Section One

Question 1

Advantages to owning a business

Answer 1

people set up businesses mainly to make a profit this means the business makes more money than it spends.starting a business is risky, but many people take the risk because of the possibility of big financial rewards

Question 2

Examples of business aims?

Answer 2

to offer the highest quality goods and services possible
to give excellent customer service
to have a great image and reputation

Question 3

Define mission statement

Answer 3

the mission of a business is its overall purpose or main corporate aims.
The mission statement is a written description of these aims,mision statements are intended to make all stakeholders aware of what the business does and why and to encourage all employees to work towards its aims

Question 4

adavantage of mission statement

Answer 4

mission statements can give staff a sense of shared purpose, and encourage them to work towards common goals- having cooperation of all the staff makes it more likely that a business will achieve its aims

Question 5

disadvantages of mission statement

Answer 5

on the other hand,companies don’t have to prove that what they say in their mission statement is accurate,so they can say what they think consumers want to hear,without having to do anything about it. However this is bad practice and a business reputation will be damaged if customers find that its actions don’t reflect its stated values

Question 6

why do business set objectives?

Answer 6

Business set objectives to enable them to achieve their mission .objectives turn the overall aims of a business into specific goals that must be met

Question 7

define corporate objectives

Answer 7

Corporate objectives are the goals of the business as a whole. the corporate objectives will depend on the size of the business.a new shop owner might focus on trying to survive, while a big international company will want to grow bigger and diversify its products range

Question 8

define functional objectives

Answer 8

functional objectives (sometimes called departmental objectives) are the objectives of each department.they’re more detailed than corporate objectives that will help the achieve their corporate objectives. whenever a corporate objective is set all the managers in the business have to look at how their departments can help to achieve the objective and set functional objectives that will contribute to achieving the corporate objective

Question 9

Advantages of setting objectives

Answer 9

businesses set objectives for a lot of reasons.if an objective is agreed upon,managers can make sure that everyone is working towards a goal ,and coordination between departments should improve.
working towards an objective can also be motivating for employees.Objectives are really useful in decision making, as they make it easier to see what the business
is trying to achieve
managers can compare performance with their objectives to measure the success of the business and reviews their decisions

Question 10

Objectives need to be SMART what is this?

Answer 10

Specific-vague objectives like “to improve quality” don’t really tell staff what they’re supposed to be aiming for
Measurable- if the objective isn’t measurable , the business won’t know if it’s achieved it or not
Agreed-everyone who’s going to be involved in achieving the objective needs to know about it and agree to it
Realistic- their is no point in setting objectives that are too ambitious
Timely-there should be a specific time frame that the objective has to be achieved in

Question 11

explain profit objectives

Answer 11

Businesses that are currently making a loss might aim to become profit.Established businesses that are already profitable might want to increase their profit

Question 12

Explain growth objectives

Answer 12

Many business aim to grow. the larger a business grows, the more it is able to use its position in the market to earn higher profits

Question 13

Explain survival objectives

Answer 13

Survival just means that a business can continue to trade, rather than running out of money or being forced to exit the market for another reason

Question 14

Explain cash flow objectives

Answer 14

cash flow is the money that moves in and out of a business over a set period time

Question 15

Social and ethical objectives:

Social objectives

Answer 15

Social objectives relate to benefiting society or people in need. ethical objectives are based on moral principles about how businesses treat people and the environment E.g. principles of fair trade and minimizing environmental damage

Question 16

Social and ethical objectives:

non-profit organisations

Answer 16

Non- profit organisations, like charities or social enterprises, are set up to achieve social or ethical objectives.E.g. housing associations provide affordable housing for people on low incomes

Question 17

Social and ethical objectives:

Answer 17

for-profit businesses usually focus on making a profit. however, social and ethical objectives are becoming increasingly important, especially as information on how businesses operate is becoming more widely available. Businesses might set objectives to provide facilities for the local community, or to only buy from a business with good ethical practices,which can help achieve other aims.

Question 18

what are long term objectives?

Answer 18

Long-terms objectives include things like long-term growth.Long-term objectives tend to set the direction of a business. they affect the big decision that senior mangers make

Question 19

what are short term objectives?

Answer 19

short term objectives include things like short term survival and making short term profit, but they often require a business to cut back on its long-term objectives

Question 20

Problems with short and long term objectives?

Answer 20

businesses are often criticized for being too concerned with short-term gain,
shareholders often want a quick return on their investment, or they’ll take their money and go elsewhere.Businesses have to go for short term profits or risk losing investors
there needs to be a good balance between long-term and short term objectives

Question 21

formula for revenue

Answer 21

Revenue=selling price per unit x quantity of units sold

Question 22

define fixed costs

Answer 22

fixed costs don’t change with output. Rent on a factory,business rates ,senior managers’s basic salaries and the cost of a business makes more use of facilities its already got. the cost of those facilities doesn’t change

Question 23

define variable costs

Answer 23

variable costs rise and fall as output changes.hourly wages,raw material costs and the packaging costs for each product are all variable costs

Question 24

total variable cost formula

Answer 24

Total variable costs= variable cost per unit x number of units sold

Question 25

Total cost formula

Answer 25

Total costs= fixed costs + variable costs

Question 26

Profit formula

Answer 26

profit = total revenue-total costs

Question 27

what do business’s do with profit

Answer 27

business can do different things with profit. most businesses give it to the shareholders as dividend payments or re invest the profit in new activities. But they could also pay staff bonuses,invest it in a bank,or use it to fund projects in the local community
Shareholders often want a short term reward for supporting the business. in the long term,its often better for the business to hold on to the profit and re invest it in future projects

Question 28

Explain large scale production

Answer 28

The more a business produces, the lower the cost per unit produced. This is because fixed costs are shared out between more items

Question 29

3 reasons why profit is important

Answer 29

1) profit can motivate people- people in the business who own shares will receive a portion of the profit as a dividend payment.Some businesses offer a profit sharing scheme, where employees are given bonuses from a share of the total profits
2) Profit is a good source of finance- profit can be retained in the business abd used for investments.This can help the business grow and increase profits. Businesses do not need to pay interets on retained profit,like they do with loans, nor does it not need to be paid back in the future
3) Profit can be used to attract investors-potential investors look at profit levels when deciding whether to buy shares in a company.People are more likely to invest if a business is making a large profit,as they’ll except a good dividend payment

Question 30

Explain Public sector organisation

Answer 30

Public sector organisations are owned and run by the government .they aim to provide services to the public,rather than make a profit. NHS hospitals are on example-their aim is to provide health care thast avaliable to everyone. organisations like the NHS, UK police forces and the fire services so don’t make a profit- they are funded by the UK tax system

Question 31

Explain Private sector organisation

Answer 31

Private sector organisations are owned and run by private individuals. they range from small sole traders to huge organisations such as John Lewis and ASDA. most private sector businesses aim to make a profit, however this is not always the case- non-profit organisations such as charities are also part of the private sector

Question 32

Non-profit businesses(normal aims)

Answer 32

as their name suggest, non-profit businesses are not set up to make a profit. Instead, they have other aims, often to help people in need or benifit the community.Like other businesses , they usually have money coming into and going out of the business- the main difference is that the money generated by the business doesn’t go to the owners or shareholders profit

Question 33

Non-profit businesses:

Charities

Answer 33

Charities like the British Red Cross, Oxfam and amnesty international make money from donations and business activities(like charity shops). This money is used to fund charitable activities. Eg. setting up hospitals in developing countries Charities get tax reduction because of their no-profit structure

Question 34

Non-profit businesses:

Social enterprises

Answer 34

Social enterprises are normal businesses with a social objective. The business trades and make profit like any other business, but its profit are used to pay for its social activities.eg. the profits from sales of one water bottled water are used to fund clean water projects in village is Africa

Question 35

Non-profit businesses:

Mutual organisations

Answer 35

Mutual organisations like buildng sociteis aim to offer their customers the best possible value on prodcust and services.Profits are reinvested into the business in order to reduce prices- that means that building socities can often offer higher savings rates and lower loan rates than banks, because they don’t have to pay any of their profits to shareholders

Question 36

What is unlimited liablity?

Answer 36

if a business has unlimited liability, the business and the owner are seen as one under the law. this is the case for soletraders
this means business debts become the personal debts of the owner.sole traders can be forced to sell personal assets like their house to pay off business debts
Unlimited liability is a huge financial risk-its an important factor to consider when deciding on the type of ownership for a new business

Question 37

what is limited liabiity?

Answer 37

limited libability means that the owners aren't personally responsible for the debts of the business.
The shareholders(owners)  both private and public limited companies have limited liability, because a limited company has a separate legal identity from the owners.the most the shareholders in a limited company can lose is the money they have invested in the company

Question 38

what is a sole trader?

Answer 38

1) A sole trader is an individual trading in his or her own name, or under a suitable trading name. sole traders are self-employed, for an example as shopkeepers,plumbers,electricans, hairdressers or consultants
2) the essential feature of this type of business is that the sole trader has full responsibility for the financial control of hi sor her own busiess and for meeting running costs and capital requirements. having full responsibility for all the debts of the business is called unlimited liabaility
3) these are minimal legal formallaties- the trader simply has to start trading. however if the business isn’t run under the proprietors(owner’s)name, the tra

Question 39

Advantages of sole traders?

Answer 39

Freedom-the sole trader is his her own boss and has complete control over decisions
Profit- the sole trader is entitled to all the profit made by the business
Simplicity-there’s less form-filling than for a limited company.Bookkeeping is less complex
Savings on fees- there ain’t any legal costs for drawing up an ownership

Question 40

Disadvantages of sole traders?

Answer 40

Risk- there’s no one to share the responsibilities of running the business with
Time-sole traders often need to work long hours to meet tight deadlines
Expertise-the sole trader may have limited skills in areas such as finance
Finance-finance is limited to the money that the owner has, or can’t work
Vulnerability-there’s no cover if the trader gets ill and can’t work
Unlimited liability-the sole trader is responsible for all the debts of the business

Question 41

what is capital value?

Answer 41

the capital value(or monetary value) of the company is divided into shares- these can be bought and sold by shareholders.hareholders have part ownership of a company

Question 42

Features of private limited companies

Answer 42

Can’t sell shares to the public,people in the company own all the shares
Don’t have share prices quoted on stock exchanges
Shareholders may not be able to sell their shares without the agreement of the other shareholders
They’re often small family business
There’s no minimum share capital requirement
They end their name with the word ‘limited’ or Ltd

Question 43

Features of public limited companies

need to finish this

Answer 43

Can sell shares to the public.They usually issue a prospectus to inform people about the company before they buy

Question 44

What is ordinary share capital?

Answer 44

shares are sold by companies to raise money.Money raised this way is called ordinary share capital.Ordinary share capital.Ordinary share capital is used for long-term investment

Question 45

what are dividends?

Answer 45

In return for their investment, shareholders are paid a dividend.Dividends are a proportion of the profits earned by the company which are split and paid out to the shareholders.Dividends are given as a fixed amount per share- the more shares an individual holds, the larger the payout

Dividends aren’t always paid out.Loans must be repaid first and a company may choose to reinvest their profits into the business

Question 46

the formula for market capitalisation

Answer 46

Number of shares issued x Current share price

Question 47

Pros and cons of private limited company

Answer 47

a private limited company has limited liability and the shareholders keep control over who the other shares are sold to, but it’s much more complicated to set up than a sole trader business. a new business that needs to invest heavily in equipment, land etc might need to et up as an ltd to raise finance

Question 48

pros and cons of public limited company objectives

Answer 48

public limited compnaies arent usually a suitbale option for new business beacuse they need at least £50,000 of share capital to start with, and most new business can’t raise that much money
The majority of shareholders are not involved in the management of the business.This can lead to a conflict of interests.E.g. managemnet may want to pursue objectives designed to achive ong term gains, but may cause short term reductions in profit.However, they may need to take into account the shareholders wishes for short term boosts to profit

Question 49

Why do businesses change their structure

Answer 49

Businesses can change their structure-sole traders can become private limited compnay if the business is succefull and they want to expand. This will bring more money and ideas into the business.Lots of private limited companies become PLCs when they want raise more money and ideas into the business. Its much less common, but PLCs can also become private limited companies if they are taken over by a private limited company or if the managers buy out the shareholders.
PLCs can be changed into Ltds if the original owners want to take more control, or to run things more priavtely

Question 50

Market conditions affecting costs and demand:

Political factors

Answer 50

If demand in the economy is low, governments try to increase it.They cut taxes so people have more to spend and increase their spending in the economy, for example by raising benefits.Central banks reduce interest rates to cut mortgages and increase disposable income
Governments try to reduce demand if it’s too high.They raise taxes so people have less money to spend.They raise taxes so people have less money to spend, and cut governments spending .central banks increase interest rates to raise the cost of borrowing to reduce disposable income and reduce demand
The government can also influence demand for particular products by using taxes

Question 51

Market conditions affecting costs and demand:

Labour supply

Answer 51

when unemployment rates are high, there’s a good supply of labour.Business can hire staff easily and won’t have to pay high wages, which means costs can be kept low. People in work will be extra productive to protect their job
A low rate of unemployment could mean that there’s is a shortage of labour.The people available for emplyment might not have the skills needed for the role, so will need training.This can increase costs for a business

Question 52

Market conditions affecting costs and demand:

Incomes and economic factors

Answer 52

The state of the economy affects demand and costs.in a recession, businesses need to reduce costs e.g. with wage cuts or redundancies to decrease labour costs
Lower incomes mean people have less money to spend on products, so demand decreases
In an economic boom, wages rise and more people are employed.This may lead to greater costs, due to the increased wages.On the other hand, higher incomes mean that people have more money to spend, increasing demand for products. The increase in demand leads to increased production costs in supplying more products
Changing incomes affect demand for some products more than others i.e. depending on whether they are necessities or luxury prodcuts.

Question 53

Market conditions affecting costs and demand:

Seasonal demand and supply

Answer 53

There are variations in demand and supply throughout the year.This is called seasonality.
weather and holidays such as Christmas produce variations in demand.For example, Christmas creates high demand for toys.Hot weather creates demands for ice lollies, paddling pools and air conditioning units
They can also cause variation in supply, for example, more strawberries are available in summer, which would reduce costs for a shop selling strawberries
Its impossible to avoid seasonality.Businesses must have strategies to deal with it.after Christmas, demand for retail goods drops, so shops cut prices(the January sales) to boost demand, and get rid of stock.
Food produces can coper with seasonality in supply by preserving food- e.g. by canning or freezing-drying.This meets demand even when food is not in season

Question 54

Market conditions affecting costs and demand:

Competition

Answer 54

When a competitor enters the market or launches a new product, the demand for a rival business’s product is likely to decrease as people will buy the competitors products.The rival business is likely to increase its marketing costs or spending more on improving or diversifying its products in response to the competition Alternatively the rival might try to cut costs to keep the price of its product lower than the competitors demand

Question 55

Competition;

What is Perfect Competition?

Answer 55

Perfect competition is where all firms compete on an equal basis- their products are pretty much identical, and they all charge a similar price.Business needs to keep costs low to keep prices low, otherwise, demand will be taken by the competition.However, they also need to keep a high quality of product to keep a good level of demand

Question 56

Competition:

what is oligopoly?

Answer 56

In an oligopoly, a small number of large firms dominate the market and charge similar prices. For a business to get ahead, they will focus on marketing and brand image to increase its demand, so marketing costs will be high

Question 57

Competition:

what is a monopoly?

Answer 57

A monopoly is where one business has complete control over its market.There’s no competition.A business with a monopoly can increase its prices without much concern of the demand decreasing and they are able to keep marketing costs low

Question 58

What are interest rates?

Answer 58

Interest rates affect the cost of borrowing and the return on savings.The interest rate is the fee paid or borrowing-its calculated as a percentage of the amount borrowed.
A fall in interest rates means a decrease in the cost of borrowing for business. A rise in interest rates leads to an increase in the cost of borrowing

Question 59

How can interest affect consumer spending?

Answer 59

High-interest rates mean most consumers have less to spend-people with existing borrowing (like mortgages) have to pay more money back in interest, os they have less disposable income(the money left over after essential payments like the tax) and so market demand goes down.People might also decide to save more to take advantage of the interest earned on their savings, reducing demand.Low-interest rates mean customers have more disposable income and there is less reward for saving so demand does up.
The effect of interest rate on demand depends on the product.Products that require borrowing(eg. cars, houses and high-end consumer electronics)are more sensitive to interest rate changes.When interest rates go up significantly, firms strategy to diversify away from these goods and into cheaper ones

Question 60

What are demographics?

Answer 60

The structure of a poulation changes over time in tersm of age,sex and race

Question 61

why are demographics important?

Answer 61

Demographic change is important to business because it has an impact on demand for products.Different demographics of consumers tend to buy different things, so business needs to adapt the amount and type of products they are producing.
Demographic changes can mean that certain types of business are more in demand.This might allow existing business to expand, or are business to be set up

Question 62

Demographic changes are

Answer 62

Ageing population-NHS/elderly market
Working parents
Ethically diverse community
consumer tastes

Question 63

Explain consumer tastes

Answer 63

Consumer tastes also change over time- in recent years lots more men have started using cosmetic and personal grooming products.Businesses making cosmetic products may adapt them to be more suitable for different genders or create a whole new product range targeted at men

Question 64

How does the supply of workers affect business costs?

Answer 64

An ageing population means that a smaller percentage of the population is of working age- this may result in the supply of workers decreases.Business might have to increase wages to attract workers, which will result in increased costs
Immigration levels also impact the supply of workers, If lots of working aged people are migrating into the country, then the supply of workers will increase.This can drive wages down and decrease business costs

Question 65

Environmental factors affecting business

only 1 factor need to do more

Answer 65

Nowadays consumers are increasingly concerned with the effect that their purchasing has on the environment.This has forced business to consider their impact on the
environment and to do something about it
Being environment-friendly can give a company an advantage over competitors and increase demand E.g. innocent drinks strive to be as sustaib=nable as possible, which is great for their public image.Also, environmental measures can save a business money in the long term.Organisations have been set up(e.g. carbon trust) that aim to help a business increase their competitiveness through the change they made

Question 66

Ethical factors affecting business

only 2 factors

Answer 66

A company that is seen to be ethical will have a great reputation with customers, so demand for the products can be high even if they’re more expensive than rival products.E.g. the shoe company TOMS gives a lot to children in less developed countries, so customers don’t mind paying extra for the shoes
Some business has started to implement fair trade policies when purchasing from suppliers this means that the business pays higher and fairer prices for products(especially those from less-developed countries) with the aim of improving the living standards of their supplier’s employees.Obviously this will increase the costs of the business, however, it also gives them unique selling point which can increase demand allowing them still to be profitable.

Question 67

Technology

Answer 67

Many companies now use technology to gather information about the lifestyles of their customers and the products that they buy or are likely to buy.This helps them to make sure that promotions are targeting the right people and stand the best chance of increasing demand for their products
Social networking websites are another way that business can use technology to find out more about the customer’s likes and dislikes.People who use these sites often list information about themselves, including the type of music they like, where they go on holiday, what care they drive etc.Companies can target their advertising specifically at the people who are like to buy their product- this is cheaper than advertising to everyone and is just as likely to increase demand

Question 68

How can technology improve efficiency?

Answer 68

New technology can also improve production efficiency, which can reduce business costs in the long term. However new tech is expensive to set up in the first place.It can also take jobs of workers, leading to redundancies- this is an ethical issue that could impact negatively on the reputation of the company, which may affect demand