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Nat5 Business Managment > Understanding Business > Flashcards

Understanding Business Flashcards

1
Q

What is a need?

A

A need is something a human being requires in order to survive e.g. food, water, clothing and shelter

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2
Q

What is a want?

A

A want is something a human being can live without but which can make life more enjoyable e.g. phones, holidays, Netflix and cars

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3
Q

What are goods?

A

Goods are items we can see, touch and pick up e.g. clothing, magazines, televisions and cars

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4
Q

What are durable goods?

A

Durable goods are goods that can be used more than once, something you are buying every so often e.g. phones, fridges and bicycles

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5
Q

What are non durable goods?

A

Non durable goods are goods that only last for a short period of time, something you are buying often e.g. bread, paper plates or a single journey bus ticket

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6
Q

What are services?

A

Services are things that are done for us e.g. a haircut, going out for dinner and internet connection

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7
Q

What are the factors of production?

A

Land, labour, capital and enterprise

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8
Q

Factors of production: Land

A

The natural resources a business will use

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9
Q

Factors of production: Labour

A

The employees of a business

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10
Q

Factors of Production: Capital

A

Money, tools and equipment invested into a business. Man made machinery

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11
Q

Factors of production: Enterprise

A

The idea behind a business (I.e. the entrepreneur who set it up)

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12
Q

What is an entrepreneur?

A

An entrepreneur is the person who comes up with the idea for a business and combines the factors of production together to start the business

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13
Q

Why may someone decide to start up their own business?

A

-To make money
-Made redundant and see it as an alternative option
-Spotted a gap in the market
-Persue a hobbie or intersect e.g. someone who enjoys baking may start a business out of it
-To be their own boss - some people prefer doing their own thing

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14
Q

What skills must an entrepreneur posses?

A

-Leadership
-Communication
-Orginisation
-Problem solving
-Interpersonal

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15
Q

What qualities must an entrepreneur posses?

A

-Determined
-Motivated
-Risk takers
-Innovative
-Confident

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16
Q

What are the sectors of industry?

A

Primary, secondary and tertiary

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17
Q

Sectors of industry: Primary

A

Primary sector industry involves extracting raw materials from the environment or growing raw materials e.g. farming, mining and fishing

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18
Q

Sectors of industry: Secondary

A

Secondary sector industry involves manufacturing products e.g. factories and house building (man made goods)

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19
Q

Sectors of industry: Tertiary

A

Tertiary sector industry involves any business which provides a service e.g. gyms, banks and hotels

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20
Q

What are private sector organisations?

A

Private sector organisations are:

-Owened by private individuals
-Controlled by owners or a board of directors
-Funded through personal investment, loans and through the profit the business generates

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21
Q

What is a sole trader?

A

A sole trader is a business that is owned and controlled by one person. The owner will make all decisions on how the business will run

Sole traders tend to be small businesses such as hairdressers or electricians

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22
Q

What liability does a sole trader have?

A

Sole traders have unlimited liability. This means that they are legally responsible for paying the debts of the business. If the business has not made enough money to pay its debts then the owner will need to use their personal savings to do so

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23
Q

Advantages of being a sole trader:

A

-It is relatively easy to set up as it does not involve completing complicated legal documents

-Owner does not have to discuss or compromise on decisions meaning that can be made more efficiently

-Owner gets to keep all profit made to themselves

-You are your own boss therefore flexible working times to suit yourself

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24
Q

Disadvantages of being a sole trader:

A

-Owner has unlimited liability (responsible for everything)

-Owner has no one to consult or share ideas or workload with which can make the job stressful

-Owner will find it difficult to take time off for holidays or if they are sick as it is difficult to find someone to trust in their absence

-

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25
Q

What is a partnership?

A

A partnership is a type of business that has between 2-20 owners. Owners of a partnership are referred to as partners

Partnerships tend to be found in professional practices such as accountants or dentists

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26
Q

What is a partnership agreement?

A

When setting up a partnership, an agreement will be created and agreed on by all partners. The partnership agreement lays out the terms of the partnership that all partners agree to follow. It will include:

-How much capital each partner has agreed to put into the business
-The salary for each partner
-How the profits of the business will be split between partners
-The key roles and responsibilities of each partner

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27
Q

Advantages of a partnership:

A

-Different partners can bring different skills and areas of expertise to the business

-Workload and decision making can be shared between partners

-Larger amounts of finance can be raised compared to a sole trader

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28
Q

Disadvantages of a partnership:

A

-Disagreements and arguments can occur when partners don’t agree on a decision

-Profits have to be shared between partners

-Partners have unlimited liability

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29
Q

What is a private limited company?

A

A private limited company is an organisation controlled by a board of directors. This is a group appointed by the shareholders who oversee the running of the business

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30
Q

How is the ownership of a PLC divided?

A

The ownership of a private limited company is divided into small portions known as shares. Each share is a small percentage ownership of the business.

The more shares someone owns, the bigger the percentage ownership they have of the business.

The owners of a private limited company are known as its shareholders

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31
Q

How do you become a shareholder of a PLC?

A

To become a shareholder of a private limited company, an individual must be formally invited to buys hares in it. This allows the business to control who becomes shareholders which reduces the risk of control of the business being lost to outsiders

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32
Q

What liability does a private limited company have?

A

A private limited company has limited liability. This means that the business is seen as a separate legal entity from its shareholders.

Therefore, shareholders are not legally responsible for paying the debts of the business. They only risk losing the capital they invested into the business if it fails

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33
Q

How are profits divided in a PLC?

A

The profits of the business are divided between shareholders through a process known as
dividends

A certain amount of profit is paid for every share that is owned in the business. The
more shares that an individual has in the business, the larger the portion of the profits they will receive

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34
Q

Advantages of private limited companies:

A

-By selling shares, the business can which raise large amounts of capital

-Control of the company cannot be lost to outsiders

-Shareholders have limited liability

35
Q

Disadvantages of private limited companies:

A

-Setting up a PLC is a much more lengthy and legally complicated process than the other types of private sector businesses

-Annual accounts must be produced and shared publicly

-Profits have to be shared between shareholders

36
Q

What are public sector organisations?

A

Public sector organisations are:

-Owned by the government
-Controlled by elected officials such as MSPs and councillors
-Primarily funded through taxation

37
Q

What are third sector organisations?

A

Third sector organisation are:

-Not owned by anyone one particular individual
-Controlled by a board of trustees
-Usually funded through donations and fundraising activities

38
Q

What is a charity?

A

A charity is an organisation that has been set up to help a particular cause. Examples of charities include British Heart Foundation, Oxfam and Dogs Trust. A charity will use donations and money raised from fundraising activities to help their chosen cause

To operate as a charity in the UK, an organisation must first register with the Charity Commission. This is a government organisation which regulates all charity activity within the UK

39
Q

What are voluntary and community groups?

A

Voluntary and community groups usually exist to provide a service to people living within a certain area. Examples include youth clubs, youth sports teams and the Scouts.

Groups are run by volunteers; they are individuals who give up their time to run the group for free. Groups might charge members a small fee for participating which is used to cover the costs of running it, such as renting a hall. Groups will also participate in fundraising activities, such as bag packing in supermarkets, to raise additional money to be invested back into the group

40
Q

What is a social enterprise?

A

Social enterprises primarily have a social or environmental aim. For example, Social Bite use any profits generated from their cafes to invest into projects which aim to relieve homelessness within Scotland

Many social enterprises will have a combination of both paid employees and volunteers working for them

41
Q

Benefits to operating as a social enterprise?

A

-They help a social or environmental cause

-They can apply for grants and funding only available to social enterprises

-Helping a worthy cause will give the organisation a good image which will attract more customers

-They will find it easier to attract high quality staff who want to work for an organisation and make a difference to society

-They might be able to charge a higher price for their products as customers will be willing to pay more if they know the money raised is helping a good cause

42
Q

What are private sector objectives?

A

-Survival
-Profit and profit maximisation
-Sales maximisation
-Customer satisfaction
-Market share and market leader
-Enterprise and innovation
-Corporate social responsibility

43
Q

What is the objective of profit and profit maximisation?

A

Most private sector businesses will have the primary objective of making a profit. Making a profit is essential for the long-term survival of the business.

Profit is achieved when the money generated from selling goods and services (known as sales revenue) is greater than the costs - such as wages and rent - of running the business

A business might also have the objective of profit maximisation. This is when the business aims to make as much profit as it possibly can. A business can achieve profit maximisation through reducing its operating costs or by increasing the price at which it sells its goods and services

44
Q

What is the objective of sales maximisation?

A

Where the business aims to sell as many goods and services as it possible can

Common strategies used by businesses to achieve sales maximisation are through increased advertising and promotional activities and reducing the price of goods and services

45
Q

What is the objective of customer satisfaction?

A

When an organisation aims to treat its customers well by providing excellent customer service to make them happy with their buying experience

Happy customers lead to repeat custom, recommendations of the business and customers becoming loyal to the business

46
Q

What is the objective of market share and market leader?

A

Market share is the number of customers in the market who buy from a business. An organisation may set the objective of increasing market share so the overall number of customers that buy from them

Market leader is the company that has the most customers buying from them

47
Q

What is the objective of enterprise and innovation?

A

About the business aiming to continue coming up with new ideas for products or making improvements to existing ones. This is important in keeping up with changing customers tastes and demands

48
Q

What is the objective of corporate social responsibility?

A

When the business aims to act in ways which are more beneficial to the environment, their staff or communities in which they operate

Acting in a socially responsible manner can be expensive for a business, which results in lower profits. However, there are many benefits to a business of being seen by consumers to be socially responsible, including an improved company reputation, the ability to attract high quality staff who want to work for a socially responsible business, and increased sales

49
Q

What is customer service?

A

The way in which a business treats and looks after its customers. A business should aim to provide excellent service to a customer before, during and after they make a purchase

50
Q

What are some methods a business can use in order to ensure they are offering excellent customer service?

A

-Providing training to all staff to ensure they know how to handle customers

-Rigorous recruitment systems to ensure they hire helpful and polite staff with appropriate skills

-Customer feedback using surveys and comment cards - this will then allow them to identify areas for improvement

-Implement a customer complaints procedure to ensure they are handled effectively

-Offer excellent after sales servuces e.g. helplines or generous returns policy

-Keeping staff moral and motivation high so they’re willing to help customers

51
Q

Benefits of excellent customer service?

A

-Increased customer retention - they will return and buy from the business again

-Cusymers will become loyal to the business

-Image and reputation will improve which will attract more new customers

-Charge a higher price for its products and services

-Customers will recommend business to friends and family

-Increase in sales and profit

52
Q

What are internal factors that may affect a business?

A

-Finance
-Human Resources
-Current Technology

53
Q

What may a lack of finance within a business lead to?

A

• unable to pay its bills, e.g. electricity

• unable to purchase raw materials, which can lead to a halt in production

• unable to take on more staff

• unable to grow, e.g. open up new locations

• unable to carry out marketing activities

54
Q

What may using out of date technology lead to un a business?

A

• money is spent fixing the technology which could be used elsewhere, e.g. advertising

• productivity is slower, which can delay customer orders

• production may have to stop if machinery breaks down

• staff may get frustrated working with out-of-date software as tasks may take longer

55
Q

What are external factors that may affect a business?

A

-Political
-Economic
-Social
-Technological
-Environmental
-Competitive

PESTEC‼️

56
Q

What are political factors?

A

Any action taken by the government e.g. government laws to ban smoking which forced many pubs to introduce outside smoking areas

57
Q

What are economic factors?

A

The current state of economy that will influence businesses e.g. if the economy is in a rate of recession, the rate of unemployment, the interest rate, the exchange rate

58
Q

What are socio-cultural factors?

A

The cultural trends or buying habits of the market e.g. soap powder companies reducing the size of their bottles and families were shrink and therefore so were kitchens and homes

Population trends such as demographics e.g. if the population is growing though an increase in birth rate the government will plan for a rise in demand for schools in 5 years

59
Q

What are technological factors?

A

The latest developments with technology e.g. the use of CAD in the design of trainers meaning it’s easy to have a design office in one country and a manufacturing plant in another e.g. China

60
Q

What are environmental factors?

A

Involves actions and laws that promote the upkeep of the environment e,g, the need to recycle waste has led to introduction of bins with separate compartments

61
Q

What are competitive factors?

A

The actions of competitors that force a firm to react e.g. Tesco launching led service has forced many other supermarkets to do the same

62
Q

What is a stakeholder?

A

Any individual that has an interest in the business, they can’t take actions or make decisions which will influence how a business operates

63
Q

What is a stakeholder interest?

A

What a stakeholder wants from the business

64
Q

What is a stakeholder influence?

A

The actions that stakeholders take which impact a business positively or negatively

65
Q

What are internal stakeholders?

A

-Owners
-Shareholders
-Employees
-Managers

66
Q

What are external stakeholders?

A

-Customers
-Banks
-Suppliers
-Local community
-Government
-Pressure groups
-Donors (charity)

67
Q

What are interests of the owner of a business?

A

-Profits
-Business to succeed

68
Q

What are some influences of an owner of a firm?

A

-Hire and fire staff
-Extend product lines
-Determining the opening hours

69
Q

What are the interests of a manager of a firm?

A

-Status and responsibilities
-Decisions to be successful

70
Q

What are influences of a manager of a firm?

A

-Appraise staff
-Make decisions
-Decide on firm’s objectives

71
Q

What are the interests of an employee of a firm?

A

-Good salaries
-Good working conditions
-Job security

72
Q

What are influences of an employee of a firm?

A

-Wage demands on firm
-Their efforts control performance of the firm

73
Q

What are the interests of a shareholder of a firm?

A

-High dividends
-Vote at AGM

74
Q

What are influences of a shareholder of a firm?

A

-Vote at an AGM
-Invest more or sell shares

75
Q

What are the interests of the government on a firm?

A

-Successful business to provide jobs

76
Q

What are the influences of the government on a firm?

A

-Provide a grant to the firm
-Set legislation controlling firm

77
Q

What are the interests of the local community on a firm?

A

-No pollution
-Jobs and wealth for the community

78
Q

What are the influences of the local community of a firm?

A

-Pressurise the firm through pickets, letters to press
-Crate demand

79
Q

What are the interests of the supplier on a firm?

A

-Repeated orders
-Paid on time

80
Q

What are the influences of the suppliers on the firm?

A

-Change the price of products
-Extend the credit period

81
Q

What are the interests of customers on the firm?

A

-Cheap prices
-Quality product/services

82
Q

What are the influences of customers on a firm?

A

-Go to competitors
-Their damnd controls price

83
Q

What are the interests of the bank on a firm?

A

-Firm to take out loans

84
Q

What are the influences of the bank on a firm?

A

-Charge an interest rate
-Grant a loan
-Give advice of the finances of the business

Nat5 Business Managment (13 decks)

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