Definitions for Understanding business activity Flashcards
Business activity
The process of producing goods and services to satisfy consumer demand.
Need
A good or service which is essential to living.
Want
A good or service which people would like, but is not essential for living.
Economic problem
Unlimited wants cannot be met because there are limited factors factors of production. This creates scarcity.
Factors of production
The resources needed to produce goods and services- Land, capital, labour and enterprise.
Scarcity
There are not enough goods and services to meet the wants of the population.
Opportunity cost
The next best alternative forgone by choosing another option.
Specialisation
People and businesses concentrate on what they are best at.
Division of labour
Production is divided into separate tasks and each employee does just one of those tasks.
Adding value
Selling price - cost to make the product = Value added
Ways of adding value
-Branding
-Excellent service quality
-Extra product features
-Convenience
Primary sector
Firms whose business activity involves the extraction of natural resources.
Secondary sector
Firms that process and manufacture goods from natural resources.
Tertiary sector
Firms that supply a service to consumers and other businesses.
Chain of production
The production and supply of goods to the final consumer involves activities from primary, secondary and tertiary sector businesses.
Mixed economy
An economy where the resources are owned and controlled by both the private and the public sectors.
Private sector
The part of the economy that is owned and controlled by individuals and companies for profit.
Public sector
The part of the economy that is controlled by the state or government.
Entrepreneur
An individual who has an idea for a new business and takes the financial risk of starting up and managing it
Characteristics
-Innovative
-Self-motivated and determined
-Self-confident
-Multi-skilled
-Strong leadership qualities
-Initiative
-Results driven
-Risk-taker
-Good at networking
Business plan
A detailed written document outlining the purpose and aims of a business which is often used to persuade lenders or investors to finance a business proposal.
Advantages of a business plan
-Business is much easier to run
-Decreases chance of losing sight of business objective
-Help motivate the employees
-Can be used to persuade lenders
Revenue
The amount a business earns from the sale of its products
Measuring business size
-Number of employees
-Value of output
-Market share
-Capital employed
Internal growth
When a business expands its existing operations.
-Increasing the number of goods it can produce.
-Developing new products
-Finding a new market for its product
External growth
When a business takes over or merges with another business
Four types of external growth
-Horizontal integration: 2 businesses in the same sector and same industry.
-Forward vertical integration: 2 businesses in the same industry but one is the customer of the other.
-Backward vertical integration: 2 businesses are in the same industry but one is the supplier of the other.
-Conglomerate integration: 2 businesses who are in completely different industries
Why businesses remain small
-Owners choice
-Market size
-Access and availability
-Market domination
Why businesses fail
-Poor planning / Lack of objectives
-Liquidity Problems
-Poor choice of location
-Poor management
-Failure to invest in new technologies
-Poor marketing
-Lack of finance
-Competition
-Economic influences
Sole traders
A business that is owned and controlled by one person who takes all the risks and receives all the profit.
Partnerships
A business formed by two or more people who will usually share responsibility for the day-to-day running of the business. Partners usually invest capital in the business and share profit.
Franchise
A business system where entrepreneurs but the right to use the name, logo and products of an existing business.
Joint venture
When 2 or more businesses come together to work on a project.
Unincorporated business
A business that does not have a separate legal identity from the owners. They have unlimited liability.
Unlimited liability
If an unincorporated business fails then the owners may have to pay of business debt with their own personal wealth.
Limited liability
The shareholders in a limited liability company which fails only risk losing the amount they have invested in the company.
Shareholder
A person or organization who owns shares in a limited company.
Private limited company
Usually a small to medium sized company owned by shareholders who have limited liability. The company cannot sell shares to the general public.
Public limited company
Usually a large business owned by shareholders who have limited liability. The company can sell shares to the general public.
Dividend
A payment to shareholders as a reward for their investment, comes from profits
Public corporations
A business organization that is owned and controlled by the state.
Objective
Aims and targets that a business works towards in order for it to run successfully. It should be SMART
SMART
-Specific
-Measurable
-Achievable and agreed
-Realistic and relevant
-Time-specific
Market share
The revenue of a business expressed as a percentage of total market revenue
Different business objectives
-Survival
-Profit
-Growth
-Market share
-Corporate social responsibility
Social enterprise
A business with social objectives that reinvests most of its profits back into the business or into benefiting society at large.
Stakeholder
An individual or group which has an interest in a business because they are affected by its activities and decisions.
Internal stakeholders
-Owners and shareholders
-Managers
-Employees
External stakeholders
-Lenders
-Suppliers
-Customers
-Government
-Local community
