Introduction To Business (Chapters 1, 2, 4) Flashcards
Chapter 1
What is meant by the term enterprise?
It has 2 meanings:
Firstly, it is simply another term for “business”.
Secondly, it is used to refer to actions of a risk who starts up his/her own business.
Chapter 1
What is meant by the term entrepreneur?
An entrepreneur is “a risk taker who sets up a business”. It is not the same as being self employed.
Chapter 1
What is the difference between being self-employed and being an entrepreneur?
Self-employed people will have had a job working for someone else, and may have become self-employed later in life, they may prefer a “steady job” meaning avoiding risk taking. An entrepreneur, however, likes taking risks and usually searches for an opportunity which “others don’t fully recognize.
Chapter 1
What are some key characteristics of an entrepreneur?
Leadership skills, self-belief/confidence, risk-taking, creativity/imagination, persistence, ability to work under pressure, energy/enthusiasm.
Chapter 1
What is meant by “factors of production” and what are the 4 main factors of production?
Factors of production are the inputs that are used in the production of goods or services. These are:
CELL:
Capital
Enterprise
Land
Labour
Chapter 1
What is meant by Capital as a factor of production?
Capital refers to buildings, machinery and tools rather than money.
Chapter 1
What is meant by Enterprise as a factor of production?
Enterprise is the entrepreneur who organises the other three factors.
Chapter 1
What is meant by Land as a factor of production?
Land is natural resources, not only fields, but what lies below them in terms of minerals, and land also includes what can be grown on it.
Chapter 1
What is meant by Labour as a factor of production?
Labour is all of the human resources available(except the entrepreneur) whatever the age and skill of the worker.
Chapter 1
How might a firm react to a rise in factor costs?
Raising prices (depends on the amount of competition).
Lowering costs (e.g. setting worse terms for suppliers).
Cutting back on non-essential areas of expenditure (may negatively affect the local community).
Chapter 1
What are some of the constraints on a business?
Competition
Environment
Legislation
The economy
Chapter 1
What are the four functions within a business?
- Accounting and finance.
- Operations management and production.
- Marketing and support services.
- Human Resource Management (HRM).
Chapter 1
What does the “Accounting and finance” function of a business do?
This department monitors and controls the business’s financial resources; keeps detailed records of all the products that the business has made and sold, costs of goods sold, any tax due as a result of it; sets budgets in order to control the business and operates the business’s payroll.
Chapter 1
What does the “Operations management and production” function of a business do?
“Production” can be thought of as the process of transforming resource ‘inputs’ into finished ‘outputs’. “Operations management” refers to designing and controlling the process of production to make it as efficient as possible.
Chapter 1
What does the “Marketing and support” function of a business do?
The role of marketing is to ascertain the needs of consumers by conducting market research and to attempt to satisfy the consumers.
Adding value and ensuring consumers are informed of the product or service in such a manner to create a desire to buy.
Customer service when selling the product.
Sales support means providing customer support after the product has been bought.
Chapter 1
What does the “Human Resource Management” function of a business do?
This department is responsible for the wellbeing of the employees. This includes recruitment and training, and, if necessary, terminating employment. Motivating the workforce and ensuring that the business complies with employment legislation is also part of its function.
Chapter 2
What are the 3 ways to classify a business (3 sectors) based on the nature of their output?
Primary sector
Secondary sector
Tertiary sector
Chapter 2
What is the primary sector concerned with?
Businesses in the primary sector are concerned with the extractive industries. These include farming, fishing, forestry, mining, etc.
Chapter 2
What is the secondary sector concerned with?
Businesses in the secondary sector are concerned with manufacturing - that is turning raw materials into semi-finished and finished products . It also includes the construction industry - building houses, factories, office blocks and roads.
Chapter 2
What is the tertiary sector concerned with?
Businesses in the tertiary sector are concerned with the output of services; and services still count as production even if there is no actual finished product to see.
Chapter 2
What is deindustrialization?
The decline in size of the secondary sector of the economy.
Chapter 2
What are the 2 types of businesses?
Private businesses
Public businesses.
Chapter 2
What does it mean if a business is in the private sector?
The business is owned and run by private individuals - usually for profit.
Chapter 2
What does it mean if a business is in the public sector? What are some of the services it might provide?
The businesses and organisations are owned and run by the local or central government, whose objective is to provide a service rather than make a profit. The central government is responsible for providing essential services such as healthcare, education and pensions, while local government provides a range of services, including street lightning, fire service
Chapter 2
What are the types of businesses in the private sector?
Sole trader
Partnership
Limited liability partnership
Limited companies (private and public)
Chapter 2
What is a sole trader? What are some advantages and disadvantages of it?
A sole trader is when 1 person is in control of the business, making all the decisions affecting it.
+Sole traders keep all the profit.
+A sole trader doesn’t have to consult with anybody.
+Can’t issue shares, so isn’t subject to a takeover.
-Full responsibility for all debts (unlimited liability).
-Difficult to raise capital for growth.
-Sole traders must single-handedly perform all functions of a business.
Chapter 2
What is a partnership? What are some advantages and disadvantages of it?
Whenever 2 or more (maximum 20) people run a business together, they are partners. There is no need for any formal documentation for a partnership to exist.
+Losses are shared.
+Work is shared and different partners with different skills can be employed.
+Additional partners = more capital.
-Unlimited liability.
-Slower decision making.
-Shared profits.
Chapter 2
What is a Deed of Partnership?
A legal document governs the running of this type of business it sets out and clarifies matters such as:
• How much money each partner is expected to contribute.
• How much income each partner can draw.
• The responsibilities/duties of each partner, etc.
If no Deed is set up, the business will be governed by the Partnership Act of 1890 (profits and losses are shared equally).
Chapter 2
What is a Limited Liability Partnership?
A separate legal entity that has the advantages of a partnership while also having limited liability however, an LLP is required to file their annual accounts at Companies House.
Chapter 2
What are the main differences between a company and other types of businesses?
- Incorporation. The company exists separate from their owners. Those who own the company (shareholders) aren’t the same as those who run it (directors).
- Shares. Companies can raise capital by issuing shares.
- Limited liability. Shareholders only lose their shares if the company ceases trading.
Chapter 2
What are the main differences between a private limited company and a public limited company?
- A public company is “plc”, a private company’s name must end in “Limited” or “Ltd”.
- An Ltd may operate nationally, and a plc will operate nationally and often in international markets as well.
- A plc can be legally taken over because its shares are available for anyone to buy, while an Ltd can sell out but can’t be involuntarily taken over.
- A plc is required to have at least £50 000 worth of share capital. An Ltd has no limits.
Chapter 2
What are some advantages and disadvantages of companies?
+Limited liability for shareholders.
+Less risky than a sole trader or a partnership allows for better terms when borrowing money.
+Access to large amounts of capital through the ability to issue shares.
-Slower, more complicated and more expensive to set up.
-All the accounts and financial details are public on the Companies House, so it is difficult to hide them from competitors.
-Difficulties in communication and co-ordination may arise within large companies.
Chapter 2
What is a Companies House?
A platform where all UK companies must be registered and submit details about themselves such as the identity of the directors, the number of shares and the latest “Report and Accounts” every year
Chapter 2
What are the Memorandum of Association and the Articles of Association?
These important legal documents must be done when setting up as a company to protect the interests of shareholders:
•The Memorandum deals with the company’s relationship with the outside world (plc or Ltd, nature of products it’ll sell, etc.).
•The Articles deal with the internal running of the company (e.g. arrangements for the election and removal of directors).
Chapter 2
What is meant by a “third sector organisation”?
A Third Sector Organisation (TSO) is one that is neither in the public nor the private sector in the usual sense of the term. TSOs include charities, community groups, faith groups, self-help groups, social enterprises, and co-operatives. They are motivated by the desire to achieve social goals (e.g. improving housing, helping people with social problems, etc.) rather than the desire to make profit.
Chapter 4
What are the factors that need to be taken into account when making a judgement about the size of the business?
• Number of employees.
• Number of factories, shops or offices.
• Turnover and profit levels.
• Stock market value.
• Capital employed.
Chapter 4
What is a company’s stock market value?
The stock market value of a public company is its current share price multiplied by the number of shares issued.
Chapter 4
What is meant by “capital employed”?
Capital employed is the total value of a business’s assets - factories, machinery, offices, and so on.
Chapter 4
What are the factors affecting the size of a business?
• Market size.
• Nature of the product (how complex it is, standardised or not, etc).
• Personal preference of the entrepreneur.
