topic 1 Flashcards
what is an enterprise
another name for a business it describes the actions of someone who takes a risk by setting up or investing and running a business
an entrepreneur is someone who takes those risks
reasons for starting a business
making a profit
skills & interest
investing money
being your own boss
work- life balance
what are the aims of start up entrepreneurs vs established entrepreneurs
start up are generally more money focused as they need to survive
established can do charity related things as well
business definition
an organization that exists to produce goods and services on a commercial basis to customers
what are needs
goods and services that we have to consume if we are to live - e. g warmth , shelter, food
what are wants
goods and services that we would like but do not have to consume in order to survive - e.g holidays & smart phones
what is an opportunity cost
measuring the cost of what you purchase in terms of the alternative that you have given up e.g going to a concert
what are objectives of social enterprises
- protect the environment
- donate to charities
- making an impact rather than profit
- provide job opportunities for unemployed youth
- ethical business practice
what are the production sectors
primary
secondary
tertiary
what is primary sector
involves extracting raw materials from natural environment e.g mining , farming, fishing
what is secondary sector
transforming raw materials into finished products , e.g steel , manaufacturing, clothing , construction
tertiary sector
providing services , e.g cleaning , retail shops
changes in business environment
legislation (laws) economic social environmental political technological
what is a sole trader
individuals owning business on his/ her own. they can also employ people but don’t share ownership of business , e.g hairdresser , gardeners, plumbers and electrician
disadvantage of being a sole trader
all money is at risk if you fail, may not have all skills you need , making all decisions can be stressful , can be difficult to raise finance - heavy workload
what is a private limited company
can raise funds from investors , such as friends & family but not from general public e.g river island , wilkinson and clark’s
what is unlimited liability
when it comes to money owed by a business , the owners have to use their own personal funds to pay for any debts (by selling homes or other assets ) if there is not enough money in the business to do so they are liable for any debts that the business incurs
what is liquidation
turning assets into cash
advantages of partnership
- simple to form business
- minimal paperwork once partnership agreed and set up
- partners provide specialist knowledge and skills
- jobs can be shared
- greater potential to raise finance
- any losses will be shared
disadvantages of partnership
- unlimited liability
- partners hv to live with decisions of others
- decision making takes longer
- harder today raise finance than a company
- profit has to be shared
advantages of a private limited company
limited liability protects personal wealth of shareholders
easier to raise finance as can sell shares
stable form of structure - company continues to exist even when shareholders change
original owners are likely to retain control
disadvantages of private limited company
shareholders have to agree abojt how profits are distributed
finance limited to ‘friends and family ‘
less privacy - public disclosure of company information but not as extreme as PLC
directors legal duties are stricter
greater administrative costs then setting up as a sole trader or partnership
what is a public limited companies
most of largest business in country e.g BP, boots and barclays
PLC are complicated & expensive to set up but can raise large sums of money through lifting shares on stock exchange
trading shares can make company vulnerable to possible takeover
advantages of public limited companies
- limited liability protects personal wealth of shareholders
can raise large sums of finance via the stock exchange which is permanently invested
stable form of structure - business contributes to exist even when shareholders change
form is more prestigious
disadvantages of public limited company
shareholders hv to agree about profit distribution
greater administrative costs
finance can be limited by stock market valuation of company
public can see company information and accounts
risk of company being taken over
separation of ownership and control
differences between PLC and LTD
LTD shares sold only to family and friends
PLC public share holders
profit maximization
profit is main objective for most business this is the reward to entrepreneur for their hard work and risks undertaken
market / share sales maximization
some business will be more concerned with increasing market share or becoming market leader
growth
not all business want to grow but most do, this means that they can increase their profits and value of business
social / ethical responsibilities
increasingly businesses are aware of their respsonsibilities to the society in which they operate , related to correct ethical behavuoir
customer satisfaction
some businesses pride themselves on providing a quality service of selling quality products
shareholder value
a company will be interested in how much their dividend payment will be or share the price
what is purpose of setting business objectives
direction - clear objections allow to decide on what direction it takes
focus for employees- follow business in objections
allows planning- clear objectives allow for consistent planning
measurement of success- can then connect on change business strategy if it’s not working
objective of size
over half of new businesses fail with inv five years and many new do not survive much beyond launch. customer satisfaction or being ethical could be an objective to help complete
level of competition
if a business doesn’t have much competition it may focus on profit maximization whereas if there is a lot of competition a focus on customer satisfaction on maintaining market share will be important
type of business objective
not- for - profit organization may focus on social or ethical objectives
a sole trader may focus on survival rather than growth
what is a stakeholder
any individual or organization who has a vested interest in the activities and decision making of a business
shareholders or owners objective
return on investment & profits and dividend , success and growth of business proper running of business
managers & employees objectives
rewards , including basic pay and other financial intentions, job security and working conditions , promoting opportunities and job satisfaction and status moviation, roles and responsibility
customer objectives
value for money, product quality and customer service
suppliers objectives
continued profitable trade with the business, financial stability
banks & other finance providers objectives
profitability and cash flows of the business, growth in profits and value of business
government objectives
correct collection and payment of taxes, helping businesses to grow- creating jobs , compliance with business legislation
local community objectives
success of business- creating and retaining jobs, compliance with local laws and regulations (e.g noise pollution )
what is trade union
group that looks afyer rights of workers
factors affecting location decisions
proximity to market : need to be located near particular center of population
competitions : where there is a gap in the market there is no competitor and might be a good reason to locate
raw materials: more important for primary sector jobs and manaufacturing
costs: having premises means a business has to pay rates, insurance and many other ongoing costs as well as rental purchase costs. costs of premises and labor varies in diff locations
labor : intensive businesses often look to locate in areas of traditionally low wages or higher unemployment
what does a business plan have
describes business
objectives and aim
strategies
markets
financial forecasts
why do we need a buesinss plan
organization more ideas direction contingency plan more profit potentially investors monitor how you are doing provides a focus
what are costs
costs are amounts that a business incurs in order to make goods and or provide services
what are variable costs
costs which change as output varies - lower risk for a start up : no sales = no variable costs
fixed costs
costs which do not change when output varies - fixed costs increase risk of a start up
what are semi-fixed costs
some costs are fixed in short term but chancd once a certain level of output is reached
equation for total costs
total costs = fixed costs + variable costs
what is internal growth
franchising opening new business introducing new product ranges opening new stores outsourcing - when company puts someone to work for them e commerce
external growth
merger (2 complained joint to make 1)
takeover / acquisition
internal growth definition
also known as organic growth and achieved by selling more of its products
external growth definition
also known as integration it is achieved by joining with another business
what is horizontal integration
a business joins a business at the same stage stage of production process
what is vertical integration
a business joins with its suppliers (backward and vertical ) or it distributors
what is conglomerate integration
a business joins a business in a different market
factors affecting method of growth
size of business nature of product position in the market financial position of business regulation
what is streamlining
look at business where jobs are duplicated , they get rid of one. how they get round that increase of employees
adaptations of growth
economies of scale access to more retailers / outlets greater brand awareness less vulnerable to take over greater range of rewards for staff diversify/ spread the risk
disadvantages of growth
diseconomies of scale slower decision making communication more difficult employees may become demotivated co ordination can be more difficult increases costs
what is an opportunity cost
cost of doing one tbing VS another
how are economies of scale achieved
when cost per unit falls as production increases
how do diseconomies of scale occur
when cost per unit increases as the scale of production increases
why do ineffiencies arise as business gets larger
control - problems in monitoring productivity and work quality / increasing wastage of resources - workers may get away with low production
communication - more difficult in a big business , as organization , structure becomes more complex and chains of command become larger. this can make decision making slower and communicate innacurately and workers become demotivated
avergae cost per unit equation
total costs divided by output
markup equation
avergae costs per unit X 5%
