Introduction To Business Flashcards
What is an enterprise
Another name for a business
What is an entrepreneur
Risk taker who sets up the business
name 3 characteristics of an entrepreneur
self belief and conflidence, ability to work under pressure, creative
what are the factors of production?
land, labour, capital and enterprise
what is meant by the term factor production?
using resources (input) a business can produce the products that customers want to buy (outputs)
what is the land factor of production?
the natural resources. includes below land such as minerals and what’s grown on it.
what is the Labour factor of production
Human Resources available
what is the capital factor of production
buildings, machines and infrastructure
what is the enterprise factor of production
entrepreneur that organises the other 3 factors of production
what is meant by added value
means that a business can sell the product at a price that is higher than the cost of producing it. any extras that can be added to a product that are priced above the traditional cost.
name a constraint on a business
involves a cost that the business will need to pay, either directly or indirectly
what is meant by functions within a business?
The organisation of a business if often divided up into several functions or departments.
what is the accounting and finance function
monitors and controls business finance records.
name two things that the accounting and finance department do
detained records of all the products that the businesses has made and sold, the cost of goods sold.
ensuring that costs are kept under control and that there are sufficient funds available to pay all the day to day running costs of the business.
what is the operations management and production function
transforming resources ‘inputs’ into finished ‘outputs’
name two things that the accounting and finance department do
encompasses maintenance of capital equipment, stock control, quality control
what is the marketing and support service function
to ascertain the needs of consumers by conducting market research and to attempt to satisfy the consumers in order to make profit.
name two things the marketing and support service function do
Adding value and ensuring consumers are informed of the product or service in such manner as to create a desire to buy.
Once a product has been brought, sales support is also important. reasurring customers know they can have help.
negative impact of bad support services
Indifferent customer service at point of sale and/ or sales support that is poor looses customers and attracts bad publicity.
what is the human resource management function
responsible for wellbeing of employees.
name two things the human resource management function do
recruitment, training and terminating employment.
Motivating the workforce and ensuring that the business complies with employment legislation.
what is meant by the different stages of production?
As products are made, they pass through the chain of production.
as a product passes along the chain, it has value added to it
what is the primary sector?
concerned with extractive industries. e.g farming and mining.
what is the secondary sector
concerned with manufacturing and construction, into semi finished or finished products.
what is the tertiary sector
concerned with output and services. e.g retailing and banking.
what is the private sector
businesses are owned and run by individuals
what is the public sector
organisations owned and run on behalf of the government.
what is the third sector
non government and non profit organisations. e.g charities, community groups. they achieve a social goal.
what is a sole trader
a business owned by one person and is ‘unincorportated’ as it does not exist in its own rights.
what are the advantages of being a sole trader
less legal requirements when setting up so possible to start quickly.
faster decisions as does not have to consult anyone
keeps all the profit
as cannot issue shares is not subject to a takeover.
the financial state of the business can be kept private.
what are the disadvantages of being a sole trader
fully responsible for all debts. if financial difficulty owner may be forced to sell own possessions (unlimited liability)
single handle perform all business functions. can’t neglect a function as business will suffer.
hard to raise capital for expansion as small business seen as risky, limits growth
overworked- especially in first years as trying to build customer base
sole trader legally is business itself, if they die business ends. no continuity.
what is a partnership
a business owned by two or more people, limit at 20.
good practice- draw up deed of partnership.
advantages of being a partnership
easy to establish
more people= more capital. expansion is easier.
work is shared so partners with different skills and ideas.
partners can specialise
losses are shared
pay income tax so financial state can be kept private.
disadvantages of being a partnership
liable for all debts (unlimited liability). partner is liable for debts incurred by other partner even if no idea.
slower decisions and disagreement
legal restriction on number of partners means business lack capital expansion.
share profits* In law a partnership can be automatically ended with the departure, resignation, or death of one partner.
For this reason, partners should make provision by having a written agreement about what will occur if this happens.
what is a limited liability partnership?
combination of partnership and limited companies, the owners are called members and they have limited liability.
are limited liability partnerships financial records published?
have to file annual accounts so financial statements is publicly available to competitors.
what does PLC stand for
public limited company
name 3 important differences between companies and other business organisations
incorporation- the business exists in its own rights
shares- they can raise capital via shares. this means buyers own a share in the company. company issue shares to raise money.
limited liability- the shareholder only looses its shares. not personally reliable for debts.
why do investors buy shares In comapnies?
receiving a return on their money (which is known as dividend)
and making a capital gain- selling their shares for a higher price than they brought them at.
what is a private company?
often family businesses, where the advantage of being incorporated can be linked to the ability to keep control with a fairly small group of people.
what does LTD stand for?
private limited company
can a private limited company or a public limited company sell shares on the stock market?
public as they can be brought by anyone
what legal structure can involuntarily be take over, what % do they need to own?
public limited companies can be taken over is someone owns 51%
what is the minimum share capital a PLC is required to have?
50,000. a private company no minimum
do PLC’s and LTD financial records need to be public?
having to provide detail and publication of financial records to stakeholders and public. provide a copy of reports and accounts at AGM’s
Can LTD’s be taken over
private company can ‘sell out’ to an investor but cannot involuntarily be taken over.
where can shares be traded for LTD?
shares must be sold through private negotiation and cannot be advertised for sale to the public
advantages of companies
access to large amounts of capital through ability of issue shares. opportunity for growth.
limited liability encourages investors
Investors such as banks often regard companies as less risky than a sole trader or partnerships. This could mean better terms for borrowing money.
continuity: separate legal entity so does not come to an end when owner dies.
disadvantages of companies
can be expensive to set up. two legal documents have to be completed
establishing a company can be slower, more complicated.
more complicated than running sole trader due to legal responisbilties to shareholders e.g preparing and publishing accounts.
company accounts are not private. All company accounts, where they are public limited companies or private limited companies are on open access at companies houses. difficult to keep financial information hidden The danger of a takeover: in this case of a public limited company, the original owners could lose control if large blocks of shares are bought up by other investors.* Large companies can require complicated management structures. The more people there are to manage the more difficult communication and co-ordination becomes.
what are the two legal documents companies have to sign when setting up?
memorandum of Associations and the Articles of Associations.
what is a franchise
a business with a well-known name (the franchiser) lets the person (the franchisee) or a group of people set up their own business using that brand.
what are the advantages for the franchiser
costs less to expand.
charge higher price for product to franchisee
products necessary for franchise to operate are under franchisers control
continous revenue stream* Applicants are carefully selected for sustainability to become franchisees
what are the disadvantages for the franchiser
control issues. less control over products
time spent to ensure franchisee following procedures correctly (training)
franchisee can damage brand name
conflicts can occur
what are the advantages of being franchisee?
greater chance of success as brand developed.
gain specialist advice and training franchiser.
franchiser carries out market research and provides marketing support. franchisee can spend more time selling products
this all means it can be easier to gain a loan from the bank
what are the disadvanatges of being a Franhcisee?
products can be expensive so less profit margin.
continuing royalty payments ( a certain % of turnover or profit) to the franchiser.
less control over what it is selling, and how it sells it, then a person running their own business.
can’t sell business without permission.
no automatic renewal
what is a cooperative
business owned and run by its members
that existed for the benefits of its users rather than some distant and uncaring owners.
name the three key elements to any cooperative business
owned by members, the people who use it.
run by members who elect those managing the business.
profits shared amongst members, so not a charity a business.
what are the advantages of being a cooperative
establishing is legally straightforward & legal documentation easy and cheap.
employees working towards a goal so motivated and productive.
usually limited liability
high quality of service since customers often members & profits made are shared.
what are the disadvantages of being a cooperative
limited capital. initially limited to what members contribute.
banks reluctant to lend as seen as not a ‘normal type of business’.
weak management as do not have sufficient grasp of business principles & lack experience.
slower decisions as greater number.
no garauntee it will generate more profit than an ordinary business.
number of employees affecting business size
small- fewer than 50
large- more than 250
is higher turnover and profit level & stock market value for a smaller or larger business?
larger
what is capital employed?
This is the total value of a business’s assets- its factories, machinery, offices and so on.
higher figure- larger business
what are the factors affecting the business size
market size
nature of product- if product large and technologically complicated firm usually larger.
personal preference- entrepreneur may not want to expand nationally. may prefer big fish in small pound. worry about control loss, is it worth the risk.
ability to access funds for expansion
name 4 reasons a business may want to grow
entrepreneur wants a greater challenge
owner wants a higher return on investment
growth through diversification into new markets- spread risk-
A bigger, stronger business is better placed to fight any economic or competitive threats successfully.
The opportunity to gain unit cost reductions through economies of scale.
advantages for employees of a larger business
Greater job security
specialist human resources department which will ensure compliance with legislation.
The business may recognise the trade union or have some method of employee participation in order to improve communication and productivity
disadvantages for employee of a larger business
Feeling remote from those who make the decisions that affect them. Issues of poor morale and motivation that may affect productivity.
There may be problems of effective co-ordination and control that negatively impact on the business’s operation and profitability.
advantages for suppliers of a larger businesss
larger orders
regular orders
security
disadvantages for suppliers of a larger business
May be offered a ‘take it or leave it approach’ to conditions of supply and payment.
Overdependence on large customers can cause problems if the large firm decides to change supplier.
advantages for local community of a larger business
Creation of jobs
Local ‘multiplier’ effect. Boosts economic activity.
Community initiatives from the large firm
disadvantages for local community of a larger business
Possible negative externalities such as pollution and/ or congestion around the business.
A large business may drive the existing local firms out of the market, thus reducing choice and variety.
advantages for shareholders of a larger business
the large firm may have some market power and so may have a degree of control over prices- leading to higher profits, dividends and share prices.
Large firms can gain managerial economies of scale to improve performance.
disadvantages for shareholders of a larger business
If managers make the wrong decisions they can have a significant effect on the business profits and therefore share price and dividends.
Large businesses can be organisationally inflexible. It can be hard to ‘turn around’ a large business that is failing. It may be some time before dividends rise (to acceptable levels again)
advantages for customers of a larger business
the business can ‘seek out’/ develop new products.
Economies of scale lower costs and therefore prices.
the business treat customers well to maintain a good image.
disadvantages for customers of a larger business
Diseconomies of scale may raise costs, which will be passed on in the form of higher prices.
Customers might be swayed into buying products they don’t want through contact exposure to marketing.
If point of contact with the firm is a call centre the business can appear remote and the customer can feel powerless and neglected if a problem
what is organic growth
growth the business achieves by increasing output and enhancing sales internally.
what is a merger
A merger is where two companies join together to form a new larger business.
what is a takeover
A takeover involves acquiring control of another company by buying its shares. If the takeover is successful the target company will usually continue to exist as an independent legal equity controlled by the acquirer.
what is a joint venture
A joint venture is a formal business arrangement between two (or more) businesses who commit to work together on a particular project.
A joint venture may only be in existence for a particular project, or it could be ongoing. A joint venture will often result in the creation of a new business to implement the venture.
both parties invest money time and effort into project.
difference between joint venture and merger
A joint venture is different from a merger because there is no change of ownership involved for either firm.
advantages of a joint venture
capital cost of a project might be too high, but this allows both parties to share cost burden.
no change of ownership
share risks.
businesses can share strengths and increase competitive advantage against others.
disadvantage of joint venture
drawing up a contract that specifies responsibilities and goals. This may be expensive due to the legal costs but will be crucial for avoiding disagreement in the future.
what is a strategic alliance
when two businesses work together but don’t form a new business as they only share resources and help each other, not creating a new product.
each party maintain own identity
what are the disadvantages of a strategic alliance
the more powerful party can demand conditions that benefit them.
the contract is too vague or ambitious it will be a recipe for trouble (and possibly legal actions).
