Section 1 - What is a business? Flashcards
What is meant by the public sector?
governmentally owned organisations that aim to provide services to the public and not make a profit e.g NHS
What is meant by the private sector?
privately owned organisations that range from small sole traders to large organisations such as ASDA. Most aim to make profit
- Apart from not for profit organisations such as charities
What is a mission statement?
A written description of a businesses purpose or main corporate objectives
What does a mission statement include?
Tells u the purpose of the business, its values,standards,statedgy, who the customers are and what makes the business unique
What is a corporate objective?
These are the goals the business has as a whole and depend on things such as size
What is a functional objective?
- These are objectives of each department, more detailed they are the more specific they are to each department
- When set all managers in the business have to look at how their department can help to achieve the objective
What does the phase ‘objectives should be SMART’ mean?
Functional objectives need to be, specific,measurable,agreed,realistic and timely
What is revenue and how is it calculated?
Revenue is the money made from sales
= selling price per unit x quantity of units sold
What is a fixed cost?
Fixed costs don’t change with output e.g rent, new machinery and managers basic salary
What is a variable cost?
These rise and fall as output changes e.g hourly wage, raw materials and packaging costs
How do u calculate total variable cost?
Variable cost per unit x number of units sold
How do u calculate total costs?
Fixed costs + variable costs
Why is profit important?
1) Profit can motivate people e.g some businesses offer profit sharing schemes
2) Good source of finance
3) can be used to attract investors
What is a social enterprise?
Normal businesses with social objectives that trades and makes a profit. However this profit is used to pay for social activities
What is unlimited liability?
The business and the owner are seen as one under the law, meaning debts become personal debts of owner
- huge financial risk
- Sole traders have this
What limited liability?
Means owners aren’t personally responsible for the debts of the business
- The shareholders of both private and public limited companies have limited liability
Key features of a sole trader?
- Individuals who are self employed e.g plumbers
- Have full financial responsibility of debts and requirements
- Minimal legal fees
Advantages of being a sole trader?
- freedom
- profit
- simplicity (less form filling)
- saving on fees (no legal costs
Disadvantages of sole trader?
Risk Time Expertise Finance vulnerability unlimited liability
What are the two types of limited liability companies?
Who owns them?
Public and private limited companies (both have limited liability)
- owned by shareholders run by directors
Key features of a private limited company?
- Cant sell she to the public
- Dont have shares quoted on stock exchange
- Often small family businesses
- End in limited or LTD
Key features of public limited company?
- Can sell shares to the public
- share prices are quoted on stock exchange
- Usually begin private and then move public
- Need over £50000 of share capital and if on stock exchange 25% must be publicly available
- End in PLC
What two documents must be drawn up before an organisation can begin to trade? Where must they be sent?
1) Memorandum of association
2)Articles of association
Must be sent to companies house where a certificate of incorporation is issued
What is ordinary share capital?
money raised through selling shares (usually long term investment)
What do shareholders get in return for these shares?
A dividend - proportion of the profits earned
What is market capitalisation and how is it calculated?
The total value of all the ordinary shares issued by a company
= number of shares x current share price
Why do shareholders invest in a company?
1) In order to achieve a capital gain
2) Shareholders get paid a dividend in return for investment, more shares owned the bigger this is
3) People may want to be involved in running a business
4) May believe in companies aims and objectives
5) Venture capitalists
What factors influence demand and supply of share prices?
1) The performance of a company
2) Speculation and rumour of new product launches/cost initiatives may generate investor interest
3) Current share price - if low then investors may think they are getting a bargain
4) Interest Rates - When low the rewards for saving in banks is reduced which can increase the demand for shares bc financial rewards will be greater
5) State of economy
What environmental factors affect cost and demand?
1) Political Factors - If demand is low then governments try increase it by cutting taxes so people spend more
2) Labour supply- If unemployment rates are high theres a good supply of labour so they don’t have to increase costs
3) Incomes and economic factors - E.g in recession businesses may need to reduce costs
4) Seasonal demand and supply
What is meant by perfect competition?
Where all firms compete on an equal basis, products are pretty much identical and all charge similar price
What is meant by Oligopolgy competition ?
When a small number of large firms dominate the market and charge similar prices
- To get ahead a business should focus on marketing and brand image
What is meant by monopoly competition?
When a business has complete control over its market
- no competition
What is an interest rate?
A fee paid for borrowing
How can environmental factors increase business costs?
- Government legislations forces businesses to deal with some environmental issues ,if they don’t put these targets in place they can face large fines
- Business may implement environmental strategies such as using sustained or recycled materials - introduction of this is expensive
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How can a business use technology to increase demand?
- gather information about the lifestyles of their customer and what they are likely to buy, helps target promotions at the right people
- Social networking sites
e. g youtube nd twitter - Apps
- Cookies
- new tech can be used to improve production efficiency e.g make things quicker
Advantages and disadvantages of being a private limited company?
Advantages - Limited liability,provides more privacy that plc
Disadvantages - Greater admin costs, can’t sell shares to the public
