Role of a business,factors of a business,finance,opportunity costs,liability and added value Flashcards
What are the factors of production
Capital
Enterprise
Land
Labour
Define what a business is
It’s an organisation that tries to make as much profit as possible by producing a good or a service
Define capital
The machinery used during production of a good or service
Define enterprise
The three other factors of production create the enterprise (capital,land,labour)
Define land
The land used for production of the good or service but also could be used for natural resources e.g. Diamonds/coal
Define labour
This is the workforce used to produce the good or service for wages
What are the 10 internal factors of a business
Human resources Sales Administration ICT Customer services Distribution Finance Production Research and development Marketing
What are the 8 external factors of a business
World affairs Social factors Environmental factors Consumers tastes Competition Pressure groups Legislations Population trends
Define opportunity cost
The loss of an alternative when another is chosen
Since every resource can be put to an alternative use then every decision involves opportunity cost
What are the two types of consumer good or service (include examples)
NON DURABLE
Packet of crisps
A match
DURABLE
Cooker
Toaster
What are the two types of capital good or service (include examples)
NON DURABLE
fuels
DURABLE
Machinery / tools
Where is value added
During the production service
What is the formula for value added
Value of output -value of input
How does a business add value
By…..
Building a brand from good quality or reputation
Convenience , customers will pay more to have the product or service straight away
New product features like updated software or models
Delivery of good customer service
What is an internal factor in a business
It’s a factor that happens inside of a business they can be easily controlled or predicted
What is an external factor in a business
It’s a factor that happens outside of a business they cannot be easily controlled or predicted
Define economies of scale
The reduction in unit costs (average cost) as the level of output increases
What are the internal economies of scale and explain
Think FAT MP
Purchasing- if a large business purchases in bulk then they pay less per item than a smaller business
Managerial- if a business is larger than they’re able to employ more people to specialise in certain departments rather than a small business having to deal with all departments
Financial- banks will lend at a lower rate of interest the larger the business
Technological- use of more sophisticated equipment due to being able to pay for it
Advertising- the price does not increase as a firm gets bigger so therefore they’re able to pay for more adverts than a smaller business
What is the formula for average cost
Number of units produced
What are the external economies of scale and explain
Think LIE
Education- local schools and colleges run courses in appropriate skills so businesses may be able to provide apprenticeships and therefore gain potential employees
Infrastructure- transport and support systems
Local population- skills and experience in the industry, if the local community have the skills required for jobs this helps gain social benefits for the local community
Define diseconomies of scale
It’s when there is an increase in unit cost as a firm grows and there is an increase in the scale of production
What are the 3 diseconomies of scale
Communication problems within the business or through multiagency
Problems in managing the production process
Reduction in employee morale
Why is it hard for a new business to obtain finance
There is no record of success or progression
They’re High risk
Why do firms need finance (7 reasons)
New equipment Pay workers Starting a new venture Expansion Buying premises Buying stock Paying bills
What are internal sources of finance and give two examples
It’s finance obtained sighing the business. It is the cheapest type of sourcing finance
E.g. Sale of assets and retained profit
What are external sources of finance and give 6 examples
Finance obtained from outside of the business, it usually costs more than internal E.g. Overdraft Leasing Trade credit Venture capital Debentures Loans
What is sale of assets
It’s the selling of a tangible or non tangible item for revenue
What is a loan
A loan is given by the bank
It’s usually paid back with interest and paid in periods
What is a debenture
A debenture is a loan given to a business by another company with the security that if payments back don’t occur then assets can be taken for the value of the debenture
What is a venture capital
Money provided by investors of a business for start up costs
It’s very high risk but it’s the most important source of funding for startup costs
What’s trade credit
It’s the extended period of time for payment from suppliers until sufficient cash flow is available
What is leasing
It’s where you rent an asset and pay a payment each period over a span of time, but the asset still stays the leasing firms after the period of lease
What is an overdraft
It’s an agreed amount of credit that a business can go past £0 in an account without permission from the bank, interest is added periodically
What is retained profits
It’s profits a business has made but haven’t used (saved)
They can be the easiest source of finance
What are the two things a business must consider when obtaining finance
How long is it needed for
Can the business do certain things to raise cash flow
What are the types of timeframe in a business
Short term - maximum of 12 months
Medium term - more than a year , less than 5 years
Long term - more than 5 years
What does unlimited liability mean (give 2 business types who have unlimited liability)
It means those who are the owners of the business are liable for any debts which may occur
E.g.
Sole trader
Partnership
What does limited liability mean (give 2 business types who have limited liability)
It means the shareholders are liable for debts
They pay the percentage they put in (e.g. 20% of business means 20% of debts liable for)
Private limited company
Public limited company
What is cash flow
It’s the flow of cash through a business
