Topic 1 What is Business

Question 1

Business

Answer 1

A organisation that provides goods and services and aims to make a profit.

Businesses:
- create employment
- create wealth
- create new products
- can enhance a countries reputation

Question 2

Mission and objectives

Answer 2

Mission statement - the means of communicating to key stakeholders on what they should be doing and the values to follow.

Objective - a target or goal that businesses set themselves. It helps lead to the road of success.

Question 3

Corporate objectives

Answer 3

Corporate objectives = goals of the whole organisations.

Functional objectives:
-> finance objectives
-> operations objectives
-> HR objectives
-> maketing objectives

Question 4

Business objectives

Answer 4

Business objectives must be SMART:

Specific
Measurable
Achievable
Realistic
Timed

Example - Tescos
Tescos objective is “to stop the fall in profits”

Question 5

Common business objectives (PIGS)

Answer 5

• Profit
• Increase market share
• Growth
• Survival

Others:
- Cash flow
- Social and ethical objectives
- Diversification

Question 6

Reasons for setting objectives

Answer 6

Reasons:
- Co-ordinate & focus
- First step in planning process
- Performance assessment
- Establish priorities
- Motivate staff

Question 7

External environment

Answer 7

PESTLE+C:
Political
Economic
Social
Technological
Legal
Environmental
Competition

Question 8

Demand

Answer 8

The amount consumers are willing and able to buy at a set price.

Costs and demand are linked.

Question 9

Competition

Answer 9

The demand for a firm’s goods and services will be influenced by the strategies of its competitors.

Some strategies include, reducing the price of their products, introducing new products or increasing the popularity of their existing products through effective marketing.

Question 10

Costs

Answer 10

These are expenditures made by a business as part of its trading operations.

Question 11

Fixed Costs & Variable Costs

Answer 11

Fixed costs - Costs that do not change with the level of output or sales in the short run, eg. Rent

Variable costs - Costs that change directly with the level of output or sales, eg. materials

Question 12

Revenue

Answer 12

Revenue is the amount of income earned by a business over a period of time, eg one month.

Question 13

Profit

Answer 13

Profit is what is left after costs have been deducted from revenue.

Question 15

Unlimited and Limited Liability

Answer 15

Unlimited Liability - The owner of the business is responsible for all the debts of a failed business. The owner may lose some or all their possessions to pay off the debt.

Limited Liability - The liability of the owners of the business is limited to the fully paid-up value of their share capital for example the money they have invested.

Question 16

Sole Traders

Answer 16

A business that is owned and controlled by one person who makes all the decisions.

UNLIMITED LIABILITY

Example -> Taxi Drivers

Strengths:
- Flexibility of working hours.
- Based on an interest.

Weaknesses:
- Unlimited liability.
- Difficulty of raising capital funds.

Question 17

Private Limited Companies

Answer 17

(Ltd) It is managed by shareholders and it does not publicly trade shares.

LIMITED LIABILITY

Example -> driving instructor or hairdressers

Strengths:
- Accounts are not available to the public.
- Attracts private investors known to the owners to buy shares.

Weaknesses:
- More expensive to set up than a sole trader or partnership.
- Not listed on the stock exchange so cannot offer shares to the general public.

Question 18

Public Limited Companies

Answer 18

A company owned by shareholders and managed by directors and members of the public can purchase shares of the stock.

LIMITED LIABILITY

Example -> Estee Lauder

Strengths:
- Often well known with lots of publicity.
-Can raise large amounts of money by selling extra shares.

Weaknesses:
- Original owners often loose control of the company e.g. Jo Malone isn’t part of that company any more.
- Accounts available publicly for everyone to read and comment on.

Question 19

Private sector and Public sector

Answer 19

Private sector is made up of businesses or corporations. If they offer poor customer service and don’t make money then they will go out of business. e.g Shopping centres and food shops. Its more efficient

Public Sector is not supported by profits, doesn’t have to compete for money, it uses tax money to fund its services. The government decide how our money should be spent in the public sector. It can be more expensive and the service is worse.

Question 20

Non-profit organisations

Answer 20

These are businesses that do not have to make a profit as their primary objective. They exist for social, environmental and good causes.

Example -> Health and Social services (cancer research)

Strengths:
- Protects directors against being held personally responsible for their companies debts and liabilities.
- Employee commitment

Weaknesses:
- Limited activities- limited on what they can do and how they can behave.
- Can be expensive as not relying on profit.