Topic 1 Flashcards
What is a business
An organisation that uses its resources to trade goods and services usually with the aim of making a profit
Reason for starting a business
- To produce a product
- persue an interest
- gain profit
- benefit society
- be your own boss
What is a good
A good is a tangible product that satisfies someones needs or wants
What is a service
A service is an intangible product that satisfies someones wants or needs for a short period of time
What are the four factors of production (LLCE)?
- Land
- Labour
- Capital
- Enterprise
What is opportunity cost?
The loss of other alternatives when one alternative is chosen
What is the primary sector
The primary sector of industry is concerned with the extraction of
raw materials or natural resources from the land. Any business that grows goods or extracts materials from the land would be classed as a primary sector business.
Examples of businesses that operate in the primary sector would be farming, mining, fishing or oil production.
What is the secondary sector
The secondary sector of industry is concerned with manufacturing. This would involve taking the raw materials from the primary sector and converting them into new products.
Examples of businesses that operate in the secondary sector would be car manufacturers, food production or building companies.
What is the tertiary sector
The tertiary sector of industry is concerned with providing a service. Services are activities that are done by people or businesses for consumers.
Examples of businesses that operate in the tertiary sector would be hairdressers, banks, supermarkets or cinemas.
What are some location factors for a business
- proximity to customers
- how close they are to raw materials
- costs
- competition
What is unlimited liability
The owners of the business are entirely responsible for the debt of the business
What is a limited liability
If the company falls into debt, you only pay back what you invested and your personal belongings will be protected
What are sole traders
An individual owning the business pn their own
What are some advantages of sole traders
- cheap and easy to set up
- keep all profits
- financial records remain private
What are some disadvantages of sole trader
- unlimited liability
- limited capital for investment
- little specialist skill
- difficult to cover when ill
What is capital
Money for investment
What is a partnership
When two or more people own a business, a legal document has to be signed and reported to ensure and legalise the business partnership.
What are some advantages of partnerships
- range of skills and ideas
- terms of partnership laid out in the deed of partnership document - so it reduces chances of conflict
- each owner can bring start up capital
- sharing responsibilities
What are some disadvantages of partnerships
- unlimited liability
- decision making can be time consuming and can lead to arguements
- no one is in full control - authority is split - could lead to conflict
What is the deed of partnership
A legal document drawn up by a solicitor/lawyer stting up rules for the partnership and how the profits will be allocated among business owners
What is a private limited company (ltd)
When shares of the business are not publicly traded on stock market so are restricted to family or friends
What are some advantages of private limited companies
- limited liability
- less risk of take over
- continuity of existence even if owners change
What are some disadvantages of private limited companies
- time consuming and costly to set up
- not being able to share your shares publicaly
- can limit ways of reaching capital
What is a public limited company
Incoporated businesses whose shares are traded publicly
Pros of a public limited company (plc)
- limited liability
- can raise large capital from selling shares
- prestige of being a plc
Cons of public limited companies
- time consuming and costly to set up
- risk of take over
- risk of short term decisions to maximise dividend payments
- shareholders may argue over decision making
What is a not-for-profit organisation (NPO)?
An organisation set up to achieve objectives other than profit, e.g. charity, pressure groups, etc.
What is a stakeholder
People who have an interest in the business
What are some example of stakeholders
- shareholders
- customers
- employees
- pressure groups
- local community
- suppliers
- bank
- competitors
What is the purpose of business
- help raise finance (investors such as banks, want to be confident the business has a plan that will succeed)
- help set objectives
- helps organisation
What is an aim
A clearly stated goal that a business organises in order to achieve better results (i.e. using products more efficiently
What is an objective
A specific target that is set for a business to achieve (how they are going to get there)
What are some business and objective aims for a new business
- survival
- break even (total revenue = total costs)
What are some aims and objectives for a growing business
- growth (domestic)
- increased market share
- diversification
- increased customer satisfaction
What are some aims and objectives for a developed business
- profit maximisation
- maximise growth internationally
- diversification on a wider scale
What is the equation for total revenue?
Selling price x quantity sold
What is revenue
Total income that a business gains from their sales
What is a fixed cost
Costs that remain the same regardless of the output of the business
What are some examples of fixed costs
- rent
- salary
- taxes
- insurance
What are variable costs
Costs that change in proportion to the business’s output
What are some examples of variable costs
- raw material
- packaging
- wages
What is the equation for total costs
Total fixed costs + total variable costs
What is profit and how do you calculate it
Profit is when the total revenue earned is greater than the costs
To calculate it you do:
Total revenue - total costs
What is profit
When revenue is greater than costs
What are some organic methods of growth
- reinvesting profits into the business
- opening new stores
- outsourcing
- franchising
- e-commerce
What re some external methods of growth
- mergers
- takeovers
What are ‘economies of scale’?
Benefits to a business in the form of lower average unit costs from increasing the size of operation
What are ‘DISeconomies of scales’?
The drawback of a business in the form of high average unit costs from increasing the size if operation
What are external influences
The factors outside of an organisation’s control which has a direct impact on it
What are some examples of external factors
- ethical
- political
- technological
- legal
- social
- economic
What is digital communication
Using electronic channels to communicate with people and organisations
What are some examples of digital communications
- computers
- mobile phone signals
- apps
- the internet
What is e-commerce
The selling of goods and services online
What are some advantages of e-commerce
- wider target audience
- reduces start up costs
- 24/7 shop front
- benefits of economies of scale
What are some disadvantages of e-commerce
- customers cannot try products
- lack of trust
- lack of face-to-face interactions
- may need to retrain workers
- needs to have a good encyription and protection system from hackers so customers personal infromation and data don’t get leaked
- has to abide by legislation - cant leak or manipulate customer data (as per: computer misuse act, 1990 and data protection act, 1998)
What are private sectors organisations
Private sector organisations are owned by individuals
What are public sector organisation
Public sector organisations are owned by the government
What are dividends
Dividends are the financial rewards paid out to each shareholders each year
What is negotiation
Negotiation occurs when two sides discuss what they want and try to reach a solution
What are some factors affecting location
- costs
- proximity to the market
- availability
- transport links
- type of business
- technology
What are proctectionist measures
Protectionist measures are policies that government uses to protect their own businesses against foreign competition
What is a tariff
A tariff is a tax on foreign goods imported into a country
What are imports
Imports are goods and services purchased from overseas by consumers of businesses
What is a quota
A quota is a limit on the number of foreign goods imported into a country
What is a business plan
A business plan is a document setting out what a business does and what it hopes to achieve in the future
What is business planning
Business planning is the process of producing a business plan
What is uncertainty in a business?
Uncertainty occurs where there us a lack of information about a situation. This means the outcomes or consequences are very difficult to predict
What is meant by a risk in a business?
A risk is the possibility of something going wrong (for example: a delay in exports)
What is revenue
Revenue is the income a firm recieves from selling its goods or services. It is also referred to as ‘turnover’. It is measured by the number of units sold multiplied by the price.
What are the main sections in a business plan
- Goals
- Pricing
- Knowing your market
- Customers
What is internal (or organic growth)
Internal growth (or organic growth) is when a business gets bigger by selling more of its products
What is external growth (or integration)
External growth (or integration) occurs when a business gets bigger by joining or buying other businesses
How do you measure the size of a business?
- Value of sales
- Value of business (market capitalisation)
- Number of employees
How do you calculate market capitalisation and what exactly is it?
The market capitalisation of a company measures the value of all its shares:
Market capitalisation = market price of a share x the number of shares
What is a franchise
A franchise is when a franchisor sells the rights to its products to a franchisee; usually this is in return for a fee and percentage of turnover (i.e. McDonalds franching with Ray Kroc)
What is a franchisee
A franchisee buys a franchise usually in return for a fee and percentage of turnover
What is a franchisor
A franchisor sells a franchise usually in return for a fee and a percentage of turnover (revenue)
What is outsourcing
Outsourcing occurs when a business uses another business to produce for it
What is a merger
A merger occurs when two or more businesses join together to form a new business
What is a takeover
A takeover is when one business buys control of another one
What are the different types of integration
- horizontal
- vertical
- conglomerate
What is horizontal integration
Horizontal integration occurs when one firm joins with another firm at the same stage of the same production process
What is vertical integration
Vertical integration occurs when one firm joins with another firm at a different stage of the same production process
What is conglomerate integration
Conglomerate integration is when one firm joins together with another firm in a different type of production process
What are some problems with expanding abroad
- the law and regulations facing businesses may differ
- the existing businesses may resist new entrants to the market
- customers’ buying habits and expectations may be different
What is a cost
The money spent by a business on goods and services
What is it meant by ‘competition’ with businesses
The rivalry between businesses looking to sell their goods/services in the same market
What is a customer
Individuals, businesses or organisations that purchase goods/services and make decisions about which supplier to choose
What is customer satisfaction
Customer satisfaction is whether or not customers are pleased with the goods/services they recieve; whether they would purchase again
What is demand
The quantity of a particular product that will be bought at a particular price over a specific time
Who/what are directors
The people who are elected by the shareholders to run the business on their behalf
Who/what are employees
Employees are individuals who work full time or part time for a business; they have a contract of employment detailing their duties and rights
What is an enterprise
The ability to identify business ideas and oppurtunities to bring them to fruition (understanding) and to take risks where appropriate
What is an entrepreneur
A person who has the vision to use initiative to make business ideas happen, managing the resources and risks
What are ethical objectives
A business’ goals that relate to fair business practice or moral guidelines and make a positive contribution to the business’ reputation
What are ethics within a business?
The moral principles that guide how a business operates
What are exports
Goods/services sold to a customer in another country
What is a ‘gap in the market’?
An oppurtunity for a new business (or expansion) ehich may meet a need that is not being met.
What are imports
Imports are goods/services that are bought from a supplier in another country
What is location in business
The site of a business and the reasoning behind the choice of site
What is loss in a business
When expenditure is greater than income
What is a market in business
Where those wishing to buy goods/services (customers) make contact with those who have them to sell
What is market share in business
The proportion of the whole market for a product that is held by the business
What are shares
Shares are the units of the business that are available for sale to investors
What are shareholders
Shareholders are those people who own shares in a limited company; each shareholder is a part owner of the business
What are social objectives
A business’ goals that relate to fair treatment of the people concerned: customers, investors, customers, investors, suppliers or workers
What is a supplier
A business that provides goods/services
What does it mean when a business is said to be in the ‘survival’ stage?
The capacity of a business has to stay in the business. It is dependent on the business selling sufficient amounts of goods/services to cover all its costs
What do the factors of production mean (LLCE)?
- Land - somewhere you can produce the goods in exchange for money
- Labour - people to work in the business to help broaden and expand the business
- Capital - getting money to uplift or start your business
- Enterprise - the courage and motivation needed to start and popularise/diversify the business.
