LO1 Flashcards
Definition of business activity
tasks completed by a business to achieve it’s objectives, eg buying and selling and producing products and services
What is the Primary Activity, name some examples
Extraction and harvesting of raw materials, these include fishing, mining, agriculture, oil and gas extraction
What is the Secondary Activity, name some examples
Manufacturing of products, this can be sold to retail customers, or components sold to business customers
What is the Tertiary Activity, name some examples
Provision of services, such as hairdressers, schools, banks and supermarkets or services to business, such as transport. As a country becomes more industrialised, the demand for services increase
What is the Private Sector
The aim is to make a profit, range from small local businesses such as a electrician, to large multinational corporations, such as Walmart stores, inc. In the UK Next plc is one
What is the Public Sector
Organisations that do not aim to make a profit, such as health care services, education, libraries
What is the Third Sector
Organisations that do not aim to make a profit and are not government owned.
They rely on donations, fundraising and grants.
NSPCC and Oxfam are some charities
What is a sole trader
A Business owned by one person although the owner may decide to employ others to work alongside them
Advantages of Sole Trader
Can start the business with limited finance
Few legal requirements to consider when starting compared to other ownerships
Sole traders can choose there own working hours
Do not share profits with others
Disadvantages of a Sole Trader
Liable for any debts incurred by the business
Do not have co-owners to discuss new ideas and decisions with
Often take long hours and not much holiday
Lack of finance may restrict the business
What is a Partnership
A business with a minimum of 2 or more partners.
Advantages of a Partnership
Others to discuss decisions
More finance available
Few Legal requirements when starting the business
Different areas of expertise, which can benefit the business
Disadvantage’s of a Partnerships
Decisions making can take longer as more people are involved
Partners have unlimited liability
Chance of the partners do disagree could affect the way the service is provided
What is a private limited company?
A company the separates legal entity to its owners, the shares in the business are sold to raise finance
Advantages of private limited company
Owners and shareholders have limited liability
Owners can choose who to sell the shares too
Owners can keep control of the business as long as they limit the amount of shares sold
Disadvantages of a private limited company
Can be expensive and a lengthy process
Shares cannot be sold to the general public, this limits the finance that can be gained
What is a pubic limited company
a pubic limited company is a separate legal entity from its owners, the shares of the business are sold via the stock market
Advantages of a public limited company
Shareholders benefit from limited liability
As shares are sold on the stock market, large amounts of finance can be made
A public limited company has a high profile, easier to attract customers and reliable suppliers
Disadvantages of a public limited company
Competitors can view the accounts of the plc
Due to the size decisions can be a lengthy process
Greater risk of a takeover
What is the a Government Owned business
A legal entity owned by the government, eg the BBC
Advantages of Government Owned
Government can support business that are struggling to survive
Some business/industries are vital, support from the government ensures there survival
Disadvantages of Government Owned
The business can be used for political gain, eg if unemployment is high, jobs can be created
Businesses that are not answerable to shareholders regarding profits may not priorities cost control
What is a charity owned company
Includes involuntary and community groups, trade unions and charitable trust and charities
Advantages of Charity owned business
Quick and easy to set up and can make an immediate impact
Charities are widely recognised as existing for social good. This can assist with fundraising.
Disadvantages of Charity owned business
They often depend on volunteers, which can make it difficult to maintain support in running the group
Setting up formal charity is expensive
What is a CIC owned company
Limited companies that aim to benefit the community or trade with social purpose rather than earning high profits for shareholders
Advantages of a CIC
The company has its own legal identity
Reputation of the business may be enhanced
Disadvantages of a CIC
Tax must be paid on profits
What is a USP
Unique selling point a specific factor that makes a business stand out frp, its competitors, eg excellent customer service
What is a functional area
Diversion of business where employees have similar roles, skills and expertise, eg marketing function, human resource function
Roles of a Finance in functional Area
responsible for controlling the finance of the business
Marketing and receiving payments on behalf of the business
paying employees
Preparing annual financial accounts
Roles of Marketing in functional Area
Promoting the business and its products/services
using different forms of social media to create awareness
They are responsible for identifying customers needs and working with research and development to ensure the products and services meet the needs
Roles of a Sales in functional Area
Communicating with existing customers and potential new customers
Name all the functional Areas
Finance, Marketing, Sales, Human Resources, Operations Management, Customer Services, Business Support Services, Research and Development, Purchasing/Procurement
What is the benefit of functional areas
for a smooth business operation, certain functional areas need to be deployed
What is the role of Human Resources
Planning, recruitment, redundancies , remuneration and reward system
What is the role of Operations Management
converting inputs to outputs
What is the role of Customer Services
Liaising with customers, managing expectations and resolving queries
What is the role Business support service
Managing resources, maintaining equipment, providing IT support, providing administrate support
What is the role of Research and Development
Developing new products and services in response tro research findings
What is the role of Purchasing and Procurement team
sourcing and providing materials or services
What is a flat structure
A company structure containing few levels
Name some advantages of a flat structure
Communications flow tends to be good due to the short chain of command. Information can be passed accurately, there is generally more interaction between top and bottom levels improving understanding
Due to the wide span of control, employees are empowered and motivated to make decisions
Name some disadvantages of a flat structure
Wider span of control may means the employees at the bottom levels may not be monitored closely, could lead to mistakes, Fewer levels reduce the opportunities for Promotion, this could make the employees leave
What is the flat structure best suited to
a small business with fewer jobs roles
What is a Tall/Hierarchy structure
Many layers of management, fewer people at the top than at the bottom, the chain of command is clearly defined and instructions are passed down from the top to bottom
Advantages of a Tall/Hierarchy structure
Everybody knows their exact job role and whom their accountable for. A narrow span of control enables supervision to be closer leading to fewer mistakes. offers more chance of promotion, this could lead to employees working harder
What is the Tall/Hierarchy structure best suited too
Medium to large types of organisations/businesses with large number of employees and the armed forces
Advantages and Disadvantages of Centralised Structure
Advantages
- Useful in unforeseen circumstances or times of uncertainty
- Strong leadership allows for quick responses to potential threats
- Decisions made tend to benefit the whole business rather than a department
Disadvantages
- People lower down the structure may feel demotivated as decisions are made without them
- There may be a better understanding lower down the structure regarding customers and employee needs which are not taken into consideration when decisions are made
Advantages and Disadvantages of Decentralised Structure
Advantages
- Employees feel more empowered and motivated as they have more responsibility and are able to make certain decisions for themselves
- People at the top can have more time to focus on important decisions
Disadvantages
- Decisions made might not reflect those valued by the whole business, sending confusing messages to stakeholders
- Conflict may arise people make decisions based on their needs
What is the Matrix Structure
where employees are grouped by function and product
What is a tall hierarchy structure
A pyramid shaped structure with many levels
What is a centralised structure
A structure where decisions are making is kept at the top of the hierarchy
What is the role of a Chief Executive
Most authority in the business, responsible for the success or failure of the business, answerable to all stakeholder and makes the most important decisions
What is the role of a Director
Report to chief executive, in a medium to large business they may be several directors each in charge of a functional area, directors oversee activities undertaken within a function
What is the role of a manager
Managers make sure that their department achieves the aims and objectives identified by the directors, to whom they report directly. Managers overall in charge of activities in their department ensuring that it is running smoothly
What is the role of supervisors
Usually in charge of team members in a specific area of department, make day to day decisions to ensure that the area in charge runs smoothly
What is the role of assistant or operatives
At the bottom of a structure and are responsible for carrying out instructions given by their supervisors
fixed cost
cost which do not change
variable cost
Costs which change with output
semi variable cost
Costs composed of a mixture of fixed and variable
Revenue
the income generated from sales
Cash flow
the total amount of money being transferred in and out of the business
Net Cash flow
the differences between a company’s cash inflows and cash outflows in a given period
Profit
financial gain, when revenue is greater than total costs
Break even
When revenue is equal to total costs
Margin of safety
the amount of sales above the break even point
Depreciation
the actual decrease of value of an a asset
Opportunity costs
the loss of other alternatives when one alternative is chosen
Break even formula
Fixed costs__________
Revenue - Variable costs
What is a income statement
a financial statement that shows revenue and expenses a business has received over a period of time
Gross profit
revenue minus cost of sales
Net Profit
gross profit minus expenses
Assets
Resources owned by a business - cash. machinery, motor vehicles
What is meant by a cash flow forecast
a prediction of money flowing in and out of the business
What is meant by a cash flow statement
the actual flow of money going in and out
Formula of net cash flow
Receipts - Payments
Formula of closing balance
Net cash flow + Opening balance
What is a stakeholder
an individual or group who has an interest in a business and may be directly affected by the activities of that business
Name 10 stakeholders
Employee, Owner, - Internal
Local Community, Customers, Suppliers, Financial Businesses, Local and Central government, Trade Unions, Shareholders, Pressure groups - External
What is a income statement
A financial statement which shows how much profit or loss a business had made
What are two types of Profit
Gross Profit and Net Profit
Gross Profit Formula
Revenue - Cost of Sales
Net Profit Formula
Gross Profit - Expenses
What is meant by Cost of sales
The amount the business has paid to create or make available a product or service that has been sold
Assets
resources owned by the business, such as cash, machinery, motor vehicles
Expenses
the amount the business has paid to operate the business day by day
What is a social factor
things that are affected our lifestyle, eg. demographic issue, attitudes to work, disposable income, social trends, cultural beliefs
External Influences
Factors outside the business that are not in the owners control
What is retained profit
the money remaining within a business once all costs, taxes and dividends have been deducted
Environmental Factors
green or sustainability issues that exists in a business surrounding area
What aims could stakeholders have?
Fast Payments High Prices Low Wages High Wages Low Pollution High Sales Creating Employment Good Service
Characteristics of Managers
Organise
Make Decisions
Plan
Control
Characteristics of Employees or Staff
a business needs staff to carry out its activities
pay level varies of skill, age, location, qualification and other factors
Characteristics of Customers
they buy the goods or services produced by the firms
They may be individuals or other businesses
Characteristics of Suppliers
firms get resources they need to produce the goods and services from suppliers
two way process, suppliers depend on the firms to supply
Characteristics of Community
firms and communities exist in a two way relationship
local community may often provide many of the firms staff and customers
community can fell aggrieved by some aspects of what the firm does
Characteristics of Government
successful firms are good as they create wealth and employment
Economic policies affect firms cost through taxation and interest rates
Characteristics of Trade Unions
trade unions ar e interested in McDonalds to ensure workers are being treated right and work in the right conditions
Name some sources of finance
Mortgage, Trade credit, Venture Capital, Overdraft, Savings, Retained Profit, Credit Card, Hire Purchases, Loan
Advantages and Disadvantages of a Loan
Advantages, Payments spread over a long period of time, good for budgeting
Disadvantages, Banks may require security on the loan, can be expensive due to interest payments
Advantages and Disadvantages of Overdraft
Can be used day to day running costs and to cover the period between money going out of the business and money coming in, cheaper than bank loan
Can be expensive if used over long period of time
what is the economy
production of goods and consumption of goods and the movement of money
Name some Technological Factors
Automation, communication, purchasing/sales, mobile
