shared risk
more capital
shared loss
disadvantages:
unlimited liability
profit is shared
no continuity
what is a private limited company?
a small to medium-sized business that can sell its shares to family and friends, not to the public
what are the advantages and disadvantages of a private limited company?
advantages: limited liability separate legal identity continuity high capital
disadvantages:
cannot sell shares to public
many legal formalities
what is a public limited company?
a large limited company that sells shares to the general public on the stock market
what are the advantages and disadvantages of a public limited company?
advantages: limited liability separate legal identity high capital continuity ease of buying and selling shares to the general public
disadvantages:
risk of losing control and ownership
many legal formalities
have to share accounts and records to public
what is a cooperative?
a common from of organisation a group of people acting together to meet the common needs
what are the advantages and disadvantages of a cooperative?
advantages:
buying in bulk
team work
good motivation for all workers
disadvantages:
poor management skills
capital shortage as no sales of shares
slow decision making
what is a franchise?
a business that uses the name, logo and trading systems of an already existing, successful business
what is a franchisee and franchiser?
franchisee: buys the license to operate the business from the franchiser
franchiser: a business with a product or service who sells the license to allow franchisees to operate
what are the advantages and disadvantages of a franchise?
advantages:
fewer chances of failure for new businesses
training is offered by franchiser
national advertising by franchiser
supplies obtained from quality-checked suppliers
disadvantages:
shared profit with franchiser
expensive to set up
mistake from 1 franchise affects the reputation to all
what is a joint venture?
when two or more business agree to work together on a project
what are the advantages and disadvantages joint venture?
advantages:
costs and risks are spread
different strengths and ideas are shared
could have major markets in different countries
advantages:
different management styles
conflicts could occur
failure of one partner would put the whole project at risk
what is a public corporation?
a business owned and controlled by the government and don’t have the main objective of profit.
health, education, water, electricity, transport and defense
what are the advantages and disadvantages of a public corporation?
advantages:
managed with social objectives rather than profit
finance raised by government
disadvantages:
inefficient due to lack of profit
government may interfere in business decisions for political reasons
what are the ways a business measures its size?
number of employees - simplest measure, a business run by just the owner and and a few employees is small and a business with a large amount of employees is likely to be large.
sales - total value of sales made by a business in a given time period is used as a measure of size. higher sales = larger , lower sales = smaller
capital employed - total value of all long term finance invested in the business. the larger the business enterprise, the greater value of capital employed
shares (market capitalization) - total value of a company’s issued shares. more shares = larger, less shares = smaller. can only be used for business with their shares on the stock market
market share - sales of the business in proportion of total market sales. high market share = larger, low market share = smaller
what are the advantages and disadvantages of a small business?
advantages: can be managed and controlled by owner adapts quickly to changes can offer personal services easier to make relationships
disadvantages:
limited sources of finance
large responsibility
what are the advantages and disadvantages of a large business?
advantages: benefits from economies of scale able to set low prices access to several sources of finance can afford to employ specialists
disadvantages: difficult to manage costs increase due to large scale of production slow decision making poor communication
what are the advantages and disadvantages of small businesses to a country?
creates jobs
brings new ideas and variety into markets
creates competition in the market
how does the government help small businesses?
reduces profit taxes
give loans
give advice and support through agencies
give grants
what is a family owned business?
a business owned and run by a family
what are the advantages and disadvantages of a family owned business?
advantages:
commitment - as they show dedication in seeing their business grow
continuity - the experience and skills are passed onto the next generation
flexibility
disadvantages:
informality -
what is internal growth?
expansion of a business by opening new branches, shops or factories
what is external growth?
expansion achieved by merging with or taking over another business
what is limited liability?
when the losses of the owner are limited to a fixed amount that they invested
what is unlimited liability?
when there is no limit to the losses of the owner and they could lose their possessions and assets
what are the SMART business objectives?
Specific Measurable Achievable Realistic Time specific
what is the order of hierarchy of objectives?
aim mission corporate objectives divisional objectives departmental objectives individual targets
what is a mission statement?
the businesses core aims, phrased in a way to motivate employees and stimulate interest
what are the advantages and disadvantages of a mission statement?
advantages:
quickly inform groups outside the business about the core aims of the business
motivates employees by giving a sense of direction
disadvantages:
can be too vague and general
what is ethical code?
a document containing a businesses rules and guidelines on staff behavior
what is CSR?
a concept that applies to businesses that consider the interests of society by taking responsibility of the impact of their decisions
what are the advantages and disadvantages of CSR?
advantages:
can attract new customers and customer loyalty
keeps employees in the business (employee retention)
attracting motivated employees becomes easier
helps gain the goodwill of stakeholders
disadvantages:
short run costs could increase
due to social responsibility, costs would increase which causes competitors to have lower prices for customers
how do objectives change over time?
internally:
businesses may have new owners or managers who have different objectives
externally:
a change in economy
competitors entered the market
what are examples of corporate objectives?
profit maximization profit satisfaction survival growth CSR increase market share
what is a stakeholder?
an individual or a a group of people who are affected by or interested in the business’s actions
who are the internal stakeholders?
employees
managers
owners
shareholders
who are the external stakeholders?
customers
suppliers
government
banks
what are the roles, rights and responsibilities of the stakeholder: customers?
roles:
purchase goods and services
provide revenue from sales
rights:
to receive goods and services of high quality
goods and services must meet health and safety laws
responsibilities:
to not steal
to pay for goods bought
to not make false claims
what are the roles, rights and responsibilities of the stakeholder: employees?
roles:
provide labor services to allow goods and services to be produced and sold
rights:
to be treated by the limits set by the national law
to be treated and paid as described in contract
to be allowed to join a trade union
responsibilities:
to be honest
to observe the ethical code of conduct
to meet conditions of employment contract
what are the roles, rights and responsibilities of the stakeholder: local community?
roles:
provide local services and infrastructure to the business
rights:
to be consulted about actions that affect them
to be protected from harm from business actions
responsibilities:
to cooperate with the business
to meet reasonable requests from the business
what are the roles, rights and responsibilities of the stakeholder: government?
roles:
passes laws
achieves economic stability
rights:
business must meet all legal constraints
responsibilities:
to treat business equally under the law
to prevent unfair competition
to establish good trading links with other countries
what is accountability?
the extent to which an individual or group is held responsible for a decision or policy
what is the business’s accountability to stakeholders?
customers - quality/safe products, competitive pricing
employees - job security, training, minimum wages
suppliers - regular payments, fair treatments
local community - secure jobs, environmental consideration
government - pay taxes, observe laws, publish accounts
shareholders - pay dividends
what is the stakeholder concept?
the view that businesses and their managers have responsibilities to a wide range of groups, not just shareholders
how can conflicts arise between two stakeholders?
shareholders could push for lower costs to increase their profit and that may lead to a lower pay to employees
government may want to increase taxes paid from the business which could lead to lower profits and revenue to the owner
