Prelim Knowledge Flashcards
What are the 3 main sectors of industry?
Primary
Secondary
Tertiary
Describe the primary sector of industry
The primary sector is concerned with the extraction of existing raw materials or natural resources from the land. Any business which grows or extracts materials from the land is classed as a primary sector business.
Name some common examples of businesses in the primary sector of industry.
Farming
Mining
Fishing
Oil production
Describe the secondary sector of industry
The secondary sector is concerned with manufacturing. This means taking raw resources from the primary sector and creating new products with those resources.
Name some common examples of businesses in the secondary sector of industry.
Car manufacturers, food production or building companies.
Describe the tertiary sector of industry
The tertiary sector is concerned with providing a service, these are activities done by people or businesses for customers.
Name some common examples of businesses in the tertiary sector of industry
Hairdressers
Banks
Supermarkets
Cinemas
What are the 3 sectors of economy
The 3 sectors of economy are the private sector, public sector and third sector.
Within each sector there are different types of businesses with different objectives and aims.
Describe the private sector of economy
Private sector organisations, such as a local newsagent or large supermarket chain are owned and controlled by private individuals. Their primary aims are to survive and make a profit.
What type of organisations would be found in the private sector of economy
Sole traders
Partnerships
Private limited companies
Describe the public sector of economy
Public sector organisations are owned and controlled by the government. They aim to provide a service to the public and are funded by taxes. Public sector organisations function in areas such as health, education, housing and social work.
What type of organisations would be found in the public sector of economy
national government
local government
Describe the third sector of economy
Third sector organisations are set up to help a cause or provide a service to members. They aim to raise money and increase awareness for good causes. Examples of third sector organisations would be Oxfam, The Big Issue or a local youth club.
What types of organisations would be found in the third sector of economy?
charities
voluntary organisations
social enterprises
Describe a sole trader
A sole trader is a business owned by one person. They are usually small in size. Hairdressers, butchers, and electricians often operate as sole traders.
How are sole traders financed?
Sole traders rely on their own savings,
bank loans or loans from friends and family to finance their business.
What are the advantages of a sole trader business?
Easy to set up - Has less rules and regulations than other types of organisation.
Sole traders retain all profit for themselves
Sole traders make all the decisions by themself - they run the business as they see fit.
What are the disadvantages of a sole trader business?
It can be difficult to raise finance - banks are unlikely to give this type of business a large loan as it can be seen as risky.
Unlimited liability - A sole trader is liable for the organisation’s debts, personal assets such as cars or property are at risk to pay off the debt of the business.
Heavy workload - Sole traders have to shoulder the full burden of responsibility for their business, to keep labour costs low many will choose to do most the work themselves
Describe a partnership business.
Partnerships can have a minimum of 2 and a maximum of 20 partners.
Lawyers, estate agents, doctor and dental practises often operate as partnerships.
A partnership is a business set up by the deed of partnership document.
What is the deed of partnership document?
The deed of partnership document sets out the terms of the partnership. For example it states how much money each partner invested in the partnership and what role each partner will have in the partnership.
What is a sleeping partner?
A partner who invests but is not involved in the day-to-day running of a partnership is called a sleeping partner.
What are the advantages of a partnership business?
More equity available to finance the business compared to a sole trader - Banks are more likely to lend money to an organisation that has many partners
Different partners can bring different skills -a partnership running a garage might have some partners who are excellent mechanics while other partners may have excellent sales skills.
Workload is shared.
What are the disadvantages of a partnership business?
Unlimited liability - All partners have the worry of being liable for any business debt the partnership has.
Profit is shared between the partners - an individual in the partnership may make less than a sole trader.
Partners may not always agree on decisions for the business
Describe a private limited company (LTD)
A private limited company is more complex than a partnership or sole trader. In law, a private limited company is separate from the people who own it. Its finances are separate from their personal finances
The ownership of a limited company is divided up into equal parts called shares. Whoever owns one or more of these is called a shareholder.
A limited company is private when its shares are not available to the public by being bought and sold on the stock exchange.
A private limited company is controlled by a board of directors. This is a group appointed by the shareholders who oversee the running of the business.
How is profit split in a private limited company?
The profits of the business are divided between shareholders through a process known as dividends. A certain amount of profit is paid for every share that is owned in the business. The more shares that an individual has in the business, the larger the portion of the profits they will receive.
What are the advantages of a private limited company
Owner can retain control - An individual must be formally invited to buy shares.
Easier to raise money -More money can be raised by selling shares
Limited liability - limited companies have their own legal identity, their owners are not personally liable for the firm’s debts. meaning an investor only loses the initial stake if a company goes bust.
What are the disadvantages of a private limited company
Must be registered with the Registrar of Companies
The legal set up costs are expensive. Limited companies must use documents called Memorandum of Association and Articles of Association.
Because profits are only shared with shareholders it is harder to motivate and control workers who do not hold shares.
What are the benefits to a business of having good customer service?
Customer loyalty
Improved reputation
Employee satisfaction
What is customer service
Customer service is the service a consumer receives before, during and after they have purchased a good or a service.
Describe customer loyalty as a benefit of good customer service
If customers receive a good quality service they will be more likely to return. This will lead to increased sales and profits. It would also mean that customers do not take their business to competitors.
This also makes it easier to advertise new products as customers are already loyal to the brand
Describe improved reputation as a benefit of good customer service
Good customer service will improve a company’s reputation. Customers who have received a good service will be more likely to recommend the company to family and friends.
This can also attract new customers and increase a business’s market share which allows higher prices to be charged.
Describe employee satisfaction as a benefit of good customer service
Customers who are satisfied are less likely to complain. Having fewer complaints to deal with contributes to a business having a more motivated work force.
a good reputation and a low level of customer complaints means the business is more likely to attract a higher callibre workforce.
What are some of the consequences of poor customer service?
decrease in profits
bad reputation
loss of market share
loss of competitive edge
low staff morale
Name some of the ways a business can keep its customers satisfied
market research
staff training
after-sales service
customer care strategy
customer complaints procedures
quality products
Describe market research as a method of maximising customer satisfaction
Effective market research will allow a business to find out the needs and wants of its customers. This means that the product or service can be tailored to these needs, leading to greater customer satisfaction.
Describe staff training as a method of maximising customer satisfaction
Well trained staff will be knowledgeable about the business and will be able to deliver a higher standard of customer care.
Describe after sale service as a method of maximising customer satisfaction
This is the service provided by the company after a purchase has been made. This service includes returns and refunds, guidelines on how to achieve the best from the product or service and product maintenance.
Describe customer care strategy as a method of maximising customer satisfaction
This lets the customer know what level of service to expect and how complaints will be handled.
Describe customer complaint procedures as a method of maximising customer satisfaction
These include instructions on how employees should handle complaints such as the length of time it should take, who should deal with a complaint and how it should be processed. It is important to keep customers informed on the progress of the complaint.
If a customer complaint is handled effectively, the customer will be more likely to return to the business.
Describe the sale of quality products as a method of maximising customer satisfaction.
It is important that a company has good quality assurance procedures in place to ensure no faulty or low quality products or services are given to customers. A high quality product will ensure that a customer is satisfied.
What is a stakeholder?
A person or group with a key interest in an organisation.
Stakeholders want a business to do well because they will benefit from its success in some way. They can use their influence to change the fortunes of a business.
Name 3 internal stakeholders
Owners/shareholders
Managers
Employees
Name 5 external stake holders
Customers
bank
Government
Suppliers
Local community
Describe owners/shareholders (as stakeholders)
Owners and shareholders are the same. Shareholders are part-owners in the business.
Some owners appoint managers to run their businesses and to make profits for them. Other owners like to get involved in the day-to-day running of the firm. This can sometimes lead to disagreements between owners and managers.
Why do owners have an interest in the business doing well?
make a profit
receive high dividends ( A profit paid to shareholders)
How can owners influence a business?
investing or withdrawing equity into the business
changing management (at AGM)
Describe managers (as stakeholders)
Managers are entrusted by owners with the day-to-day running of their businesses. Managers have to motivate employees to be productive and to offer excellent customer service. Managers also have to report to the owners.
Managers live by their results. Poorly performing managers do not last long in post.
Why do managers have an interest in a business doing well?
Managers have an interest in a business doing well so that they:
get promoted
win bonuses
have job security
How can managers influence how a business operates
Managers can influence how a business operates by:
hiring and firing
creating company policies
making day-to-day decisions and long term decisions
Describe employees (as stakeholders)
Employees are often the front line of the business. They are the people who make the product or provide the service to the customers.
Employees have a massive effect on the outcome of the business.
Why do employees have an interest in the business doing well?
Employees have an interest in a business doing well so that they:
want job security
higher pay
improved working conditions
How can employees influence how a business operates?
Employees can influence how a business operates by:
increasing or decreasing productivity
providing good or bad customer service
in extreme cases, withdrawing their labour and going on strike
Describe customers (as stakeholders)
Customers are the people who purchase the product or use the service. They are the stakeholders who decide whether the business will be a success or not.
Customers will show loyalty to a business they like. However if a firm does not satisfy customers’ needs continuously, the customers will simply take their business elsewhere. This will have disastrous results for the business.
Why do customers have an interest in the business doing well?
Because they:
want quality products and services
want low prices
want value for money
How can customers influence how a business operates?
Customers can influence how a business operates by:
can decide whether or not to purchase the product or use the service
can affect organisation’s reputation by
word of mouth
Describe banks (as stakeholders)
Banks are organisations that lend finance to other organisations. They offer loans and mortgages, which are paid back in full, and with interest
.
Why are banks interested in a business doing well?
Banks have an interest in a business doing well so that they:
ensure the organisation can pay their loans in full and on time
How can banks influence how a business operates
Banks can influence how a business operates by:
permitting or denying loan requests
changing interest rates on loans offered
changing repayment lengths
Describe government (as a stakeholder)
Government is formed by politicians who run the country for the benefit of the population.
Governments try to encourage firms to invest and create jobs. The laws they introduce can sometimes help and sometimes hinder firms from doing this. This is because governments need to take into account the employment rights of employees as well as the development opportunities of business.
Why does the government have an interest in a business doing well?
Governments have an interest in a business doing well because they:
want firms to pay corporation tax
want firms to create jobs and wealth for the population
want firms to provide goods and services for the population
