Introduction To Business (steeds) ✔️ Flashcards
What is an enterprise
-Another word for a business
-the actions of a risk taker starting their business;
Take initiative in trying to exploit a business opportunity, makes investment to set up the businesses, continue even with the risk of failure.
Characteristics of enterprise
-risk taker
-confidence
-creative
-leadership skills
-enthusiasm
-comfortable with risk
Assessing risk, questions to ask.
-do I have a clear image of the business
-can I afford to fail
-is my business plan realistic
-do I have the cash flow
4 Decision making processes:
-risks
-rewards
-uncertainty
-opportunity cost
Positive and negative impacts of entrepreneurial activity on the economy:
+job creation, reduction of unemployment, increase competition
-market saturation
What are the 4 factors of production:
Factors of production are the inputs available to supply goods and services in the economy.
-land: natural resources available for production
-labour: the human input into the production process
-enterprise: entrepreneurs organise factors of production and take risks
-capital: goods used in the supply of other products eg/ technology
What is adding value
-added value is equivalent to the increase in value that a business creates by undertaking the production process
Calculation: output - input
How to add value
-building a brand: a reputation for quality that customers are willing to pay for the higher priced product compared to competition
-delivering excellent service: high quality and attentive personal service can make the difference between achieving a high price or a medium one
-product features and benefits- additional functionality in different version eg/ phones
-offering convenience- customers will often pay a little more for a product that they can have straightaway or which saves them time
What is transformation process
What happens inside the business
Inputs - transformation process - output
Benefits of adding value
-charging a higher price
-creating a point of difference from the competition
-protecting from competitors trying to steal customers by charging lower prices
-focusing a business more closely on its target market segment
What are the constraints of a business succeeding
-employee skills
-competition
-finance available
-legislation
-the economy
What are primary, secondary and tertiary sectors:
Primary: activities under taken by directly using natural resources (farming)
Secondary: involves converting raw materials into finished goods
Tertiary: services
What are the different functions of a business: (6)
-accounting and finance (ensuring financial management)
-operations management (supervising/ managing the production of goods)
-marketing (distribution, market research, setting prices, finance, product management)
-human resources management (directing and organising company activity’s, utilisation of workforce, recruitment)
-customer service (support customers)
-sales and support services (managing correspondence between the sales team and clients)
What is a stakeholder
Any individual or organisations who have a vested interest in the activities and decision making or a business
Examples of business stakeholders
-employees
-owner
-suppliers
-customers
-government
-society
What is private sector organisations
-businesses are operated and owned by private individuals and companies (families and friends) have to be invited.
-limited liability for owners
-generally run for profit to earn returns for the business owner.
Public sector organisations
-businesses and other organisations are owned and run on behalf of the public either by the government itself, or by organisations who are funded by the public
-public sector businesses are generally not run for profit, but exits to provide goods and services to public using public funds (nhs)
What is unincorporated (sole traders and partnerships)
-the owner is the business
-no legal difference
-owner has unlimited liability for business actions
-most unincorporated businesses operate as sole traders
What is incorporated (private limited and public limited company)
-legal difference between the business and the owners
-owners have limited liability
-most incorporated businesses operate as private limited companies
What is a sole trader
-individual owning the business on their own.
-a sole trader can employ people
-sole traders own all the business assets personally and is personally responsible for the business debts
-unlimited liability
Advantages and disadvantages of sole traders
+ quick and easy to set up, simple to run, minimal paperwork, easy to close down.
-full personal liability “unlimited liability”, harder to raise finance, the businesses is the owner and if the owner becomes I’ll the business suffers, can pay a higher tax rate then a company
What are partnerships
-a business is started and owned by more then one person
-the legal partnership agreement sets out how the partnership is run, covering areas like;
How profits are to be shared, the investment made by each partner, how decision are made, what happens if a partner decides to leave.
-unlimited liability
Advantages and disadvantages of partnership
+simple, minimal paperwork, business benefits from expertise of more then one person, can provide specialist skills, easier to raise finance
-unlimited liability
-poor decision by one owner damages the interest of the other, hard to make decisions, complicated to sell/close
Limited liability partnerships (LLP)
-combine partnership with those of limited company
-separate legal entity (limited liability)
-required to file annual accounts to companies house
Advantages and disadvantages of a limited company
+limited liability, easier to raise finance, stable form of structure
-grater admin costs, public disclosure of company information, directors legal duties
Private limited company
-family and friends can buy into shares
-limited liability
-have to teh sister at companies house
Public limited companies
-can sell shares in stock market
-can be taken over
-require to have share capital of 50,000
-required to include more detail in its annual report.
Advantages of limited companies
-can be brought by people so new money invested
-east to expand business
-limited liability
-stable form of structure, business will continue even when shareholders change
Disadvantages of limited company
-greater admin costs
-public disclosure of company info
-greater threat of legal takeover
-can’t always control who is involved in the business
What is a franchiser and franchisee
-business with well know brand (franchiser)
-franchisee is the one who buys it
Advantages for the franchiser
-the firm may not have to spend larger amounts of money in order to expand
-products necessary for franchise to operate are under the franchisers control
-applicants can carefully be selected for suitability
Disadvantages for the franchiser
-control issues
-the cost of supporting the franchisees
-the possibility for conflict
Advantages for the franchisee
-lower risk
-support advice and training
-marketing is national
-may be easier to obtain finance
Disadvantages for the franchisee
-profit is shared
-franchisee fees
-suppliers have to be brought from the franchiser
-less control and independence
-the business cannot be sold without permission
What is a cooperative
A business that is owned and run by its members (employees and customers) profits are shared between members rather then being distributed to share holders
Advantages of cooperatives
-legally straightforward to establish
-liability for members is usually limited
-a higher quality of service is likely to be provided
-customers are usually supportive
Disadvantages to cooperatives
-capital can be unlimited
-weak management (those selected may not have a grasp of business principles)
-slower decision making
-employees may want more
What is a franchise
The right to sell a product
What is a local business
-Concerned with customers clustered tightly around the marketer.
-as it is a local business they can learn a great deal about customers and make necessary changes quickly
-potential market is limited
What is a national business
-distribute their product throughout a country. This may involve multiple manufacturing plants, a distribution system including warehouses and delivery vehicles.
What is a international business
-operate in more then one country.
-legal and cultural differences alone can greatly affect a strategy’s outcome.
What is a multinational company
-multinational corporation is one that has business offices and operations in two or more countries in the world
-sell in one country but have factories in more then one.
Reasons for the growth of multinational companies
-emerging economies (cheaper prices for resources and labour)
-economies of scale is cheaper
-protectionism
-external growth through takeovers and mergers allows a company to grow internally abroad (factories)
Benefits for multinational businesses
-significant employment and training to the labour force
-adds to the hosts country’s GDP
-increased competition and consumer choice
-increased tax revenues to host country
Disadvantages to multinational businesses
-domestic business may not be able to compete
-tax avoidance
-could damage domestic business
-impose culture on a culturally different country
What is the difference between international companies and multinationals
-international companies are importers and exporters, they have no investment outside of their home country. Multinational companies have operations in at least 2 other countries.
Measuring businesses; small, medium, and large business’s.
-number of employees (50= small, 250+ large)
-number of factories, shops and offices
-turnover and profit levels
-stock market value
-capital employees (total value of assets)
What factors influence the size of the business
-market size
-nature of product
-ability to access resources for expansion eg/ finance
-personal preference
Why might a business want to grow
-entrepreneur wants a greater challenge
-owners want a higher return on investments
-growth into new markets can spread risk
-a bigger business is better placed to fight external threats
-opportunity to gain unit cost reduction through economies of scale
The effects of a businesses size on its stakeholders: how does it affect employees
Advantages:
-greater job security, specialist HR department, trade union more likely to be recognised
Disadvantages:
-employees feel remote from those making the decisions leading to poor morale and motivation that may affect productivity
The effects of a businesses size on its stakeholders: the effect it has on suppliers if it grows
Advantages:
-regular orders, larger orders, security
Disadvantages:
-may be offered a take it or leave it approach to contentions of supply and payment, over reliance on large suppliers
The effects of a businesses size on its stakeholders:local community
Advantages:
-creation of jobs, boosts local economy
Disadvantages:
-pollution and congestion around the business, small and local firms maybe driven out of the market
The effects of a businesses size on its stakeholders: shareholders
Advantages:
-market power (gained from economies of scale), greater market control
Disadvantages:
-large businesses that are failing can be hard to turn around, may suffer from diseconomies of scale, leading to reduced share price and off its effecting dividend payments
The effects of a businesses size on its stakeholders: customers
Advantages:
-economies of scale lower costs and therefor prices, new innovation products developed, more likely to have a customer service department
Disadvantages:
-diseconomies of scale May rise costs and prices
What is the importance and impact of small businesses
-they have individual contact with customers gaining valuable feedback
-small businesses may be less vulnerable from recession
-will not be affected by diseconomies of scale
What are the 5 strategy options for growth
-innovation
-diversification
-international expansion
-cost leadership
-product development
What is organic/ internal growth
-growth from within the business. Eg/ launch of new products, expansion into new markets, new distribution channels, exporting.
What is external growth
-growth from outside the business. Eg/ takeover, merging with competition, acquiring a supplier or major customer, joint venture
Organic growth advantages and disadvantages:
-lower risk
-builds on existing activities
-good for high growth markets
-rewards innovation and brand building
-slower
External growth advantages and disadvantages:
-faster
-transformational
-popular in nature or declining markets
-can acquire missing technology and brands
-high risk
What is a mission statement and aims
-the mission of a business is the overriding goal of the business and the reason for its existence. A mission provides strategic perspective for teh business and a vision for the future
-aim is the long term plan of teh businesses survival, growth, market share, and profit
What is a stakeholders objectives
A specific target that the firm/ group wishes to achieve. Set at a corporate level and for each business function and each other stakeholders
What does SMART stand for
-Specific
-Measurable
-Achievable
-Realistic
-Time
What are strategic and tactical objectives
-strategic: how a business plans to achieve its aims and goals, often a long term approach
-tactical: the day to day (short term) objectives needed to ensure the strategic objectives are achieved
Influences and constraints on objectives
-finance
-conflicts
-legislation
-economy
-competition
What are the 3 types of external growths
-mergers and acquisitions
-joint venture
-strategic alliance
What is a merger
-a merger is a combination of 2 previously separate firms which is achieved by forming a completely new firm into which the two organism firms are integrated
Merger advantages
-more finance
-more opportunities and range of products
-economies of scale
-shared ideas/ responsibility
Merger disadvantages
-less profits as they are split
-loss of control
-loss of original business
-chance of failure
-staff made redundant
What is an Acquisition/ takeover
-involves one business acquiring control of another business
Advantages of Acquisition
-increased market share
-new skills
-economies of scale
-better distribution
-less risk of takeover
-eliminate competition
Different types of take over/ Acquisition
-forward
-backwards
-horizontal
-diversification
Disadvantages of takeover/ Acquisition
-high costs
-risk of failure
-upset customers
-may reduce the quality of the suppliers
-problems with change of management
What is a joint venture
Combination of 2 or more parties that seek the development of a single enterprise or project for profit. Work together to get the goal but are still 2 different identities of businesses
Joint venture advantages
-access to new markets and distribution networks.
-increased capacity.
-sharing of risks and costs (ie liability) with a partner.
-access to new knowledge and expertise, including specialised staff.
-access to greater resources, for example, technology and finance.
Joint venture disadvantages
-the objectives of the venture are unclear.
-the communication between partners is not great.
-the partners expect different things from the joint venture.
-the level of expertise and investment isn’t equally matched.
-the work and resources aren’t distributed equally.
What is strategic alliance
An arrangement between two companies to undertake a mutually beneficial project while retaining its independence
Disadvantages of strategic alliance
-may not be any benefits
-legal distributes over who owns what
-expensive and difficult to cooperate
Advantages of strategic alliance
-sharing resources and expertise
-new market
-expand production
-drive innovation
-more affordable then expansion
-economies of scale
