Theme 1 - Business Activity and Influences Flashcards
What is business? What can they offer to customers?
A business is an organization that sells products or services in order to gain a profit. Products are tangible and can be felt but a service is intangible
What objectives might a business have?
- increased growth
- increased awareness
- shareholders
- marketshare
- more profits
- ethics
- increased revenue (selling price x quantity)
- survival
Why might a companies objectives change over time?
As a business grows and as there is more time, a company’s objectives might change from survival to increased profit, for example as the need for a certain objective might already be met and the owner might be able to set more objectives that can help the brand expand even more, or to obtain a greater profit.
What is market share?
Market share are the % of sales in a market. It shows how dominant a business is in a specific market, the higher percentage, the more income the company is getting. By being a market holder, the company will be able to increase the prices of the products, as they know that people will be able to purchase them anyways.
Explain one reason why new business ideas come about? give the example of apple
A reason why new business ideas come about is because people feel like there are features lacking in the market and they feel that they can do better. An example of this is Apple, where Steve Jobs felt like the phone market needed to be more modern and thus founded Apple, which was a unique design and is still a market holder. Apple did this to gain profit.
What are primary sectors? Provide an example of a brand using primary sectors.
Primary sectors are the extraction of raw materials or natural resources in order to be manufactured.
E.g. fisheries, farming, mining
What is the secondary sector and give an example.
The secondary sector is the manufacturing of the raw materials from the primary sector into a final product.
E.g. food production, factories, building companies
What is the tertiary sector and give an example.
The tertiary sector is the distribution of the final products, which is the service that is provided.
E.g supermarkets, hairdressers, shops
What are dividends?
Dividends are the amount of profit from a company that the shareholders get
What are sole traders? and what tax do they need
Sole traders is a type of company where an owner runs a business independently and gets to keep all the profits. They also get to operate a business how they see fit, making all key decisions by themselves. They have to pay income tax.
What are the advantages of being a sole trader?
- It is the easiest and cheapest company to set up legally and time-wise
- the owner has complete control over the business and can make all the decisions
- all profit belongs to the owner
What are the disadvantages of being a sole trader?
- they have a limited access to finance as lenders find them risky
- lots of hard work, responsibility and long hours as the owner must work independently
- there is a limited skill set, which can limit growth
- the company will have unlimited liability
What is unlimited liability?
Unlimited liability means that a business owner is personally responsible for any debts to do with the business and will have to use personal assets or loans in order to pay them off. Sole traders and partnerships have unlimited liability
What is limited liability?
Limited liability means that a business owner is not personally responsible for any debts to the business and is seen separate to the company. They are only responsible for the amount of money that is invested into the business. Private Limited Companies and Public Limited Companies have limited liability
What is a partnership?
A partnership is a type of ownership, where over 2-20 people have the ability to own and operate a business, while also sharing the costs and responsibilities of having a company. Partners have to pay income tax.
What are some advantages of being in a partnership?
- a wider skill set, can promote growth in the business
- the workload is shared, so less responsibilities and long working hours
- shared liabilities, responsibility and costs are shared. Any business debt must be paid by all members of the partnership
What are some disadvantages of being in a partnership?
- partners have unlimited liability for business debts and are not seen separate to the business
- profits are often distributed equally, regardless of contributions
- some partners might not pull enough weight, causing the other partners to work even harder
- disagreements and conflicts to do with the business can strain the relationship between partners, causing the business to suffer
What are private limited companies? who can their shareholders be?
Private limited companies (LTD) are companies that is owned by one or more shareholders whose not responsible for any debts to the business and is only responsible to the amount of money invested in the company (limited liability). Shareholders are usually trusted family or friends.
What tax do sole traders and partnerships need to pay?
They need to pay income tax because they are seen as combined with the business, so they are taxed on their income
What tax do PLC’s and LTD’s need to pay?
These companies need to pay corporation tax, where they are taxed on their total profits, so the amount of money companies make, subtracted by their costs (e.g. salaries, raw materials)
What does ‘access to finance’ mean?
The ability for individuals or companies to obtain financial services and get money for their company, such as loans and insurance. PLC and LTDs have a better access to finances because they have the ability to have shares, which expands the company further.
What is a Multinational Company? What does operations mean?
A MNC is a company that operates in 2 or more other countries other than their home e.g Amazon, Apple, Microsoft, Carrefour
Operations meaning factories or locations
Why do MNC’s have operations abroad?
MNC’s have operations abroad because they are able to buy raw materials and hire staff for cheap, especially in underdeveloped or developing countries.
What are some benefits of being a MNC?
-new job opportunities in underdeveloped countries become available
-improvement of infrastructure in those countries
-increased market share (more operations = more popularity)
-increased profits
-production costs are cheaper
-competition (causes other companies to want to innovate)
-improved quality of goods as raw materials are fresh from the source
-staff Costs are cheaper (easier access to labor)
What are some drawbacks of being an MNC?
-more responsibilities as operations abroad must be managed
-it is harder to navigate (language barriers, currency)
-relationships between laws + governments can change which countries distribute certain products (e.g. Coca Cola is not sold in Cuba and has been banned)
-damages sales of smaller, local businesses as they are overshadowed by the introduction of larger, well-known brands
-ethical conflicts can arise if companies are exploiting and mistreating their workers (underpaying, long hours)
-different levels of skills, can be fake
What is franchising?
Franchising is the distribution of products and services using a known brand, where the franchisor grants approval for a franchisee to use their name in order to set up a business.
