Understanding Business Flashcards
Explain what is meant by a ‘Business Organisation’
A business is an organisation that makes, buys or sells goods or provides a service. All businesses aim to satisfy consumer needs and wants.
Explain the meaning of ‘Goods’ and ‘Services’, giving examples of each
Goods are products that can be seen and touched (tangible) such as cameras, sportswear or food.
Services are products that cannot be seen or touched (intangible) such as a train journey, a haircut or the Internet.
Explain the ‘4 Factors of Production’ giving examples of each
Land - This includes the physical land where the business is located and also the natural resources that a business might need. Eg(oil, wood, animals) PAID THROUGH RENT
Labour - This includes the staff needed by the business to produce goods and services and the skills and qualifications they have. PAID BY WAGES
Capital - This is the money and all of the equipment it can be used to buy needed by the business to make the products or provide the service. PAID THROUGH INTEREST(man-made)
Enterprise - This is the entrepreneur who takes a risk and creates the business using the other three factors of production, to provide good and services. EARNS PROFIT
Describe the process of Wealth Creation
At each stage of the production process, value is added to the product. The total value of a new house is worth more than the raw materials, labour or capital used to produce it. The additional wealth that is added at each stage of building the house process is known as wealth creation.
Describe the 3 different Sectors of Industry, giving examples of each
The primary sector of industry extracts raw materials or natural resources from the land. Farming and coal mining would be examples of a primary sector business.
The secondary sector of industry manufactures goods, using raw materials and converting them into new products. Clothing production, house building and car manufacture would be examples of secondary sector businesses.
The tertiary sector of industry is made up of services. Banks, cinemas and hospitals are examples of tertiary sector organisations.
Compare ‘Needs’ and ‘Wants’, giving examples of each
Needs are the basic requirements that are essential for survival such as food, water, clothing, shelter and warmth.
Wants are things we would like to have but don’t need to survive. These include luxuries such as laptop computers or TV.
Explain the term ‘Consumer’
In business, a consumer is a person who uses a product and may also buy it.
Explain why Customer Satisfaction is important to a business
So the public and their consumers think positively about the business and continue to support it. Can be done by:
Positive treatment of environment
High quality marketing work
High quality products
Contrast the benefits of good quality Customer Service with poor quality service
Benefits of good service:
Increased Customer Loyalty: If customers receive a good quality service, they will be more likely to return. This will lead to increased sales and profits. Customers are less likely to go to a rival competitor.
Improved Reputation: Customers who have received a good service are likely to recommend the company to family and friends. A good reputation may attract new customers meaning a larger market share for the company.
Motivated Workforce: Working for a business that provides a high level of customer satisfaction can be very motivating for employees. They are also likely to have fewer complaints to deal with. A business with a good reputation is likely to attract a higher calibre of employee.
Dangers of poor service:
business gets bad reputation
loses loyal customers
attract no new customers
loses competitive edge
Identify different ways of maximising Customer Satisfaction
Customer satisfaction can be maximised through:
excellent after-sales service staff training
customer care strategy
providing guarantees or warranties
customer complaints procedure
quality products
Describe the features of the different Sectors of Economy, giving examples of each
Private sector organisations are owned by individuals. These businesses are driven by profit. The profit from private sector organisations benefits the owners shareholders and investors. They are financed by private money from shareholders and by bank loans.
Public sector organisations are owned by the government. They provide goods and services for the benefit of the community. They are run by the government. They operate with money raised from taxes.
Third sector organisations are owned and run voluntarily by trustees. These organisations are not run by the need to make profit but by the need to help the community. They operate with money from donations and gifts. Any profits are reinvested in the organisation. Third sector organisations can be run as a social enterprise.
Contrast the main features of a Sole Trader, a Partnership and a Private Limited Company
A sole trader is a business owned by one person. Sole traders are usually small in size. Hairdressers, plumbers and small shops, and often operate as sole traders.
Partnerships can have a minimum of 2 and a maximum of 20 partners. Lawyers, estate agents, doctor and dental practices often operate as partnerships.
Companies are owned by shareholders and run by directors. Limited companies have limited liability, meaning an investor only loses the initial stake (their share capital) if a company goes out of business.
Contrast advantages and disadvantages of a Sole Trader business
Advantages:
-quick decisions can be made in the business because they are all made by one owner
-all profits can be kept by private individual this means that there is a lot of cashflow in business
-easy to set up as you do not need to complete lots of legal document unlike other type of businesses.
Disadvantages:
-Unlimited liability, personally liable for all debts of the business, meaning they may have to sell personal assets, such as a house or car, to pay these debts.
-Sole traders tend to work long hours, nobody else to share the full burden of responsibility for their business.
-Sole traders can only raise limited finance.
Contrast advantages and disadvantages of a Partnership business
Advantages:
-Partners can share the workload and losses in business are shared between partners, meaning as an individual you lose less
-Different partners can bring different skills to the business, meaning the business can expand an d grow
-Lots of cashflow in business as partners can invest their own savings
Disadvantages:
-Profits are shared between partners meaning u make less as an individual
- Hard to make decisions and come to an agreement between partners, can affect reputation
-Partnerships have unlimited liability, meaning partners may have to sell personal assets, such as a house or car, to pay these debts.
Contrast advantages and disadvantages of a Private Limited Company
Advantages:
-Limited liability means that shareholders are only liable to what they invest into the business and not all debt, and can be easier to attract investors
-Larger limited companies are often able to raise larger amounts of finance through borrowing.
Disadvantages:
-Profits are shared between shareholders meaning u make less that if on your own.
-The legal set up costs can be expensive, involving lawyers and accountants.
-Because profits are only shared with shareholders it can be harder to motivate and control workers who do not hold shares.
