Topic 1 - What is business ? Flashcards
What are the functional areas
Marketing
Finance
Operations
Human resources
Why does a business exist
- show people what they can achieve
- be their own boss
- to supply goods and services
- provide employment
- create new good and services to enhance customer lives
- improve a countries reputation
What are some common business objectives
Profit optimisation Profit maximisation Growth Cash flow Survival Social and ethical
What is a business mission
Aim for a business that is settled upon by a boss turned into a motivational statement
What are objectives
The steps that needs to be taken to achieve the aim and mission
What do objectives need to be
S - specific M - measurable A - agreeable R - realistic T - timely
Why do businesses set objectives
- to be able to distribute power
- motivating to have a clear goal
- objectives are the basis for devising a strategy
- know what is needed to be done to achieve mission
What is revenue
sales x sales price
What are fixed costs
Costs that don’t change with output
What are variable costs
Costs that change directly with output
What are total costs
fixed costs + variable costs
What is the primary sector
Business extract or grow raw materials
What is the secondary sector
Manufacture goods using raw materials
What is the tertiary sector
Provides services
What is the order of business objectives
Mission
Corporate aims
Corporate objectives
Functional. team and individual
What is unlimited liability
Finances of the business are inseparable from the owners
Describe the features of a sole trader
- one owner
- small amount of employees
- faces all the burdens alone
- gains from all financial success
- unlimited liability
Disadvantages of sole traders
- limited sources of finance
- long hours of work
- difficulties of running business during periods of ill health
- unlimited liability
- all the responsibility for making business decisions is yours
- harder to retain employees
Describe the key features of a partnership
- two or more people start a business
- unlimited liability
Advantages of sole traders
- They are the easiest type of business to set up.
- The sole trader gets to be their own boss.
- The sole trader decides what to do with the profit.
- It is easy to change the legal structure if circumstances change.
What is limited liability
Legal duty to pay debts remains with the business
Describe the features of a private limited company
- shares cannot be sold without everyone’s agreement
- cannot be listed on the stock market
- ## limited liability
Describe the features of a public limited company
- on the stock exchange
- publish financial accounts in companies house
Advantages of limited companies
- confidence to expand
- can raise capital
Disadvantages of limited companies
- financial information must be made available
- more rules to follow
What is a public sector organisation
Owned by the government
What is a private organisation
Not owned by the state
What is a co operative
Worker owned or customer owned
What is a mutual
Have no shareholders and no owners
Exist for the benefit of its customers
What is a charity
Not for profit organisation that is able to get certain grants and tax benefits
Ordinary share capital
Amount of finance raised through selling shares to shareholders
Market capitalisation
number of shares x current share price
Dividends
A proportion of business profit shared with shareholders
The role of shareholders
- provide capital to the business
- get influence over the business
Why shareholders invest
- for a profit
- receive annual dividend
- agree with company aims and values
Influences on share price
- business performance
- economic performance
- news
- confidence
Impact of share price changes
- struggle to get investors if decreasing
- higher - easy to get share capital
Effect of ownership on mission, objectives, decisions and performance
- dictates what real mission is e.g. profit
- timescale of projects and mission achievement
- take long termism or short termism approaches
What external factors affect costs and demand
- competition
- market conditions
- incomes
- interest rates
- demographic factors
- environmental issues and fair trade
How does competition affect costs and demand
- customers may look for a competitive advantage
- invest in research and development
- may have to change how they compete like lowering prices
How do market conditions affect costs and demand
- recessions may cause lower demand
- recession may cause a business to cut costs
- lower customer confidence means lower sales
- customer tastes and fashion
- innovation and technology
- competitive structure
How does changes in income affect costs and demand
Incomes fall
- increased demand of inferior goods
- increase in usage of discount stores
- cut back in benefits
How does interest rates affect costs and demand
Higher interest rates
- lower demand for luxury goods
- lower demand for items bought on credit
- affect operating costs and therefore increase costs and lower profit
- lower level of long term investment
Affect of demographic factors on costs and demand
Age
- higher demand for companies targeting these audiences
Gender
Ethnicity
- higher demand for products targeted at specific ethnicities
How would environmental and fair trade affect costs and demand
- marketing tool allowing higher demand
- increase costs
