Topic 1: Business in the Real World Flashcards
What is a need?
A good or service that satisfies the basic requirements for living
What is a want?
A service or good that people desire beyond our needs
What is a primary industry?
Extracting raw materials from the land or sea
What is a secondary industry?
Processing raw material into finished goods
What is a tertiary industry?
Selling finished goods to the customer
What are examples of primary industries?
Farming
Fishing
What are examples of secondary industries?
Construction
Factories
What are examples of tertiary industries?
Supermarkets
Restaurants
What is a chain of production?
The stages that a product goes through to be ready to be sold to customers
What is interdependency?
Businesses in a chain of production that rely on one another
What is deindustrialisation?
Where there is a decline in manufacturing in a country and an increase in tertiary businesses
What are the 4 functions of a business?
Marketing
Human Resources
Finance
Operations
What is a partnership?
Between 2 and 20 partners joint owning a business
Advantages of partnership?
Shared workload
Generate more finance
More ideas and skills can be brought in
Disadvantages of a partnership?
Unlimited liability
Decision making is longer and there may be conflicts
Shared profits
What is a private limited company?
A company that doesn’t publicly trade shares and is limited to a maximum of 50 shareholders if they are invited
What is a private limited company shortened to?
Ltd.
Advantages of a private limited company?
Owners have limited liability
Easier to raise finance
Shares in a business can be sold to chosen people
Disadvantages of a private limited company?
Time consuming to set up and more expensive
They must publish accounts publicly every year
What is a public limited company?
A company who’s shares are sold to the public on a stock market, the people who buy these shares are called shareholders
What can a public limited company be shortened to?
PLC
Advantages of a public limited company?
The shareholders have limited liability
Increased negotiation opportunities with suppliers in terms of prices - larger business can achieve economies of scale
The business has the ability to raise additional finance through share capital
Disadvantages of a public limited company?
It’s expensive to set up - requires a minimum set up cost of £50,000
Shareholders may clash when making decisions and will expect to receive profits as dividends
There is a risk of a hostile takeover - the company can’t control who buys shares
What affect the share price of shares?
Brand image
Competitors
Profits and sales
What is a not for profit business?
A business set up to achieve other objectives than make a profit - they often use profit made for a good cause
What are not for profit organisations also known as?
Social enterprises
What is an aim?
An overall goal or target a business hopes to reach
What are 5 examples of business aims?
- Survival - where the business aims to exist and cover its costs
- Break even - make revenue equal to costs
- Expand internationally - take the product into a target market abroad
- Increase market share - control more of the market
- Profit maximisation - ensure the best output and price levels are achieved to maximise profits
What is an objective?
A target a business wants to reach to achieve an aim
What is a stakeholder?
Those with an interest in the way that a business operates
What are 5 examples of stakeholders? What are they interested in?
- Customers - interested in the services the business provides, the products, quality and prices
- Owners - interested in the profits the business has
- Competitors - interested in how well the business is doing and products they released
- Community - interested in the pollution being produced and also the jobs the business offers
- Government - interested if the business is in line with the law
What is location?
Where a business is geographically situated
What are the 4 main factors to consider when deciding on location?
- Closeness to supplier
- Closeness to competitors
- Wealth of area
- Costs of having a store there
What is a franchisor?
A business who sells the rights to another business to operate a franchise
What is a franchisee?
Someone who rents the brand name
Why do business want to grow?
To access more customers
To improve brand recognition and expand their audience
To increase share value
What are the 2 types of growth?
- Organic growth
- Inorganic growth
What is organic growth?
When a business decides to expand its own activities by launching new products and/or entering new markets
What is inorganic growth?
When a business grows with the help of other businesses by joining with or buying another business
What are 3 examples of organic growth?
- New stores and franchises
- E-commerce
- Outsourcing
What are 2 examples of inorganic growth?
- Merger
- Takeover
What is a merger?
When 2 businesses join together to create one bigger business
What is a takeover?
When one business takes ownership over another e.g. through buying it
What are the advantages to a business opening new stores as a method of expansion?
They can make more profit and revenue
They can increase their customer base but also brand recognition
What are the disadvantages to a business opening new stores as a method of expansion?
Harder to control and manage the stores but also manage staff too
Expensive - more costs, more money spent on training etc.
What are the advantages to a business using e commerce as a method of expansion?
Websites are cheaper to manage and generally save costs e.g. costs for staff and locations
Global access and customers have access for them 24/7
Easier to set up
What are the disadvantages to a business using e commerce as a method of expansion?
There are security issues - websites can crash or be hacked
There are costs to maintain websites and protect them from security risks
Not everyone has phones
What are the advantages to a business using outsourcing as a method of expansion?
Cheaper to produce - less staff needed so costs are cut
Increases productivity
What are the disadvantages to a business using outsourcing as a method of expansion?
The business has less control
Quality may not be up to standard and they may have a bad reputation if the other company does
What is outsourcing?
When a company hires someone else to perform tasks, handle operations or provide services for the company
What is a sole trader?
When an individual runs a business
What is an entrepreneur?
An individual who takes a risk to start a business
What are the 4 factors of production?
- Land
- Labour
- Capital
- Enterprise
What are qualities an entrepreneur needs?
Hard working
Organised
Innovative
Advantages to being a sole trader?
They’re easy to set up - good for start up businesses
You get to be your own boss
As a sole trader, you decide what happens to profit made
Disadvantages to being a sole trader?
Long hours may have to be worked - no holidays
They have unlimited liability
It can be hard to raise any finance
The business won’t have a legal identity - unincorporated
What can impact the objectives a business has?
The size of the business
The level of competition the business faces
The type of business
Why may a businesses objectives change over time?
New legislation
Changes in the economy
If the business grows or achieves another objective
What is the land factor of production?
It includes the earths natural resources in production
Examples of land production?
Non renewable resources e.g. natural gas
Water
Animals
What is the labour factor of production?
The work done by people who won’t contribute to the production process
What is the capital factor of production?
The equipment, factories and schools that help to produce goods and services
What is the enterprise factor of production?
The people (entrepreneurs) who take risks and create things with the other three factors of production
What is an enterprise?
A business or an organisation or the personal qualities that mean someone takes advantage of new business opportunities
What are the reasons why someone may become an entrepreneur?
To make more money than they may be making currently
When they identify a gap in the market, to fill this gap
To be their own boss, follow their interests if they they’re unsatisfied with their current job
Advantages of not for profit organisations?
They get some tax relief and are helped by the government
Disadvantages of not for profit organisations?
They don’t have sable income
They don’t make a profit - or if they do, they reinvest into the business
Can be hard to manage
What can objectives help do? Why?
Measure success - if it meets its objectives, it’s on track to achieving their aim and is successful
E.g. if their aim is to make a profit and they achieve it, they can see they’re making enough sales etc.
OR
Can help identify weaker areas of the business
What is revenue?
All the money the business earns
How can revenue be calculated?
Revenue = units sold x selling price per unit
What are fixed costs? Example?
Costs that don’t vary with output and have to be paid even if the business produces nothing e.g. rent, insurance etc.
What are variable costs? Example?
Costs that increase as the firm expands its output e.g. cost of supplies, cost of running machinery etc.
How can total costs be calculated?
Total costs = fixed costs + variable costs
What is average unit cost?
How much each product costs to make
How to calculate average unit cost?
Average unit costs = total cost/output
What is profit?
The money that the business keeps after paying all of its expenses/costs
How is profit calculated?
Profit = total revenue - total costs
If a business’s total costs are higher than their total revenue, how does this affect their profit?
They don’t make a profit, they make a loss - the profit calculation will thus be in the negatives
What is a business plan?
An outline of what a business will do and how it aims to do so
Advantages of business plans?
It allows to calculate how much finance will be necessary to start the business
Can be used to convince financial bankers to invest
It can stop the business from investing time and money into a business or product that may fail
Can help set aims and objectives
What are 3 of the 7 sections of a business plan?
- Personal details of the owner like their CVs
- Product description and details of market and competitors
- Finance - how much money needed to start the business including a cash flow forecast and a projected statement of financial position
Disadvantages of business plans?
They are time consuming and costly to make
They are only prediction and some people may get to optimistic and not meet their expectations
What is an economy of scale?
When the average unit cost of products falls
Who can achieve an economy of scale?
Large businesses
What are the 2 reasons an economy of scale can happen?
- Purchasing economies of scale - when a large firms buy its supplies in bulk so gets them at a cheaper unit price
- Technical economies of scale - when a business can afford to buy and operate more advanced machinery
What are the advantages of economies of scale?
The businesses can make more profit on each item they sell
The business can also charge less for their products or services - making customers more likely to buy their products - outcompete competitors
Profits can reinvested - allows to expand more
What is a diseconomy of scale?
Areas where growth can lead to increases in average unit costs
In what situations can a business have a diseconomy of scale?
The bigger the business - the harder it is to manage and more expensive
Bigger business have more people - harder to communicate, people lower in the hierarchy are less involved (demotivated) (productivity decreases)
