Introduction to business (JSL) Flashcards
08/09/16
Disadvantages of being a sole trader
Long hours High start up costs Non guaranteed wage Hard work Dedication Unlimited liability
08/09/16
What is unlimited liability
You are personally responsible for all of the debts of the business
08/09/16
Advantages of being a sole trader
Profit is kept to themselves
Work when you like when the business is set up
Singular decisions
09/09/16
What is a partnership
This is where two or more people own and run a business together
09/09/16
Advantages of being in a partnership
Share workload Share finance Motivational Different skills offered by each partner Share responsibilities/debts Less individual start up costs
09/09/16
Disadvantages of being in a partnership
Unlimited liability
Share decisions (arguments)
Shared profits
Partners may start to let you down
09/09/16
What is a sleeping partner
Someone who invests money but takes no part in the day to day running of the business
09/09/16
What does the deed of partnership lay out
The rules for running the partnership
08/09/16
What is a sole trader
Someone who runs their own business
16/09/16
Advantages of being a private limited company
Limited liability
Shareholders invest into business
Shareholders become directors
Continuous
16/09/16
What are the 3 letters associated with private limited companies
LTD
16/09/16
Disadvantages of being a private limited company
More complicated to set up (legal formalities)
Loss of individual control
Business accounts have to be made public
16/09/16
What are the 3 letters associated with a public limited company
PLC
1609/16
Disadvantages of being a Plc
Shareholders could go against your plans for the future of your business
Stock exchange charges high rates to sell shares
Shareholders have different ideas
Slows down decision making
Negative publicity (drop in share price)
16/09/16
Advantages of being a Plc
Raises a lot of capital for investment
Generates a lot of publicity
16/09/16
What is the one difference between a Plc and and ltd
Shareholders are members of the general public - Plc
Shareholders are family and friends - LTd
16/09/16
What are the similarities between Plc and ltd
Owners called shareholders
Governed by two legal documents (memorandum of association, articles of association)
Controlled by a board of directors
Run by a managing director
28/09/16
What is franchising
Paying a royalty fee to trade under another businesses name
28/09/16
Advantages of being a franchise for the franchisee
Established name
Support of franchiser
28/09/16
Advantages of being a franchise to the franchiser
Quick way to grow
Royalties from franchisee
30/09/16
Disadvantages of being a franchise to the franchisee
Lack of total control
High start up costs
30/09/16
Disadvantages of being a franchise to the franchiser
Risk of reputation from unsuitable franchisee
30/09/16
What are the 3 sectors to the economy and what do they do
Primary - raw materials
Secondary - manufacturing
Tertiary - services based
30/09/16
Examples of primary, secondary and tertiary sectors
Primary - diamonds, beef farming
Secondary - textile making, car brakes, cement production
Tertiary - hairdressing, banking, restaurants
06/10/16
How would Tesco’s benefit from setting clear objectives
Clear marketing plan Understand customer needs Open new stores Increase sales Focus and motivates staff
07/10/16
What is entrepreneurship
Owning your own business and constantly having excellent ideas
07/10/16
What are the qualities of being an entrepreneur
Clear marketing plan Confidence Likeability Experience Risk taking Resilience Enthusiasm/passion
07/10/16
What are the essentials thing you need for writing a business plan
Business idea and target market Production operations Finance Sales and marketing Future direction
12/10/16
Why should you have a business plan
To have a clear direction To predict future problems To apply for a loan Cash flow Predict how much profit you'll make
12/10/16
What could be some of the impacts of having a crisis like the Alton Towers crash
Higher insurance Bad reputation Loss of trust Loss of customers High compensation fees
12/10/16
What are porters 5 forces
Threat of new entrants Bargaining power of suppliers Degree of rivalry Bargaining power of buyers Threat of substitutes
20/10/16
What are risks and solutions concerning a business
Poor quality staff - sack them and get new staff or motivate them non financially
Deserting customers - ask them why or put promotions in place to bring them back
Poor quality equipment - get different equipment or have promotions for customers to buy more to fund the better quality machinery
04/11/16
What is an opportunity cost
This is the best alternative given up
10/11/16
Arguments for being an ethical producer
Improves the business image
Gives you a better image than competitors
Customers care about it (especially middle class people)
Being an ethical producer means more sales and profits
It’s morally right to treat people fairly
10/11/16
Arguments against being an ethical producer
Raise costs
Competitors might become cheaper than you
Many customers don’t truly care
Most ‘reports’ of unethical suppliers are lies. Everyone is ethical now
11/11/16
What is sustainability
This is meeting today’s needs without taking away resources from the future
18/11/16
What is the local council responsible for
Parking Maintenance on roads (potholes) Planning permission Public transport Bins Trees Meals on wheels
18/11/16
Where do councils receive their money from
Central government
Business rates
Council tax
24/11/16
Key points about interest rates
The cost of borrowing money
The money you receive from the bank on your savings
It is the Bank of England who set the base rate on this
Sometimes they keep interest rates low and other times they decide to increase interest rates
30/11/16
What is the government expenditure spent on
Expenditure :
Public sector
Local government
02/12/16
What is the European Union
28 European countries who work together politically and economically
24/11/16
What is the Bank of England responsible for
Making decisions on interest rates
24/11/16
What are interest rates
The cost of borrowing money
The money you receive from the bank on your savings
30/11/16
Where do the government get revenue from
Income tax
VAT
Business rates
Corporation tax
30/11/16
What do the government spend their money on
Public sector
Local government
09/12/16
What would increasing the capacity in the economy lead to
Investment in education Build new infrastructure (e.g. roads) Give grants for training Invest in healthcare Cut benefits Encourage 'young business'
02/12/16
What is the European Union
28 European countries who work together politically and economically
08/12/16
What are some businesses that are successful in a boom and what could happen during a boom
Banks
Travel agents
Housing agencies
More production, low unemployment, new products and new opportunities could happen during a boom
09/12/16
What does having a deficit mean
You’re importing more than you’re exporting
05/01/17
What is a negative externality
A negative effect on a third party from a transaction (e.g. passive smoking)
06/01/17
What are fixed costs and what are variable costs
Fixed costs stay the same no matter what
Variable costs change according to what you make
11/01/17
What do we mean by contribution
This is the mark up on each product (selling price - variable cost)
11/01/17
What do we mean by margin of safety
This is how many products you are above the breaking point
11/01/17
Why do you need to know your break even
Helps set targets
Helps monitor the business success
Tells you if you are wasting your time
Helps to justify you borrowing money
11/01/17
Limitations of break even
Fixed costs can change (stepped fixed costs)
It’s only a prediction
Unexpected costs can arise
It assumes prices never change
It assumes everything you make will get sold
Selling price and variable cost figures are just averages
14/12/16
What things are included in the contract of employment
Pay (wage) Hours Location Uniform Bonuses Position in business What the job involves Rules of the workplace
14/12/16
What is redundancy
When your job no longer exists. The business needs a fair redundancy procedure
14/12/16
What are the working time regulations
May only work an average of 48 hours in a week
Must have a day off each week
May only work a maximum 12 hours a day
Young people (under 18s) cannot work nights
14/12/16
What are the impacts of overworked staff
Health issues of employees
Employees are demotivated
Tiredness affects a person and then there could he conflict in the business
Poor customer service leads to unenergised employees
Wages
14/12/16
Key information about health and safety
Health and safety is everyone’s responsibility
Staff are entitled to training and equipment
Risk assessments must be carried out all the time
The business must have a safety policy
14/12/16
What does HSE mean and what does their job involved
HSE is a health and safety executive
Their job involves overseeing all safety laws and inspections
02/02/17
What is investment appraisal
This is how a business decides if an investment project is worthwhile, or where alternatives exists, which option is likely to be the best
02/02/17
What are the advantages of payback
Simple to calculate
An early return is especially important when liquidity is more important than profitability
02/02/17
Disadvantages of payback
It disregards all cash flows beyond the payback period so fails to measure overall profitability
It discriminates against projects which involve a long payback period
02/02/17
What is the formula for calculating the accounting rate of return
ARR = (average annual accounting profit/initial investment) x 100
02/02/17
What is meant by net present value (NPV)
This takes into account the time value of money. It’s based on the principle that money is worth more than it is in the future. The principle exists for two reasons:
- risk (money in the future is uncertain)
- opportunity costs (could be in an interest account earning interest)
03/02/17
What is budgeting
Allocating a set amount of money each month for various expenses
03/02/17
What is variance
When there is a difference between planned budget and the actual outcome of the budget
03/02/17
Benefits of budgeting forecasts
Knowing how much money should be spent on each cost
Stops wastage
Stops unnecessary spending
Simple to calculate
03/02/17
Problems with budgeting
Costs might not stay the same so the budget could change
Unforeseen circumstance
Only a prediction
03/02/17
What is zero budgeting
The money is given as and when it is needed
10/02/17
What is meant by personal savings
How much assets any individual retains and puts this money into the business
10/02/17
What is meant by retained profits
Where you keep profits for the last year then invest it (this could be more than one year, dependant on how much profit you’re making)
10/02/17
What is meant by sales of fixed assets
Selling bigger items off like machinery
10/02/17
Benefit and risks of personal savings
Benefit - immediate & no interest charge
Risks - could lose all money
10/02/17
What is meant by factoring
Where you sell a debt to a debt collecting company
10/02/17
What is meant by divestment
Closing or selling off some parts of the business
10/02/17
Benefits and risk of factoring
Benefit - gets debt off employers responsibility
Risk - could lose some money & looks bad on the business
10/02/17
Benefits and risks of sale of fixed assets
Benefit - more storage space available & raise a lot of capital
Risk - may regret it in the long run
10/02/17
Benefits and risks of sale/lease back
Benefit - large amounts of revenue
Risk - have to pay back
10/02/17
Benefits and risk of retained profits
Benefit - no time/ interest period
Risk - opportunity cost
10/02/17
Benefits and risks of divestment
Benefit - gain a large amount of capital
Risk - may be needed later on
23/02/17
State the 5 long term methods of external finance
Loan (mortgage) Issue shares Grants Selling equity Venture capital
23/02/17
What is meant by a loan (mortgage)
Where you borrow a lot of money to invest in big assets like a house
23/02/17
What is meant by issue shares
Where the business creates new shares and sells them
23/02/17
What is meant by a grant
Where the government gives money to people in order to continue what they’re doing (e.g. Studying or selling). You don’t have to pay these back
23/02/17
What is selling equity
When someone is interested in the business and buys part of the business
23/02/17
What is meant by trade credit
Where you buy things, sell them then pay back say 3 months later when the stock is sold
23/02/17
What is venture capital
When someone invests in your business to receive high % profits each year then repaid after around 5 years
23/02/17
Name the 3 short term methods of external sources of finance
Trade credit
Overdraft
Credit card
23/02/17
What is an overdraft
Extra money from the bank out of your account
23/02/17
What is a credit card
Paying your bills for you then paying back over a period of time
01/03/17
What is an income statement
A statement of income, expenditure, profits and losses
01/03/17
What are the 3 elements of an account
- trading account (gross profit)
- income account (operating profit)
- appropriation account (retained profit after deductions)
01/03/17
What do you do with index numbers
Use a set number in year 1 then compare it to all new numbers in other years
03/03/17
What is a balance sheet
This shows the value of the business at any one time
03/03/17
What is business value
How its financed
03/03/17
What is meant by assets and liabilities
Assets - what you own
Liabilities - what you owe
03/03/17
What is meant by depreciation
This is a method of reallocating the cost of a tangible asset (fixed asset) over its useful life span
09/03/17
What is the formula for liquidity ratio?
Current assets/current liabilities
09/03/17
What is included in current assets and current liabilities
Current assets - stock, cash, debtor
Current liabilities - creditors, overdraft
09/03/17
What is the formula for acid test ratio
Current assets - inventory (stock)/current liabilities
09/03/17
What is the ideal current ratio and ideal acid test ratio
Ideal current ratio = 2:1
Ideal acid test ratio = 1.5:1
Anything more suggests way too much cash/trade receivables/stock
Anything below suggests liquidity problems
09/03/17
What is included in the 3 shareholder ratios
- dividend per share (total dividend/number of shares)
- earnings per share (profit for the year/number of shares)
- price earnings ratio (market price per share/earnings per share)
09/03/17
What is the gearing ratio
What % of the business is financed by long term loans
09/03/17
What is the formula for calculating gearing ratio
(non current liabilities/capital employed (investment)) x 100
10/03/17
Benefits of being heavily geared
- suggests the bank is a big stakeholder
- but, not a problem if the business can service its debt
- also, a good way to finance the business if interest rates are low
- finally, helps you avoid paying dividends
10/03/17
What is the formula for calculating non current assets turnover
Revenue/non current assets
10/03/17
What is the formula for calculating stock turnover
Cost of stock/average stock
10/03/17
What is meant by debtor days and what is the formula for calculating this
This is how quickly debts can be turned into cash
Formula:
(trade receivables/revenue) x 365
10/03/17
What is meant by a debtor
Someone who you’ve sold something to and you’re awaiting payment (trade receivables)
10/03/17
What is the formula for calculating creditor days and what is meant by creditor days
This is how quickly our short term debts can be paid
Formula:
(trade receivables/purchases) x 365
What is meant by job production
This often involves producing a single item/product. Various teams are attributed to job production, such as bespoke, unique, tailor-made and one off. It is usually concerned with satisfying a customers specific needs
What is meant by cell production
This can be defined as a production system that has employees working in teams, who are responsible for the whole of the production process for a given product
What is meant by batch production
This is used when there is a set procedure and stages that the production process needs to go through in order to create a product. One process has to be completed before the next stage of the production process can be started
What is meant by flow production
This is a continuous process, utilising a conveyor-belt approach, whereby the product is assembles on a production line wth employees undertaking specific repetitive tasks for each stage of the individual processes
Give 3 characteristics of job production
Produced to satisfy customers needs
Unique
Specifically requested
Benefits of job production
Meet customer needs exactly
Quality of work is high
Easier to motivate workers
Flexibility to produce whatever is required
Little stock is tied up
Easier to add value due to highly specialist work that is undertaken
Limitations of job production
Usually no opportunities for benefitting from economies of scales
Higher costs of production
More skilled labour so more expensive to train and employ
Slower process
Difficult to gauge the costs for the job
Benefits of batch production
Large quantities produced Some economies of scales Generally faster process As greater quantities of goods are produced, the unit costs should be lower More flexibility than flow production
Limitations of batch production
Could be a time delay
More stock is held, adding cash outflows of the business
Storage space for products waiting to go in the next batch process may be needed but could have been used for productive purposes
Not much variation
Lower skilled jobs
Benefits of flow production
Economies of scales
Benefit from division of labour
Continuous so little downtime and therefore production levels are optimised.
Enables a business to remain competitive
Offer more opportunities for the division of labour (specialisation)
What is meant by ‘downtime’
When there is a time delay between batches which means that nothing is being produced
Limitations of flow production
High start up costs
Lot of time to plan to organise the flow system
Lacks flexibility
If the line stops for any reason, the whole production process is stopped
Any significant fall in demand will make the process uneconomical
Employees are less likely to be motivated as its repetitive
Large amounts of stock
Greater reliance on suppliers to deliver on time
Benefits of cell production
Improved working conditions
High quality of work as employees are responsible for the work in their cell
Encourages a sense of responsibility
Opportunities for job rotation
Allows the employee to set their own pace of work
15/03/17
What is meant by differential pricing and give an example
Where a business charges different groups of consumers different prices for the same product
(E.g. Trains)
15/03/17
What is meant by market skimming and give an example
This is a method of pricing where the business has a higher price than competitors because it has a better product, for which consumers are willing to pay a higher price
(E.g. Cars)
15/03/17
What is meant by cost plus pricing and give an example
This is a method of pricing where the business looks at the price it paid for the product and then adds on profit to arrive at the price to be charged
(E.g. Restaurants, jam)
15/03/17
What is meant by penetration pricing
Where a business lowers the price of products or services to gain customers from other businesses
(E.g. Supermarkets)
15/03/17
What is meant by competitor pricing and give an example
This is a method of pricing used when there are a lot of other businesses selling the same or similar products
(E.g. Mobile phones)
15/03/17
What is meant by promotional pricing and give an example
Prices are reduced for a short period of time, often to sell off old stock
(E.g. Clothes)
15/03/17
What is meant by psychological pricing and give an example
Where prices are 9.99 rather than 10 to make the product seem much less expensive and so attract extra sales
(E.g. Consoles)
17/03/17
What is meant by a product mix
This is the overall range of products a business produces and sells
17/03/17
What are the 4 aspects to the Boston matrix
Stars
Question marks
Cash cows
Dogs
17/03/17
Explain each aspect of the Boston matrix
Stars - a product that has high market growth
Question marks - you’re questioning whether a new product will be successful
Cash cows - this is the product that has huge volumes of sales with high market share
Dogs - small & specific but appeals to enough people
17/03/17
What is meant by the product lifecycle
This is the life of a product from its introduction right through to its potential decline/withdrawal
17/03/17
What is meant by extension strategies
These are strategies to keep customers interested
17/03/17
What are the 4 stages if a product lifecycle
1) introduction
2) growth
3) maturity
4) decline
23/03/17
What does it mean by promotion
This is trying to make customers aware of the brand and seeks to encourage customers to buy. Businesses also make the brand unique/different
