Introduction to Business Flashcards
What does a business do, essentially?
organize input to produce output, which must be more valuable
What are the types of input?
land
labour
capital
entrepreneurship
Goods
physical products
Services
intangible products
Profit
total revenue - total costs
Revenue
price x quantity
Expenses
everything that the business has had to pay to acquire the input and get the revenue
Inventory/stock
what you have that you are able to sell
Strategy
method used by a business to achieve its goals
What is the primary sector?
extractive sector, extracts directly from nature
What is the secondary sector?
manufacturing, turning raw materials into something else
What is the tertiary sector?
provides services/intangible products
What is the quaternary sector?
research and development
What are opportunities of starting a business?
earn a living
financial reward prospect
control over life
work-life balance
innovative business idea
unfilled market niche
What are reasons for business failure?
underfunding
neglecting marketing/sales
lack of planning
finding right people
time management
scaling up too quickly
What is the difference between public and private businesses?
public - owned by government
private - owned by individuals/group of individuals
What are the main features of sole traderships?
owners solely own everything of the company
no legal separation between company and owner
legally ‘confused’
if you want to sue, you sue the person not the company
unlimited liability
What is a sole trader?
someone going into a productive activity without actually setting up a legal framework
What are advantages of sole tradership?
ease of formation
might benefit from tax exemption if business is small
retention of control
What are disadvantages of sole tradership?
unlimited liability
lack of permanence
limited financial resources
What is a partnership?
like a sole tradership but with various owners
may even have contract between partners but still no legal framework
each partner responds to 100% of debts with personal assets - solidarity
What is limited liability?
- owner of business can’t lose personal assets
- can only lose what was put into company
- even in bankruptcy, investors are safe
What is a public limited company?
in the stock market
in the private sector
anyone can trade - needs to match higher standards
What are advantages of partnership over a sole tradership?
easier to have a larger company + more money
more expertise
What is a private limited company?
privately traded, not in stock market
company chooses who participates
Shareholders
owners of an incorporation
What is an incorporation?
legal person of the company, separate from owners
IPO
initial public offering of shares
from private to public LTD companies
Directors
managers, may be shareholders
Liquidation
process of turning assets into cash
Dividends
profit divided among shareholders
Sleeping partners
shareholder that doesn’t want to be active in running the business
What are advantages of private limited companies?
- more investors
- shareholders invest for long term
- you know who shareholders are - control
- limited liability
- financial records are private
What are disadvantages of private limited companies?
- shared profits
- lengthier decision making
- shares can’t be traded publicly
- more expensive and time consuming
What are advantages of public limited companies?
- shared risks
- finances raised through stocks
- separate legal identity
- limited liability
What are disadvantages of public limited companies?
- shared profits between many shareholders
- expensive and time consuming to set up
- loss of control
- accounts are publicly available
What is a cooperative?
a business owned and operated equally by its members who share the profit equally
How are associates in cooperatives?
equal standing, votes with same weight, shared voice and ownership and profits
What are the goals of private sector companies?
usually profit
What are the goals of public sector companies?
social/government goals (which can also be profit)
What is the goal of co-ops?
associates (profit/wellbeing etc)
What are social enterprises?
businesses who are not only focused on profit (may be for marketing reasons)
What are the main features of NGOs?
wants to improve social/environmental outcomes
by law, any surplus must be reinvested into business
run by board of directors
What are advantages of non profits?
limited liability
no tax on surplus since it is all reinvested
volunteers mean low costs
grants and donations
What are challenges with non profits?
funding difficulties may persist more
time and energy raising funds
competition for donations intense
limited employee salaries
paperwork to set up
What are NGOs?
sub-category of non profit social enterprises
What is the vision statement?
long term goal/dream of what the future should look like with the business in it
What is the mission statement?
short term statement that defines what the organisation does in order to achieve vision
What are some common business objectives?
growth
profit
protecting shareholder value
ethical objectives
stakeholder
any individual or group that affects or is affected by an organisation
strategy
a plan that an organisation creates in order to reach a specific coal
business strategies
usually refer to significant decisions/actions
involve senior management
benefit of successful strategies
help a business respond effectively to changes in external environment
more agility and resilience
What are sociocultural factors? (STEEPLE)
all sociocultural characteristics of a region
demographics, lifestyle, beliefs, values
affects what people choose to buy
tactic
a smaller action that a business takes in order to reach its goals
smaller scale and shorter term
What are technological factors? (STEEPLE)
new technologies changes how a business operates and the products it makes
technological development
includes infrastructure
What are economic factors? (STEEPLE)
changes in economic conditions, GDP
cycles of GDP - business cycle
income increase/decrease changes what people want to buy
What are environmental factors? (STEEPLE)
natural disasters or conditions may affect products
businesses that rely on natural resources
climate change
increased protection of nature may be harmful to businesses
What are political factors? (STEEPLE)
may change laws
unstable government
Green parties
What are legal factors? (STEEPLE)
multinational companies - home country and host country laws
complying with laws
What are ethical factors? (STEEPLE)
conflict between growth/profit and social/environmental responsibilities
What is the difference between internal and external stakeholders?
internal: individual or group that affects or is affected by an organisation + is directly involved inside the organisation
external: individual or group that affects, or is affected by, an organisation, but not directly involved inside the organisation
What is financial sustainability?
ability of a business to sustain itself over time and survive
What are the benefits of CSR?
increased revenue
reduced energy/waste/materials expenses
increased productivity
reduced turnover
reduced risks
Give some examples of internal stakeholders.
managers, employees, shareholders
Give some examples of external stakeholders.
labour unions, banks, society
What is sociocultural sustainability?
distributing value to a wide range of stakeholders in order to have a positive impact on people
What is environmental sustainability?
positive impact on planet
What is the root of stakeholder conflict?
diverse interests
What are examples of stakeholder conflict?
- managers and employees
- shareholders and managers
- shareholders and government
- local community and shareholders
- managers and unions
- customers and suppliers
- pressure groups and employees
What is an economy of scale?
Cost reductions experienced by a business when it expands its output
What is a diseconomy of scale?
The increase in the per-unit production cost as a business grows
What is the difference between internal and external economies of scale?
Internal: achieved inside company
External: external factors in region/industry that business can’t control
What are the types of internal economies of scale?
- purchasing
- marketing
- managerial
- technical
- financial
What are purchasing economies of scale?
buying input at a lower cost by purchasing larger amounts - buying in bulk
negotiation
What are marketing economies of scale?
cost of marketing spread over larger output, lowering average campaign cost
What are managerial economies of scale?
cost of hiring a manager spread over a larger output
lower costs due to expertised and efficient employees
What are technical economies of scale?
investment in equipment
efficiency and automation
What are financial economies of scale?
large loans have lower interest rates
What are the types of external economies of scale?
innovation
infrastructure
specialisation
What is innovation?
research and development
Why does infrastructure help businesses?
more efficient product delivery and commute
Why is specialisation good for a business?
companies/supplies/workers focus on an industry + specialised workers, less costs with training
What are the types of internal diseconomies of scale?
managerial issues: difficult for leader to lead + rivalries between divisions of large firms - cooperation issues lead to inefficiencies
increase in workforce size: difficult to control, hierarchy, overspecialisation leading to alienation
communication: complex hierarchy, inefficient communication
Difference between internal vs external diseconomies of scale?
internal: usually due to difficulty in managing internally large operations
external: expansion of business’s industry
What are the types of external diseconomies of scale?
limited natural resources: industry-wide increased demand
limited infrastructure: slow down deliveries etc
increased regulation
pollution: climate change costs lives/natural resources/infrastructure
What is the difference between internal vs external growth?
internal: company grows alone
external: company grows together with other companies
What are reasons to grow?
- economies of scale
- market power
- shareholder returns
- lower risk from hostile takeover
- price of stock increases
- manager objectives
- synergy
- profit
- vision
- control
What are reasons for businesses to stay small?
- privacy - financial records
- retained ownership and control
- no pressure/control from shareholders
- individuality and not compromising quality
- easier and cheaper to set up and maintain
- less costs, risks and responsibilities
- niche markets, specialisation & limited competition
What are mergers and acquisitions?
merger: two companies of similar size join together to b become one
acquisition: A buys at least 50+1% of B’s shares, companies become embedded
What are takeovers?
hostile acquisition
public limited companies only
acquisition but without approval of managers
expensive
What is a joint venture?
2 companies create a new company together
What is a strategic alliance?
two companies work together but remain separate
What is franchising?
company sells business model to interested parties
reduces risk for both parties
What are advantages of external growth?
- shared risks
- shared expertise
- faster growth
What are disadvantages of external growth?
- no full control
- shared expertise
- shared profits
What is market penetration?
- least risky
- increasing market share in existing market
- eg acquisition
What is market development?
different audience (maybe new country)
riskier
same product, different TA
can be finding new use for existing product
What is product development?
new products in existing markets
same TA
eg apple pencil
What is diversification?
riskiest but also highest chance of reward
new product to new people
can be related or unrelated - unrelated is riskier
What is the difference between strategy and tactic?
strategic - more long-term and relating to overarching goals
tactical - more short-term and may seem disconnected to the overarching goal
What are some examples of external diseconomies of scale?
Overcrowding leading to transportation problems
High costs of rent due to the high demand
Higher costs due to labour shortages
