GCSE Business In The Real World Flashcards
What are sole traders?
Easiest business to start
Have just one owner (though the owner may employ people to work for them)
Most small business are sole traders
You don’t need to do much except start trading
Give advantages of sole traders
Easy to set up
Get to be your own boss
You alone decide what happens to any profit
Give disadvantages of sole traders
Might have to work long hours and may not get many holidays
You have unlimited liability
You’re unincorporated
Can be hard to raise money
What does unlimited liability mean?
Means if the business goes bust owing a certain amount you are liable (legally responsible) for paying back all of the degt which might mean you have to sell everything you own
What does unincorporated mean?
Means the business doesn’t have its own legal identity so if anyone sues the business they’ll sue you personally
Why is it hard for sole traders to raise money?
Banks see sole traders as risky so it may be hard to get a loan
You often have to rely on your own savings or family and friends
What is a partnership?
Generally have between two and twenty partners
Each partner has an equal say in making decisions and an equal share of profits - unless they have an agreement called a deed of partnership that says different
Give advantages of partnerships
More owners means more ideas and a greater range of skills and expertise
More people share the work
More owners means more capital (money) can be put into the business o it can grow faster
Give disadvantages of partnerships
Each partner is legally responsible for what all the other partners do
Most partnerships have unlimited liability
More owners means more disagreements - if the partners disagree about which direction the business should go in and how much time to put in it can get unpleasant
Profits are shared between the partners - could end up with less money for themselves
Who are limited companies owned by?
Shareholders
The more you own the more control you get
What are the two types of limited company?
Public
Private
Give information about a limited company
Is incorporated - has a separate legal identity from owners
What does it mean if a limited company is incorporated?
Any money, property, tax bills etc not he company’s name belong to the company not the owners
Means they have limited liability
What does it mean if the owners of a limited company have limited liability?
If anything goes wrong (sued or goes bust) it’s the company that’s liable not the owners
Owners only risk losing the money they have invested
What is the ownership of a private limited company like?
Ownership is restricted
Private means shares can only be sold if all shareholders agree
The shareholders are often all members of the same family
How do you know a company is a private limited company?
It has Ltd after their name
Give advantages of a private limited company
Big advantage over sold traders and partnerships is you have limited liability (can’t lose more than you invest)
Being incorporated -company can continue trading after a shareholder dies unlike partnerships
Easier to get a loan or a mortgage than it is for sole traders and partnerships
Owners keep a lot of control over how the business is manages and how many people get to share the profits
How do owners keep a lot of control over their private limited company and how is this good?
For someone to buy shares all the other shareholders have to agree
Owners keep a lot of control over how the business is manages and how many people get to share the profits
Give disadvantages of having a private limited company
More expensive to set up than partnerships because of all the legal paperwork you have to do
Unlike sole traders or partnerships the company is legally obliged to publish it’s accounts every year (although they don’t have to be made public
What does public mean?
The company shares are traded on a stock exchange , and can be bought and sold by anyone
Firms often become public when they want to expand
Have PLC at the end of its name
What are the advantages of a PLC?
Much more capital raised than any other form of business
Helps company expand and diversify
Like private they have limited liability and are incorporated
What are the disadvantages of a PLC?
Can be hard to get lots of shareholders to agree on how business is run - each shareholder has every little say unless they own a lot of shares
Easy for someone to buy enough shares to takeover the company - if they can convince share holders to sell
Accounts have to be public
More shareholders means there’s more people wanting a share of profits
Why is publishing accounts for a PLC a negative?
Everyone including competitors can see if they’re struggling
What sort of liability do smaller businesses (sole traders and partnerships) tend to go for?
Unlimited liability
What sort of liability do larger businesses (Ltd’s or Plcs) tend to go for?
Limited liability
When starting up a business what do you have to consider in terms of legal structure?
Whether you have limited or unlimited liability
The amount of control you want over how the business is run
And their structure which can change overtime
What is the similarity and main difference between PLCs and LTDs?
They’re both incorporated and have limited liability
Big difference is the owners of PLCs can’t control who buys shares
How do not-for-profit organisations generate income and why do they need to generate enough income?
Don’t try to make profit for owners
Many have charitable status (get some tax relief and are able to apply for certain grants)
Need to generate enough income to cover their costs
Are all not-for-profit organisations the same?
No their size and aims can be very different
What happens to any surplus gained in a not-for-profit organisation?
Any surplus is put back into the business or used to fund projects that help the community
How easy are not-for-profit organisations to set up and why?
They’re hard to set up
There are list of rules to follow
Many charities are funded mainly by donations and grants which means they may not have a stable income
What are social enterprises and how do they work?
Another type of not-for-profit organisation
Make money by selling products
Similar to “for-profit”businesses but their aims are always centred around using their
profits to benefit society in some way
As they make profit through what they sell they don’t rely as heavily on donations and grants as many charities
Are not-for-profit firms easy to manage and why?
Hard to manage
Hard particularly if there’s always uncertainty about how much finance they’ll have available
and if they rely on volunteers rather than permanent members of staff
As not-for-profit organisations can vary, there are many different legal structures they can have, what are they?
Unincorporated organisation
Incorporated association
Is it easy to set up an unincorporated association?
Not-for-profit
Easy to set up
BUT people who manage the organisation have unlimited liability
Bigger organisations tend to be incorporated, why?
Not-for-profit
People who run them have limited liability
Often “limited by guarantee “ meaning some of its members guarantee that they’ll pay a fixed amount of money on behalf of the business if it goes bust
How can financial aims be measured in terms of money?
Survival
Maximise profit
Growth
Increase shareholder value
Increase market share
Maximise sales
Achieve financial security
How can financial aims be measured in terms of money….survival?
The main and most important short term aim for all businesses is surviving
60% of new firms close within five years of starting
How can financial aims be measured in terms of money….maximise profit?
Vast majority of firms will aim to maximise profits
However it can take a few years for a new firm to make any profit at all
How can financial aims be measured in terms of money….growth?
Many firms will aim to grow but growth can mean many different things
Eg/ increasing number of employees, products sold or income from sales
Some firms want to grow domestically (in country they set up) or internationally (expand into other countries)
How can financial aims be measured in terms of money….increase shareholder value?
Many firms aim to increase shareholder value (making their shareholders more wealthy) by increasing the value of the firm
Eg/ making more profit or by growing
What are shareholders?
Shareholders get a share of the firms profits
Can sell their shares to make money (the better the company’s doing the more the shares are worth)
Limited company’s have shareholders
How can financial aims be measured in terms of money…..Increase market share value?
When a business first sets up it has zero market share so one of its first aims is to capture a part of the market and establish itself
Can then aim to increase its market share by taking sales away from competition or by persuading new customers to enter the market and buy its products
What does market share tell you?
Tells you what percentage of a markets total sales a particular product or company has made
How can financial aims be measured in terms of money….maximise sales?
Increasing sales is a good way for a business to grow its market share
The business can monitor sales in terms of how many of a particular product it sells or by how much money it takes in from selling its products
NOT THE SAME AS MAXIMISING PROFIT
Eg/ a business reduces its prices in order to increase sales but selling more cheaply means it won’t male as much profit
How can financial aims be measured in terms of money….achieve financial security?
Many businesses will depend on external sources of finance such as loans or the business owners’ savings when they first start
So an aim for a new business is likely to be achieving a point where it can depend on its own revenue to fund its activities
Eg/ sales go beyond its break even point
A business my have non-financial aims. What is meant by “Do what’s right socially and ethically”?
Some firms want to make sure they are acting in ways that are best for society and that society believes are morally right (many think its wrong to test on animals)
May want to make sure their activities don’t cause unnecessary harm to the environment
Other firms are setup to provide a service that benefit others
A business my have non-financial aims. What is meant by “Achieve customer satisfaction”?
Customer satisfaction measures how happy consumers are with the products provided by the firm
Firm can measure this by carrying out customer opinion surveys, a type of market research
A business my have non-financial aims What is meant by “Personal reasons”?
May be personal reasons why an entrepreneur decides to start a business
Eg/ want a personal challenge of running a business or want the satisfaction of owning their own business, some might want the independence and control of being their own boss
How are objectives different to aims?
Objectives are more specific and once set they act as clear targets for firms to work towards
Objectives are measurable steps on the way to the aim
A business can check back after a period of time to see whether it’s objectives have been achieved, what is this a way of?
It’s a way of measuring success
Which 3 factors affect the objectives of a business?
Size of the business
The level of competition a business faces
The type of business
Elaborate on how the size of a business affects the objectives of the business.
Many small local business depend on word of mouth to survive so a major objective for them might be customer satisfaction - they may be more concerned with survival and growth rather than increasing market share
Larger businesses get more attention from the public so might set objectives about acting ethically and projecting the environment to try avoid bad publicity - large businesses may also be PLCs so might focus on increasing shareholder value
Elaborate on how the level of competition a business faces affects the objectives.
If a business is in a highly competitive market it might focus on customer satisfaction so that it can win customers from its rivals
Increasing or holding onto its market share might be more important than maximising profits
If a firm doesn’t face much competition it’s objectives may be focused more on growth and maximising profits
Elaborate on how the type of business affects the objectives.
Eg/ not for profit businesses ads more likely to focus on social or ethical objectives rather than growth or profit
Why might a business’s objectives change to whether it aims to survive or grow?
A new start up business’s aims are likely to be focused on survival however once its stable aims might be centred around growth and maximising profits for reinvestment
If it becomes a large established business it might aim to have the largest market share
But if the economy takes a downturn the business might start struggling and its aims once more become focused on survival
Why might a business’s objectives change to the size of its workforce?
For example if a business is expanding it might aim to recruit more staff
If a business has recently taken over another firm it might aim to reduce the size of its workforce so it doesn’t have multiple people carrying out the same role
Why might a business’s objectives change to enter or exit new markets?
A business could aim to enter a new market (eg/ targeting different group of people in the same place or starting to sell products in a new location) this could be because the business is growing but may also be because their existing markets are shrinking and they need to find new places to sell their items
If a product isn’t selling well in a particular market the business’s aims are likely to change so that they exit that market
Why might a business change the size of its product range?
For example if a business has a product that’s selling really well it might aim to bring out more products in the same range with different features
If fi has products in a range that don’t sell well it might aim to decrease the product range and concentrate on promoting and growing its best selling products
