Nature of Business

Question 1

What is a business?

Answer 1

The organised effort of individuals to produce and sell for a profit, goods and services that satisfy individuals’ needs and wants.

Question 2

What is a good?

Answer 2

Tangible items that can be seen and touches

Question 3

What is a service?

Answer 3

Non tangible items (done by people for you)

Question 4

What are the functions of a business?

Answer 4

Profit
Employment
Incomes
Choice
Innovation
Entrepreneurship and risk
Wealth
Quality of life

Question 5

What are the sizes of a business?

Answer 5

• Small ( less than 20 employees)
• Medium ( 20-199 employees)
• Large (200 or more employees)

Question 6

What are the types of geographical spread?

Answer 6

• Local (serves surrounding area)
• National (operates within just one country)
• Global (TNC) - Large business that has a home base in one country and is partially or wholly owned in another

Question 7

What is the primary industry?

Answer 7

• Production associated with natural resources (raw materials)
• E.g wheat and barli

Question 8

What is the secondary industry?

Answer 8

• Involves raw material and making it into a finished or semi-finished product
• E.G textiles

Question 9

What is the tertiary industry?

Answer 9

• Involves performing a service for other people

Question 10

What is the quaternary industry?

Answer 10

Transfer and processing of information and knowledge

Question 11

What is the quinary industry?

Answer 11

Domestic services (traditionally in the home)

Question 12

What types of business are unincorporated?

Answer 12

Sole trader
partnership

Question 13

What is a sole trader?

Answer 13

• One owner
• Makes all the decisions for the business
• Provides the finance and takes responsibility for the operation of the business

Question 14

What are the advantages and disadvantages of a sole trader?

Answer 14

Adv:
- Low cost of entry
- Simplest form

Dis:
- Unlimited liability for business debts
- End of the business when the owner dies

Question 15

What is a partnership?

Answer 15

• Operated by 2-20 people
• No legal entity

Question 16

Advantages and disadvantages of a partnership

Answer 16

Adv:
- Low start up cost
- Less costly to operate than a company

Dis:
- Unlimited liability
- Liability for all debts including partner’s

Question 17

What is are the types of incorporated business’?

Answer 17

• Private company
• Public company

Question 18

What is the establishment stage?

Answer 18

• Foundation of the business to get enough cash flow
• Plan
• Prepare for cash problems with savings
• Develop effective marketing strategies

Question 19

What is the growth stage?

Answer 19

• Increased sale
• New products
• Improved cash flow
• Long term planning
• Work hard
  Effective credit policy

Question 20

What are the types of business growth

Answer 20

• Merger
• Takeover

Question 21

What is diversification

Answer 21

Taking over or merging with another business in a completely different industry

Question 22

What is vertical integration?

Answer 22

When a business expands at different but related levels in production

Question 23

What is horizontal integration?

Answer 23

Taking over or merging with another firm that makes similar products

Question 24

What is the maturity stage?

Answer 24

Formal organisational structure
Sale increase but at a slower rate
- Focus on decreasing production costs
- Expand range of products

Question 25

What is post maturity?

Answer 25

Steady state - Same level it has been operating
Decline - falling sales and profits
Renewal - new products are developed and new markets are created

• New managers with new ideas
• Introduce new products

Question 26

What are the two main causes of business decline?

Answer 26

1. Lack of management expertise
2. Insufficient money (undercapitalisation)