Intro to business Flashcards
What is a sole trader?
A business owned and operated by one person, although they can employ staff
Pros of being a sole trader?
- The owner has complete control over the business
- Big incentives to work hard (keep all the profits)
- Few legal regulations when setting up the business
- Owner chooses their own holidays and work hours
Cons of being a sole trader?
- No one to discuss business matters with
- Business has unlimited liability
- Hard to raise finance
- Business is likely to remain small
What is a partnership?
A group or association of between 2 and 20 people who agree to own and run a business together
Pros of a partnership?
- The owners have complete control over the business
- More capital is available to invest
- Individual partners can offer specialisms
- Continuity - partners can cover others absence
Cons of a partnership?
- Disagreement between partners
- Business has unlimited liability
- Number of partners is limited to 20
- A partner could be unreliable or dishonest
What is a Private limited company?
A company in which a number of shareholders (less than 50) contribute funds to the company in return for shares. Shares can’t be sold on the stock exchange.
Pros of a private limited company?
- Business has limited liability
- Easier to raise capital
- Management is shared
- More specialisation can occur
Cons of being a private limited company?
- Expensive to set up
- Shares can’t be sold to the public
- Less privacy as members of the public can see them
- Accounts must be lodged with registrar of companies
What is limited liability?
Owners are only responsible for the amount of money invested
What does LTD mean?
Private limited company
What is a public limited company?
A company in which an unlimited number of shareholders contribute funds to the company in return for shares. Shares can be sold on the stock exchange.
Pros of being a public limited company?
- Business has limited liability
- Much easier to raise finance as shares can be sold on the stock exchange
- The business will still exist if one of the shareholders dies
- High degree of specialisation
Cons of being a public limited company?
- The company is vulnerable to takeovers
- Shareholders receive some of the profit in dividends
- Annual accounts have to be published in full
- May have communication and management problems due to size
- Legal issues when forming or running a PLC
What is enterprise?
The process by which new businesses are formed in order to offer products and services in a market
What is an entrepreneur?
A person who spots an opportunity and shows initiative and a willingness to take risks in order to benefit from the potential rewards
What are the 4 factors of production?
- Land
- Labour
- Capital
- Enterprise
What is the difference between added value and profit?
- Added value is the additional worth that is built into a product or service
- Profit is the remaining money after all the costs associated with creating that value are paid off
What is the primary sector?
Extraction of natural resources (e.g. oil, gas)
What is the secondary sector?
The sector where manufacturing takes place
What is the tertiary sector?
The sector where the goods/service are sold to the consumer
What is the private sector?
Run by individuals and firms rather than the government
What is the public sector?
Usually compromised of organisations that are owned and operated by the government and exist to provide services for its citizens
What is the third sector?
The range of organisations that are neither public sector nor private sector. Includes voluntary and community organisations
What is a local market?
A local market is the local community
What is a national market?
A market much broader across a whole country or several regions
What is an international/global market?
A marketplace where goods and services are exchanged across national borders
What is a national business?
Operates within one country
What is a multinational business?
Operates in a number of countries
What are business functions?
- Human resources
- Customer service
- Sales and marketing
- Research and development
- Administration and IT
- Production/operations
- Finance and accounts
What is human resources?
- Recruitment and retention
- Dismissal
- Redundancy
- Motivation
- Training staff
- Health and safety / conditions at work
What is customer service?
- Monitoring distribution
- After-sales service
- Handling consumer enquiries
- Offering advice to consumers
- Dealing with customer complaints
- Publicity and public relations
What is sales and marketing?
- Market research
- Promotion strategies
- Pricing strategies
- Sales strategies
- The sales team
What is research and development?
- New product development
- Product improvements
- Competitive advantage
- Value added
- Product testing
- Cost savings
What is administration and IT?
- Managing property
- Reception
- Overview of quality control
- Use of IT systems
What is production / operations?
- Acquiring resources
- Monitoring costs
- Production methods
- Efficiency
What is finance and accounts?
- Cash flow
- Preparing accounts
- Raising finance
Why do some businesses stay small?
- Owners choice
- Market size - local or niche
- Access and availability of capital
- Market domination
What is a franchise?
A marketing arrangement allowing another business to trade in the same style as an existing business
What is a franchisor?
The person or business who offers to franchise to other businesses its trading methods, products and business logos
What is a franchisee?
A person or business buying the franchise
How can you assess a franchise opportunity?
- Location of the franchise
- Successes of other franchises
- What the business is / how it operates
- Competition in same market sector
- How financially secure the franchisor is
Pros of a franchise for a franchisee?
- Training provided by franchisor
- Equipment often provided by franchisor
- Brand name
- Finding customers
Cons of a franchise for a franchisee?
- Initial investment is very high
- Need permission from the franchisor to sell or close down
- Franchisor can end the agreement and shut you down whenever they want to
- Royalty fee
Pros for a franchisor of a franchise?
- Initial fee from franchisee
- Royalty payments received
- Growth of a business
- Access to talent
Cons for a franchisor of a franchise?
- Reputation is at risk
- A lack of control
- Slow growth
What is a cooperative business?
A member owned organisation that operates for the mutual benefit of its members. Ran and owned by its members, profits are shared
Pros of cooperatives?
- Easy to form
- Limited liability
- Low cost of operations
- Income tax exemption
- Internal financing
Cons of cooperatives?
- Lack of secrecy
- Lack of interest
- Corruption
- Lack of mutual interest
What are the 7 cooperative principles?
- Voluntary and open membership
- Democratic member control
- Member economic participation
- Autonomy and independence
- Education, training and information
- Cooperation among cooperatives
- Concern for community
What are the 5 types of cooperatives?
- Consumer cooperatives
- Worker cooperatives
- Producer cooperatives
- Purchasing or shared services cooperatives
- Multi-stakeholder cooperatives
What is the minimum number of members in a cooperative?
- 10
- No maximum
What is a joint venture?
A joint venture is a separate business identity created by two or more parties, involving shared ownership, return and risks
Pros of a joint venture?
- Specialist skills from individual partners
- Increased capital
- Increased innovation and development
Cons of a joint venture?
- Profit is shared
- Partners may have different goals
- Shared control
- Dependency on partners
What is a strategic alliance?
An arrangement between two businesses to undertake a mutually beneficial project while each retains its independence
Pros of a strategic alliance?
- Can be flexible
- Businesses do not need to merge capital and can remain independent
Cons of a strategic alliance?
- May be differences in how the two businesses are run
- Must be trust between the two businesses
- In a long-term strategic alliance one party may become dependent on the other
