Paper 2 Flashcards
What is a business
Organizations involved in the production of goods or services.
Differentiate between product, goods, and services
Product refers to both goods and services
Goods - physical products
Services - intangible products
Needs vs Wants
Needs -Basic necessities to survive. Wants are people’s desires, things that they would like to have.
Customer vs Consumer
Customer - People or organizations that buy the product
Consumer - People or organizations who actually use a product
Describe the three types of products
Consumer goods - sold to public
Capital Goods - sold to businesses
Services - intangible products provided by businesses
What are the 4 functions of a business? describe their role.
Human resource - responsible for managing the personnel of the organization (workforce planning, recruitment, training
Finance and accounts - managing the organization’smoney
Marketing - identifying and satisfying the needs and wants of customers.
It is ultimately in charge of ensuring that the firm’s products
sell. (Product, price, promotion, place)
Operations management - responsible for the process of converting raw materials and
components into finished goods, ready for sale and delivery. (Extraction of oil, or providing services in a restaurant, nail salon, or hotel)
Distinguish between revenue and costs of production
Revenue - The money that a business makes through the sale and purchase of its products or goods.
Costs of production - the costs associated with a business in the production process of its goods or services.
Describe the operations of the four main sectors
Primary - involved with
the extraction, harvesting and conversion of natural resources,
e.g. agriculture, fishing, mining, forestry and oil extraction. Occurs in LEDC’s. As economies develop, there is less reliance on the primary
sector in terms of employment and national output, partly
because there is little value added in primary production
Secondary - involved
in the manufacturing or construction of products, e.g. clothes
manufacturers, publishing firms, breweries and bottlers,
construction firms, electronics manufacturers and energy
production companies. MEDC’s. Wealth creating sector.
Tertiary - Businesses in the tertiary sector specialise in providing services
to the general population.Examples ofindustries in the tertiary
sector include: retailing, transportation and distribution,
banking, finance, insurance, health care, leisure and tourism,
and entertainment. MEDC’s (canada, germany) tends to be the most substantial sector in terms of both
employment and as a percentage of gross domestic product
Quatrenary - involved in intellectual, knowledgebased activities that generate and share information. Examples
include information communication technology (ICT),
research and development (R&D), consultancy services, and
scientific research.
What is the chain of production?
tracks the stages of an items production
Production -) manufacturing -) services (tertiary and quatrenary output -) consumer
What is sectoral change? List some factors that cause sectoral change
refers to a shift in the relative share of national
output and employment that is attributed to each business sector
over time.
- higher household incomes
- greater focus on customer services
- More leisure time
What is an entrepreneur?
an individual who plans, organizes and manages a business, taking on financial risks in doing so.
What is intrapreneurship/an intrapreneur?
the act of being an entrepreneur but as an employee within a large organization. They described an intrapreneur as an employee who thinks and acts as an entrepreneur within a section of the organization.
Describe the four factors production
describes the resources necessary for the production process.
Land
Labor
Capital
Entrepreneurship
Outline differences between intrapreneurs and entrepreneurs
Entrepreneurs
* Owners and/or operator of organization
* Takes substantial risks
* Visionary
* Rewarded with profit
* Responsibility for workforce (labour)
* Failure incurs personal costs
Intrapreneurs
* Employees of organization
* Takes medium to high risks
* Innovative
* Rewarded with pay and remuneration
* Accountability to the owner / operator
* Failure is absorbed by the organization
Outline the reasons for starting a business
Growth
Transference and inheritance
Autonomy
Earnings
What are some start-up costs for a new business?
Premises, e.g. purchase costs, mortgage deposit
payment or rental deposit costs.
* Buildings, e.g. alterations, fixtures and fittings and
insurance costs.
V Capital equipment, e.g. office furniture, telephones,
computers, machinery,tools, and motor vehicles.
* Legal and professional fees, e.g. costs of solicitors,
licenses, permits and copyright permission.
* Marketing costs, e.g. market research, advertising and
promotional campaigns.
* Human resources, e.g. recruitment, Induction and
training costs.
What are some problems that a new business may face?
Lack of finance
Cash flow problems
Competition
Unestablished customer base
Legalities
Human resource problems
What is a business in the private sector?
Organizations that operate in the private sector are
owned and controlled by private individuals and
businesses, rather than by the government. The main aim of most, although not all, private
sectororganizations is to make profit
What is a business in the public sector?
Organizations that operate in the public sector are under
the ownership and control of the government. Traditionally,
they provide essential goods and services that would be
underprovided or inefficiently provided by the private
sector, e.g. health care, education and emergency services.
Sales Revenue
(the money earned from selling
its products)
Costs
production expenditure such as
wages and rent).
State-owned corporations
Organizations that are wholly owned by the government
Reasons for public sector business activity
- Ensures that everyone has access to basic services
such as education, health care, public parks and public
libraries. - To avoid wasteful competition as the government is
- able to achieve huge economies of scale (cost savings
from operating on a large magnitude) in the provision
of certain services, such as postal services or national
defence. - To protect citizens and businesses through Institutions
such as the police or the courts that govern the law and
order system. - To create employment, e.g. governments tend to be a
large employer of teachers, doctors and nurses. - To stabilise the economy, e.g. several private sector
banks were nationalised (bought by the government)
during the global credit crisis to prevent further
financial turmoil.
Aims between business in public vs private sector
Sole trader
A sole trader (or sole proprietor) is an individual who
runs and owns a personal business. The owner is held
responsible for its success or failure. It is the most common
type of business ownership. Examples include self-employed
decorators, plumbers, mechanics, restaurateurs and freelance
photographers. Sole traders may work alone or they
might employ other people to help run the business. S
Unincorporated
An important legal point about sole traders is that the business is
unincorporated. This means the owner is the same legal entity
as the business. Full responsibility and liability
Advantages and disaadvantages to being a sole trader
Advs.
- Few legalities
- Full profit
- Privacy
- Personalised service
Disadvs.
- Unlimited liability
- Limited sources of finance
- Unestablished customer base
- Limited economies of scale
- Stress
Partnerships. What are the types?
A partnership is a profit-seeking business owned by two or
more persons. For ordinary partnerships, the maximum
number of owners is 20
Silent partners - raise money from owners who do not actively take part
in the running of the partnership but have a financial stake
in it.
At least one owner must have unlimited liability
What does a deed of partnership include?
- the amount of finance contributed by each partner
- the roles, obligations and responsibilities of each partner
- how profits or losses will be shared among the partners
- conditions for introducing new partners
- clauses for the withdrawal of a partner
- procedures for ending the partnership.
What is unlimited liability?
Unlimited liability exists to prevent sole traders and
partners from making careless decisions in managing
their businesses. It makes private individuals accountable
for their actions and decisions. Your personal assets will not be protected in the case of an adverse event.
What are the advantages and disadvantages of a partnership?
Advs
- Financial strength
- Delegation of labor
- Cost effectiveness
Disadvs
- Conflict
- Unlimited liability
What is a company?
businesses owned by their shareholders
What can corporations also be called? Why?
Corporations
are sometimes called joint-stock companies because the shares
of the business (or ‘stock’) are jointly held by numerous entities.
Limited liability
- shareholders
do not stand to lose personal belongings if the company goes
into debts.
Board of directors
A board of directors (BOD) is elected
by shareholders to run the company on their behalf.
Private limited company vs Public limited company
A private limited company is a company that cannot raise
share capital from the general public. Instead, shares are sold
to private family members and friends.
By contrast, a public limited company is able to advertise and
sellits shares to the general publicvia a stockexchange.
Before companies can begin trading, what are the two documents that must be submitted to appropriate authorities? Once this process is completed, what is issued to the company?
- Memorandum of Association - a relatively brief
document outlining the fundamental details of the
company, e.g. its name, its main purpose, the registered
address and the amount of share capital invested. - Articles of Association (or Articles of Incorporation) -
the longer of the two documents, stipulating the internal
regulations and procedures of the company,
What is flotation? WHat is an IPO?
Flotation occurs when a business first sells all or part of its
business to external investors (shareholders), a process known
as an initial public offering (IPO). The IPO makes the company
listedon a stock exchange
What is an Annual General Meeting? What are the three main processes typical at an AGM?
All companies must hold an Annual General Meeting (AGM)
to allow the owners to have a say (or vote) in the running of the
business.
Shareholders vote on (promises or declarations) and
the re-election (or sometimes election) of the board of
directors.
* Shareholders ask questions of the chief executive officer
* Shareholdersapprovethe previousyear’sfinancialaccounts
after the directors present the annual report containing
information about the company’s performance.
What are some advantages/Disadvantages of companies/corporations
Advs
- raising capital
- limited liability
- economies of scale
disadvs
- loss of control
-disclosure of financial accounts
- communication problems
What are social enterprises?
Socialenterprisesarerevenue-generatingbusinesses withsocial
objectives at the core of their operations.
There are three main types of for-profit social enterprises:
cooperatives, microfinance providers and public-private
partnerships (PPP).
What are cooperatives? What are the types of cooperatives?
Cooperatives are for-profit social enterprises owned and run
by their members, such as employees or customers, with the
common goal ofcreating value for theirmembers byoperating
in a socially responsible way.
-Consumer cooperatives are ownedbythe customerswho
buythegoods and/orservices for personal use.
-Worker cooperatives areset up, owned andorganized by
their employee members.
-Producer cooperatives are cooperatives that join and
support each other to process or market their products.
What are some advantages/disadvantages of cooperatives
- Incentives to work
- Decision making power
- Public support
- disincentive effects
- limited sources of finance
- slower decision making
What are microfinance providers?
Microfinance is a type of financial service aimed at entrepreneurs
of small businesses, especially females and those on low
incomes. As a social enterprise, microfinance providers enable
the disadvantaged members ofsocietyto gain access to essential
financial services to help eradicate poverty.
What are the advantages and disadvantages of microfinance providers?
- financial independancy
- job creation
- limited finance
- limited eligibility
What are public-private partnerships?
Public-private partnerships (PPP) occur when the
government works together with the private sector to jointly
provide certain goods or services. It is argued that a public-private partnership can benefit from
the dynamics, finance and efficiency of the private sector
alongside the benefits of public sector funding and support.
Examples of such projectsinclude London’s OlympicStadium
Discuss whether a government should use tax revenues to fund public-private partnerships
What are non-profit social enterprises?
Non-profit socialenterprises arebusinessesrun in acommercial
like manner but without profit being the main goal. Instead,
non-profit organizations (NPOs) use their surplus revenues to
achieve their social goals rather than distributing the surplus
as profits or dividends.
What is an NGO? What are the two types of NGO’s?
A non-governmental organization (NGO) is non-profit
social enterprise that operates in the private sector, i.e. it is
not owned or controlled by the government. However, unlike
most private sector businesses, NGOs do not aim primarily to
make a profit. Instead, NGOs , are set up and run for the benefit of
others in society.
Operational NGO’s - releif-based community projects
Advocacy NGO’s - defend a cause
What is a charity?
A charity is a non-profit social enterprise that provides
voluntarysupport forgood causes
What are the advantages and disadvantages of charities?
- social benefits
- tax exemptions
- ## limited sources of finance
What is a vision statement?
vision statement therefore
outlines an organizations aspirations (where it wants
to be) in the distant future.
What is a mission statement?
A mission
statement tends to be a simple declaration of the underlying
purpose of an organizations existence and its core values. No time frame
Examine the role of vision and mission statements in a business
(1) communicate the purpose of the organization to stakeholders, (2) inform strategy development, and (3) develop the measurable goals and objectives by which to gauge the success of the organization’s strategy.
Aims vs objectives (what are the three reasons they are important)
Aims are the general and long-term goals of an organization.
Objectives are the short-to-medium-term and specific targets
an organizationsets in order to achieve its aims.
Strategies vs Tactics (name three levels of business strategy)
Strategies are the plans of action to achieve the strategic
objectives of an organization.
Tactics are short-term methods
usedtoachieve anorganization’stacticalobjectives.
- Operational strategies
- Generic strategies
- Corporate strategies
What are two tactical objectives?
- Survival
- Sales revenue maximisation
What are four strategic objectives?
What are some factors that cause business to change? 5 internal, 4 external
- Corporate culture
- type and size of organization
- finance
external
- state of economy
- government constraints
- new tehcnologies
