Introduction To Business Flashcards
Introduction to business
what are the characteristics of an entrepreneur?
-risk taker
-innovative
-initiative
-confident
what is enterprise
another word for business
positive effects of entrepreneurial activity
-more employment opportunities
-less unemployment
-lower prices
-increased rates of economic growth
negative effect of entrepreneurial activity
-leads to redundancies
-higher prices
How would an entrepreneur assess risk?
-can they afford to fail financially
-viability of business plan (optimistic or realistic)
-appreciate sacrifices (time consuming, strained relationships and declined mental wellbeing)
the 4 factors of production
-land
-labour
-enterprise
-capital
land =
natural resources (wood,coal,oil)
do NOT call these raw materials
labour =
employees need to be educated and skilled
capital =
Money AND assets. E.g machinery.
Leads to efficiency and productivity
4 factors of the decision making process
risks
rewards
uncertainty
opportunity cost
economic uncertainty
competition
changing production process
interest
opportunity cost
the cost of the next best alternative forgone. (missing out on a good opportunity)
added value
equivalent to the increase in value that a business creates by undertaking the production process
adding value
The difference between the price of the finished product and the cost of the inputs involved in making it.
cost of final product - cost of input
What is a stakeholder?
any individual or organisations who have an interest in the activities and decision making of a business
what are shareholders’ best interests for the business
growth
profit
dividends
what are the employees’ best interests for the business?
salary
safe working conditions
bonuses
promotion opportunity
job security
what are the customers’ best interests for the business?
good quality goods and services
value for money
what is the private sector?
-privately owned e.g LTD or PLC
-they’re generally run to make a profit
-act ethically
-good customer service
what is the public sector?
-owned by the community
-profit put back into the company
what is the social goals sector (third sector)?
-voulantary / charitable work
- e.g oxfam
unicorporated means
unlimited liability
incorporated means
limited liability
what types of business are unincorporated in the private sector?
-sole trader
-partnership
what types of business are incorporated in the private sector?
- Private limited company
- Public limited company
Primary sector
Activities undertaken by directly using natural resources. 1% of UK economy
Secondary sector
Converting natural resources into finished goods - 19% of UK economy
Tertiary sector
Provision (providing) of services - 80% of UK economy
Stakeholder
Any individual or organisations who have a vested interest in the activities and decision making of a business
What do Shareholders/owners want from a business
Growth or business, profit, bigger dividends
What do managers and employees want from a business
Salary, safe working conditions, bonuses, promotion opportunity, job security
What do customers want from a business
Good quality goods and services. Value for money
Who supports cut jobs or close units?
Owners, shareholders
Who opposes cut jobs or close units?
Employees, community, government
Who supports adding extra shifts to increase capacity?
Customers, government, suppliers
Who opposes adding extra shifts to increase capacity?
Owners, employees
Who supports introducing greater automation?
Customers, owners
Who opposes introducing greater automation
Employees and government
Who supports increasing selling prices
Owners government
Who opposes increasing selling prices
Customers
Advantages of sole trader
Can keep all profits
Don’t have to share sales info
Easier decision making
Greater control
No deed of partnership
Minimal paperwork
Disadvantages of sole trader
Limited ideas
Unlimited liability
Strained relationships
Can’t sell shares
Harder to raise finance
Non continuity
Advantages of partnerships
More ideas/ skills
Continuity
Easier to raise finance
Minimal paperwork
Disadvantages of partnerships
Deed of partnerships
Long decision making time
Unlimited liability
Shared profits
Economies of scale
Cost/unit becomes lower
Advantages of limited liability
Easier to raise finance
Stable form of structure
Disadvantages of limited liability
Greater admin costs
Public disclosure of company information
Directors legal duties
what is a franchiser
business with a well known brand name
what is a franchise
a business
what is a franchisee
(group of) individuals buying the right of using the brand name
advantages for the franchiser
- the firm may not have to spend large amounts money to expand
- products necessary for franchise to operate are under the franchisers control
disadvantages for the franchiser
- control issues
- the cost of supporting the franchisees
- possible conflict
advantages to the franchisee
- lower risk
- support advice and training
- marketing
- may be easier to obtain finance
disadvantages to the franchisee
- profit is shared
- franchise fees
- supplies have to be bought from the franchiser
- less control and independence
- business cannot be sold without permission
- maybe for a fixed period
what are co-operatives
a business that is owned and run by its members. Profits are shared between members rather than being distributed to shareholders.
advantages of a cooperative
- legally straightforward to establish
- usually limited liability for members
- a higher quality of service is usually provided
- customers are loyal and supportive
Types of integration
Horizontal
Forward vertical
Backwards vertical
Diversification
Horizontal
Buying from the same market
Forward vertical
Buying something further on in the supply chain (BMW+ dealership)
Backward vertical
Buying the supplier (BMW+tyre factory)
Diversification
BMW + aldi
Supply chain
Raw materials
Manufacturing
Distribution
Retail
^ down the supply chain
v up the supply chain
Joint venture
Involves two or more businesses looking their resources and expertise to achieve a particular goal. The risks and rewards of the enterprise are also shared
Reasons behind forming a joint venture
Business expansion
Development of new products
Moving into new markets
Benefits of a joint venture
Reduces risk
Sharing expertise
Synergy
Two parts coming together but being worth more than two parts
Drawbacks of a joint venture
Disagreements (management styles)
Synergy is not guaranteed
Legal disputes
Management styles
Autocratic - controlling
Democratic- workforce has freedom
Strategic alliance
An arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project. A strategic alliance is less involved and less permanent than a joint venture e.g toys in happy meals
What are the differences between a joint venture vs a strategic alliance
In a strategic alliance, the companies remain separate entities. In a joint venture, a new entity is formed
