Topic 1 What Is Business Flashcards
What are business objectives
Specific intended outcomes of business strategy and activity
Targets which a business sets to help it achieve its aims
What are the main functions of business objectives
State what needs to be achieved
A focus for all activity
Targets for individual and group achievement
A way to measure performance
What are the typical corporate objectives
Sales revenue
Profit
Return on investment
Growth
Market share
Cash flow
Value of the business
Corporate image and reputation
What should all business objectives be ?
SMART ::::
Specific
Measurable
Achievable
Relevant
Time bound
What is a mission statement
The overriding purpose of the business
The reason for its existence
A strategic perspective
Supports the stated ‘vision’ for the future
What is a mission statement not intended to be
Statement of goals or objectives
Statement of core values
A statement of how the business intends to compete or position itself in the market
What are the key audiences for a mission statement
Employees
Customers
Investors
Society
Example of what would make a good mission
A clear sense of business purpose
Excites, the Napier’s and motivates and guides
Easy to understand and remember
An example of a mission statements
Our vision is to Create a better everyday life for the many people
IKEA
What are common criticisms of mission statement
Not always supported by actions of the business
Often too vague and general
What are costs
Costs are amounts that a business incurs in order to make good and or provide service
Why are costs important
It’s the thing that drains away the profits made by a business
Show a the difference between making a good and poor profit margins
They are the main cause of cash flow problems
What are variable costs
Cost which change as output varies
What are fixed costs
Costs which do not change when output varies
What are some examples of variable costs
Raw material
Bought in stock
Wages based on hours worked or amount produced
Examples of fixed costs
Rent and rates
Salaries
Advertising
Insurance
How do you calculate total costs
Total costs(TC) = fixed costs FC + variable costs VC
What are the different forms of business
The over view
Private sector
Unincorporated. Incorporated
Sole trader and Private LC
Partnership AND public LIMED
What is unincorporated
The owner is the business
Owner had unlimited liability for business actions including debts
More business operate as sole trader
What is incorporated
Legal difference between the business company and the owner
Owners (shareholders) have limited liability
Most incorporated businesses operate as private limited companies.
What is unlimited liability
A characteristic of unincorporated businesses
Business owner/s are personally responsible for the debts and liabilities of the business
If the unincorporated business fails the owners are liable for the amounts owed
Unlimited liability adds to the risk of operating as a sole trader or partnership.
What is the importance of limited liability
An important protection for shareholders in a company
Shareholders can only lose the value of their investment
They are not liable for the debts of the company
What is a sole trader
Most common type of business form
A sole trader is an individual owning the business on his/her own
A sole trader is an individual owning the business on his her own
Sole trader owns all the business assets personally and is personally responsible for the business debts. Aisle trader has unlimited liability
What are the advantages of sole trader
Quick and easy to set up business can always be transferred to a limited company once launched
Simple to run-owner has complete control over decision-making
Minimal paperwork
What are the disadvantages of sole trader
Full personal liability- unlimited liability
Harder to raise finance
The business is the owner-the business suffers if the owner becomes I’ll loses interest
Can pay a higher tax rate than a company
What is parterships
Where a business is started and owned by more than me person
The legal partnership agreement sets out how the partnership is run,covering areas such as how profit are to be shared
The patterns between them own all the business asserts and owe all business liabilities
What are the benefits of partership
Quite simple it’s the simplest way for two or more people to form a business
Minimal paperwork once Partnership agreement set up
Business benefits from the expertise and effects of more than one owner
What are the drawbacks of partnership
Full personal liability - unlimited liability
A poor decision by one parter damages the interest of the other parter
Harder to raise finance than a company
What is a limited companies
They are separate legal entities to the founders
Companies are owned by their shareholders and run by directors. The shareholders appoint the directors(often the same people) who run the company in the intersection of the shareholders
What are the advantages of limited company
Limited liability-protects the shareholders
Easier to raise finance - sale of shares and also easier to raise debt
Stable form of structure-business continues to exist even when shareholders change
What are the disadvantages limited company
Greater admin costs
Public disclosure of company information
Directs legal duties
What is a private sector
In the private sector businesses are operated and owned by private individuals and companies
Private sector businesses are generally run ‘for profit’ to earn returns for the business owners
What is public sector
In the public sector, businesses and other organizations are owned and run on behalf of the public either by the government itself or by organizations who are funded and report to government
Public sector business are not generally run for profit but exit to provide goods and services to the public using public funds
What is a company
A Company is a separate legal entity. The owners of a company are shareholders
What is private limited companies
Most popular form of incorporated business
Privately-owned
Shares cannot be traded publicly
Usually just 1 or a few shareholders
What is public limited companies
Minimum share capital 50,000
Shares may be traded on public stock market
Usually many shareholders
Costly to administer
What is a share
An individual part of the issues share capital of company
What are dividends
Payments made to shareholders by the company from earned profits
What is capital growth (capital gain)
Arises from an increase in the value of the business
Reflected in an increase in a share price
What is share price
Like any other price a share price is determined by the interaction of supply and demand
What are factors within the company’s control
Financial performance
Dividend policy
Management reputation
Factors outside the company control
State of the economy
General market sentiment
Industry developments potential for takeover
What is market capitalization formula
Share price(per share) x number of shares in issues
What is revenue formula
Revenue = volume sold (units) x selling price per unit
What does demand mean
Demand is the quantity that consumers are willing and able to purchase at various prices during a given period of time
What is revenue
The sales value of what a business actually sell
