Topic 1 Flashcards
Not for profit organisations
Focus on benefiting others rather than making a profit.
What are the three sectors and what do they do
Primary - produces raw materials
Secondary - manufactures materials into products
Tertiary - provide services
What are the four factors of production
. Land (territory and natural resources)
. Labour (the work being done)
. Capital (equipment)
. Enterprise (risk takers)
Opportunity cost
The benefits given up in order to do something else
Pros and cons of a sole trader
Pros:
. They are easy to set up
. You are your own boss
. You decide alone what happens to profits
Cons:
. You might have to work long hours
. You have unlimited liability
. It can be hard to raise money - banks see sole traders as risky.
Unimited liability
You are legally responsible for paying back all the debts of a business
Limited liability
You cannot lose more than you invest
Pros and cons of a partnership
Pros:
. More owners means more ideas and skills
. More people to share the workload
. More money can be put into the business
Cons:
. Each partner is legally responsible for the other partners actions
. Most partnerships have unlimited liability
. More owners means more disagreements
. Profits are shared
. Lots of paperwork to set up, such as “the deed of partnership”
What is a limited company
A company thats incorporated - one that has a separate legal identity from its owners. They have limited liability
Pros and cons of a private limited company
Pros:
. Limited liability
. Easier to get a loan or mortgage than a sole trader or partnership
. Shareholders are invited, owner keep a certain amount of control over profits
. No risks of a takeover
Cons:
. Expensive to set up due to amount of paperwork
. Have to publish their accounts (privately though)
Pros and cons of public limited company
Pros:
. Much more capital can be raised
. Limited liability
. Helps company to expand and diversify
Cons:
. Could be hard to keep all shareholders happy
. Easy to for someone to buy enough shares to takeover
. Account must be published to the public (competitors can see)
. More shareholders means more profits shared
Social enterprise
They aim to use their profits to benefit society.
What are some of the main aims of a business
. Survival
. Maximise profit
. Growth
. Increase shareholder value
. Increase market share
. Be socially right and ethical
. Customer satisfaction
What is the difference between objectives and aims?
Objectives are a brief overview of what a company wants to achieve - whilst aims are specific goals a company wants to reach in order to align with those aims
What is a likely objective for a new business
Survival
List different types of stakeholders
. Owners
. Employees
. Suppliers
. Government
. Local community
. Customers
Total cost equation
Variable costs + fixed costs
What are fixed costs
Expenses that do not vary with the output.
What are variable costs
Costs that vary as the output expands
What is the average unit cost
How much each product costs to make
Average unit cost equation
Average unit cost = total cost /output
What is the purpose of a business plan
Outlines what a business intends to do and how it intends to do it.
What could be outlined in a business plan
. Personal details
. Their objectives
. Their main aims
. Product description
. Production plan
. Staffing requirements
. Finance
Benefits of a business plan
. More likely to receive bank loans through clear and concise plans
. Allows the owner to understand the finances needed - not going in blindly.
. Usually prevents a business failing at an early stage
