Understanding Business Flashcards
What is a business?
An organisation that makes, buys, sells goods or provides a service.
What are all businesses’ aims?
To satisfy consumer wants and needs.
Why does an individual set up a business?
- They have identified a gap in the market
- Earn money/make a profit
- Be their own boss
- Provide a service
- Turning a hobby into a passion
- They were made redundant
- See demand for something
What are wants?
Things we would like to have but don’t need to survive.
Examples of wants?
- Phone
- Holiday
- TV
- Car
- Computer
What are needs?
Basic requirements essential for survival.
Example of needs?
- Food
- Water
- Clothing
- Shelter
- Warmth
What are goods?
Products you can see and touch (tangible).
Examples of goods?
- Clothes
- Food
- Laptop
What is a service?
Products you cannot hold or touch (intangible).
Examples of services?
- Haircut
- Public transport
- Cinema
Factors of production?
- Capital
- Enterprise
- Land
- Labour
What is wealth creation?
At each stage of production, value is added to the product.
Additional value that is added at each stage of production is wealth creation.
What is capital?
Man-made resources used to create products or provide a service.
Examples of capital?
- Machinery
- Tools
- Money
What is enterprise?
The idea that the owner had to create the business.
How the land, labour and capital is used to make a good product or service.
What is an entrepreneur?
An individual who develops a business idea and combines the factors of production land, labour and capital to produce a good or service with the aim of making a profit.
What is land?
The natural resources used to provide a good or service.
Examples of land?
- Water
- Land
- Fields
- Fish
- Coal
What is labour?
The workforce employed to produce or provide a good or service.
Examples of labour?
- Teachers
- Plumbers
- Builders
What are the sectors of industry?
- Primary
- Secondary
- Tertiary
What is the primary sector?
The primary sector is involved with the extraction of raw materials.
A business that grows goods or extracts materials from the land are classes as a primary sector business.
Examples of primary sector businesses?
- Farming
- Mining
- Fishing
- Oil production
What is the secondary sector?
The secondary sector is concerned with manufacturing. This involves taking raw materials from the primary sector and converting them into new products.
Examples of secondary sector businesses?
- Car manufacturers
- Food production
- Building companies
What is the tertiary sector?
The tertiary sector is concerned with providing a service.
Services are activities that are done by people or businesses for consumers.
Examples of tertiary sector businesses?
- Hairdressers
- Banks
- Supermarkets
- Cinemas
What is customer satisfaction?
Customer satisfaction is the service a consumer receives before during and after they have purchased a good or a service.
Examples of customer service?
- Customer loyalty
- Improved reputation
- Employee satisfaction
What is customer loyalty?
If a customer receives good quality service, they will be more likely to return. This will lead to increased sales and profits. It also means customers do not take their business to competitors.
What is improved reputation?
Customers who have received good service will be more likely to recommend the company to family and friends. A good reputation attracts new customers meaning a larger market share. It also allows for higher prices to be charged.
What is employee satisfaction?
Customers who are satisfied are less likely to complain. Having fewer complaints to deal with contributes to a business having a more motivated workforce.
If a company has a good reputation and low level customer complaints, this attracts a higher level calibre of employee.
Examples of poor customer service?
- Decreased profits
- Bad reputation
- Loss of market share
- Loss of competitive edge
- Low staff morale
Examples of maximising customer satisfaction?
- Market research
- Staff training
- After-sales service
- Customer care strategy
- Customer complaints procedures
- Quality products
How does market research maximise customer satisfaction?
Effective market research allows a business to find the wants and needs of its customers. This means that the product or service can be tailored to these needs, leading to greater customer satisfaction.
How does staff training maximise customer satisfaction?
Well trained staff will be knowledgable about the business and will be able to deliver a higher standard of customer care.
How does after-sales service maximise customer satisfaction?
After-sales service provides a service by the company after a purchase has been made. This service includes returns and refunds, guidelines on how to achieve the best from the product or service, and product maintenance.
How does customer care strategy maximise customer satisfaction?
Customer care strategy lets the customer know what level of service to expect and how complaints will be handled.
How does customer complaints procedures maximise customer satisfaction?
If a customer complaint is handled effectively, the customer will be more likely to return to the business.
Customer complaints procedures include things such as
- The length of time it would take
- Who should deal with a complaint
- How it should be processed
How do quality products maximise customer satisfaction?
A high-quality product ensures a customer is satisfied. The product must meet the customer’s needs. It is important for a company to have good quality assurance procedures in place to ensure no faulty or low quality products or services are given to customers.
What are the sectors of economy?
- Private
- Public
- Third
What are the types of organisations in the private sector?
- Sole trader
- Partnership
- Private limited company
What are the objectives of the private sector?
To maximise profits
What are sole traders?
A sole trader is a business owned by one person.
What do sole traders rely on?
Sole traders rely on
- Their own savings
- Bank loans
- Loans from friends and family
to finance their business
Examples of sole traders?
- Hairdresser
- Butcher
- Electrician
Advantages of a sole trader?
- Easy to setup
- Retains all profits for themselves
- Sole trader makes all decisions
Disadvantages of a sole trader?
- Unlimited liability
- Heavy worklaod
- Can be difficult to finance
What is a partnership?
- Partnerships can have a minimum of 2 and a maximum of 20 partners
- Set up by the deed of partnership document
Examples of partnerships?
- Lawyers
- Estate agents
- Doctors
- Dental practices
What is the deed of partnership?
The deed of partnership document sets out the terms of the partnership.
For example, it states how much money each partner invested in the partnership and what role each partner will have.
What is a sleeping partner?
A partner who invests but is not involved in day-to-day running of the partnership.
Advantages of a partnership?
- More equity is available to finance the business compared to a sole trader
- Workload is shared
- Different partners can bring different skills
Disadvantages of a partnership?
- Unlimited liability
- Profit is shared between partners
- Partners may not always agree on decisions for the business
When is a private limited company private?
The shares are not available to the public by being bought and sold on the stock exchange.
How do private limited companies have limited liability?
In law, a private limited company is separate from the people who own it. Its finances are separate from its personal finances. Because PLCs have their own legal identity, their owners aren’t personally liable for the firm’s debts.
Objectives of a private limited company?
The main objectives are to maximise profits, maximise sales, survival, and growth.
What are private limited companies financed by?
Finances by shareholders investments, inviting new shareholders, bank loans and overdrafts and retained profits.
How is ownership divided in a private limited company?
Ownership is divided into equal parts called shares. Whoever owns one or more of these is called a shareholder. Rather than owning the company, they’re investors.
Who are private limited companies controlled by?
A board of directors (who are usually shareholders).
Advantages of a private limited company?
- Limited liability
- The owner can retain control which means control of the business is not lost to outsiders
- More able to raise money through shareholders and lenders
Disadvantages of a private limited company?
- Must be registered with the Registrar of Companies
- High setup costs because legal procedures must be followed
- Harder to motivate and control workers because profits are only shared with shareholders who do not hold shares
What is the public sector?
Organisations run by the government that exists to provide a service to the population and communities.
What is the public sector financed by?
- Income tax
- National insurance
- VAT
- Air passenger duty
- Fuel duty
What are the types of organisations in the public sector?
- National government
- Local government
- UK government
- Scottish government
- Local government
Examples of public sector organisations?
- His Majesty’s Government
- The Scottish Government
- Aberdeen City Council
- Aberdeenshire Council
What is the UK government responsible for?
Reserved matters
- Economic policy
- Defence
- International relations
Overseeing the running of public corporations. Public corporations are founded by an Act of Parliament and usually funded by taxpayers.
What is the Scottish Government responsible for?
Devolved matters
- Health
- Police
- Education
- Transport
Limited income tax raising powers and receives a block grant from the UK government. The Scottish Government sets the budget for running Scotland.
What is the local government responsible for?
Scottish local government is made up of 32 local authorities often referred to as councils. They are allocated budgets by the Scottish government and use these funds to run local services
- Housing
- Schools
- Libraries
- Bin collecting
- Recycling
What is the third sector?
The third sector is not about making a profit but rather making a difference in society. Third-sector organisations are set up to help a cause or provide a service to members. They aim to raise money and increase awareness for good causes.
What are the types of organisations in the third sector?
- Charities
- Voluntary organisations
- Social enterprises
What is a charity?
A charity is an organisation set up for a specific cause. They receive grants from fundraising organisations such as the National Lottery. Money is also raised for them by charity shops and public donations. All the money goes to help the specific cause or to pay for the running of the charity.
Examples of charities?
- Oxfam
- Save the Children
- Cancer Research UK
What is a community group?
Community groups exist to provide a service for people. They are non-profit making and all profits go back into the organisation to ensure it can keep running.
Examples of community groups?
- Football clubs
- Golf clubs
- Rugby clubs
What is a social enterprise?
A social enterprise is an organisation that exists with a clear goal to help the community but runs the organisation like a business. All profits are reinvested back into the organisation.
Examples of social enterprises?
- Street Soccer Scotland
- Social Bite
- The Big Issue
Advantages of a social enterprise?
- Helps tackle social problems it has chosen
- Publicity for the social issue promotes the business
- Attracts customers who appreciate the good causes they help
- Attract good quality staff who want to help the social cause
- Can sell shares to raise finance if they are a limited company
What is an objective?
An objective is a target set by a business. It helps the business prioritise what has to be done to achieve the success it wants.
Examples of business objectives?
- Survival
- Social responsibility
- Profit
- Provision of a service
- Enterprise
- Customer satisfaction
- Market share
What is survival?
- Survival means ensuring the business keeps trading
- Sole trader’s main is often survival, particularly in their first year of trading
- Ensuring that the business is making enough money to cover their expenses
What is profit?
- Making a profit is ensuring a business has more income (sales) than expenses (costs)
- This profit is associated with businesses in the private sector
- Profit = Total sales - Business Expenses
What is profit maximisation?
- A variation of the profit objective
- When an organisation aims to make as much profit as possible
- They do this by finding the right balance between their selling price, sales volume and costs of production
What is provision of a service?
- This is about providing high-quality service that people want
- Mainly associated with businesses in the public sector
- For example, the government providing high-quality education
What is social responsibility?
This is when a business will aim to operate in a way that will not harm the environment or community
For example
- Recycling
- Reducing carbon footprint
- Improving staff working conditions
What is customer satisfaction?
- This is about keeping customers happy with the product/service
- Ensures customers will return to the business and make repeated purchases
What is market share?
- Growth of a business is important so that the business can increase its market share
- Increasing market share means increasing the number of customers it has
- If a business has more customers than its main competitors, it will be known as the market leader
What are external factors?
External factors are things outside a business that will have an impact on its success. Their impact can be positive or negative. A business can’t control external factors. All it can do is react to theme and make decisions to help it remain successful.
State the external factors
- Political
- Economic
- Social
- Technological
- Environmental
- Competitive
What is the external factor - political?
- The political factors is about how the government and the decisions that they make and how they affect a business
- The government will make decisions such as
- Changing/implementing the law
- Changing rates of taxation
- Changing the levels of minimum wage
What is the external factor - economic?
- The economic factors are factors which affect if people can spend their money
This depends on
- Interest rates
- Recessions
- Levels of unemployment
What are interest rates?
- Amount charged by banks to borrow money
- When a country is in a period of low interest rates it is cheaper to borrow money (less to pay back).
- This encourages more spending in the businesses
What are recessions?
- In a downturn or slump output falls and many businesses shed staff because sales are failing.
The economy experiences a recession,
What are levels of unemployment?
- Whether an area is in high/low employment
- High unemployment means that there is a greater availability of workforce
What is the external factor - social?
- Social external factors concern changes in opinions, values, society
Examples - Changes in fashion
- Rise in veganism
- 24/7 supermarkets
What is the external factor - technological?
Businesses must ensure they are keeping on top of the latest technology
- Technology is used in communicating and improving efficiency in business
What is the external factor - environmental?
- This is about how businesses need to be more environmentally friendly around the world around them
- It can also concern the weather and how this impacts business operations
What is the external factor - competitive?
- Competition is a factor as businesses need to ensure they are aware of the competition, to see what they can offer to have a competitive edge
- Competition may mean a business needs to reduce prices in order to be in line with competitors
What are internal factors?
Businesses can be influenced and affected by internal factors as well as external factors.
Internal factors are factors within a business that can be controlled by the organisation.
What are the internal factors?
- Human resources
- Finance
- Current technology
What is the internal factor - human resources?
Human resources relates to the people who work in a business organisation. The performance of a business is affected by the quality and impact of the people who work for it.
Examples of human resources?
- Managers
- Employees
How can managers influence a business?
- decision-making:Good decision making can increase productivity, increase profits and grow the business. Poor decisions could result in employees losing motivation, production being disrupted and complaints from customers.
- creating policy: Managers create policies that aim to motivate employees and set realistic goals.
- hiring and firing of employees managers recruit new staff and let others go
- setting budgets: managers will decide how much money a business can spend within a specific period.
- conducting appraisals with staff: managers need to assess their staff to ensure they are working effectively.
How can employees influence a business?
- Productivity
- Ability to satisfy customers
- Absenteeism
- Ability to perform their job
- Training
- Industrial action
What is the internal factor - finance?
A business needs adequate funds in place in order for it to survive and grow successfully.
Examples of finance?
- developing new products
- upgrading new software
- a wage rise for existing employees
- hiring new staff
- an advertising campaign for a product
- extending existing premises
- buying a new fleet of vehicles
- opening a new branch
- buying new machinery and equipment
What is the internal factor - current technology?
A business can use new technology to ensure efficiency and also boost its profile.
Examples of current technology?
- specialist software
- top of the range hardware
- access and control of social media
- apps
What are stakeholders?
A stakeholder is a person, group, or organisation that has an interest in how an organisation is run.
Stakeholderswant a business to do well because they will benefit from its success in some way. They can use their influence to change the fortunes of a business.
What are the internal stakeholders?
- Owners/shareholders
- Managers
- Employees
What are the external stakeholders?
- Customers
- Bank
- Government
- Suppliers
- Local community
What are the interests of an owner/shareholder?
- Make a profit
- Receive high dividends
- Improved share value
What are the influences of an owner/shareholder?
- Investing or withdrawing equity into the business
- Changing management (at AGM)
What are the interests of managers?
- Get promoted
- Win bonuses
- Have job security
What are the influences of managers?
- Hiring and firing
- Creating company policies
- Making day-to-day decisions and long term decisions
What are the interests of employees?
- Want job security
- Higher pay
- Improved working conditions
What are the influences of employees?
- Increasing or decreasing productivity
- Providing good or bad customer service
- In extreme cases, withdrawing their labour and going on strike
What are the interests of customers?
- Want quality products and services
- Want low prices
- Want value for money
What are the influences of customers?
- Can decided whether or not to purchase the product or use the service
- Can affect organisation’s reputation by word of mouth
What are the interests of banks?
- Ensure the organisation can pay their loans in full and on time
- Cash flow is stable
What are the influences of banks?
- Permitting or denying loan requests
- Changing interest rates on loans offered
- Changing repayment lengths
What are the interests of governments?
- Want firms to pay corporation tax
- Want firms to create jobs and wealth for the population
- Want firms to provide goods and services for the population
What are the influences of governments?
- raising or lowering corporation tax
- introducing or repealing laws that affect businesses
- offering grants to incentivise firms to locate todepressed areas
What are the interests of suppliers?
- want regular orders from their customers (the other businesses)
- want prompt payment
What are the influences of suppliers?
- raising or lowering prices of goods
- changingcredit terms
- changing delivery times
- increasing or decreasing the quality of their goods/materials
What are the interests of local communities?
- Want firms to bring jobs to the area
- Want good, safe environment to live in
- Want good transport and communications links
What are the influences of local communities?
- Protesting and petitioning if unhappy at an organisations conduct
- Can make complaints to Local Authority
What is limited liability?
When shareholders are only liable for the amount invested in a company.
What is unlimited liability?
Being personally liable for all debts.
What is equity?
Money invested in a business.
