Understanding Business Flashcards
What is a need?
A need is something a human being requires in order to survive e.g. food, water, clothing and shelter
What is a want?
A want is something a human being can live without but which can make life more enjoyable e.g. phones, holidays, Netflix and cars
What are goods?
Goods are items we can see, touch and pick up e.g. clothing, magazines, televisions and cars
What are durable goods?
Durable goods are goods that can be used more than once, something you are buying every so often e.g. phones, fridges and bicycles
What are non durable goods?
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
What are services?
Services are things that are done for us e.g. a haircut, going out for dinner and internet connection
What are the factors of production?
Land, labour, capital and enterprise
Factors of production: Land
The natural resources a business will use
Factors of production: Labour
The employees of a business
Factors of Production: Capital
Money, tools and equipment invested into a business. Man made machinery
Factors of production: Enterprise
The idea behind a business (I.e. the entrepreneur who set it up)
What is an entrepreneur?
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
Why may someone decide to start up their own business?
-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
What skills must an entrepreneur posses?
-Leadership
-Communication
-Orginisation
-Problem solving
-Interpersonal
What qualities must an entrepreneur posses?
-Determined
-Motivated
-Risk takers
-Innovative
-Confident
What are the sectors of industry?
Primary, secondary and tertiary
Sectors of industry: Primary
Primary sector industry involves extracting raw materials from the environment or growing raw materials e.g. farming, mining and fishing
Sectors of industry: Secondary
Secondary sector industry involves manufacturing products e.g. factories and house building (man made goods)
Sectors of industry: Tertiary
Tertiary sector industry involves any business which provides a service e.g. gyms, banks and hotels
What are private sector organisations?
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
What is a sole trader?
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
What liability does a sole trader have?
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
Advantages of being a sole trader:
-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
Disadvantages of being a sole trader:
-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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What is a partnership?
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
What is a partnership agreement?
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
Advantages of a partnership:
-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
Disadvantages of a partnership:
-Disagreements and arguments can occur when partners don’t agree on a decision
-Profits have to be shared between partners
-Partners have unlimited liability
What is a private limited company?
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
How is the ownership of a PLC divided?
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
How do you become a shareholder of a PLC?
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
What liability does a private limited company have?
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
How are profits divided in a PLC?
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
Advantages of private limited companies:
-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
Disadvantages of private limited companies:
-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
What are public sector organisations?
Public sector organisations are:
-Owned by the government
-Controlled by elected officials such as MSPs and councillors
-Primarily funded through taxation
What are third sector organisations?
Third sector organisation are:
-Not owned by anyone one particular individual
-Controlled by a board of trustees
-Usually funded through donations and fundraising activities
What is a charity?
A charity is an organisation that has been set up to help a particular cause e.g. Oxfam. 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
What are voluntary and community groups?
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
What is a social enterprise?
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
Benefits to operating as a social enterprise?
-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
What are private sector objectives?
-Survival
-Profit and profit maximisation
-Sales maximisation
-Customer satisfaction
-Market share and market leader
-Enterprise and innovation
-Corporate social responsibility
What is the objective of profit and profit maximisation?
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
What is the objective of sales maximisation?
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
What is the objective of customer satisfaction?
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
What is the objective of market share and market leader?
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
What is the objective of enterprise and innovation?
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
What is the objective of corporate social responsibility?
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
What is customer service?
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
What are some methods a business can use in order to ensure they are offering excellent customer service?
-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
Benefits of excellent customer service?
-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
What are internal factors that may affect a business?
-Finance
-Human Resources
-Current Technology
What may a lack of finance within a business lead to?
• 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
What may using out of date technology lead to un a business?
• 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
What are external factors that may affect a business?
-Political
-Economic
-Social
-Technological
-Environmental
-Competitive
PESTEC‼️
What are political factors?
Any action taken by the government e.g. government laws to ban smoking which forced many pubs to introduce outside smoking areas
What are economic factors?
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
What are socio-cultural factors?
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
What are technological factors?
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
What are environmental factors?
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
What are competitive factors?
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
What is a stakeholder?
Any individual that has an interest in the business, they can take actions or make decisions which will influence how a business operates
What is a stakeholder interest?
What a stakeholder wants from the business
What is a stakeholder influence?
The actions that stakeholders take which impact a business positively or negatively
What are internal stakeholders?
-Owners
-Shareholders
-Employees
-Managers
What are external stakeholders?
-Customers
-Banks
-Suppliers
-Local community
-Government
-Pressure groups
-Donors (charity)
What are interests of the owner of a business?
-Profits
-Business to succeed
What are some influences of an owner of a firm?
-Hire and fire staff
-Extend product lines
-Determining the opening hours
What are the interests of a manager of a firm?
-Status and responsibilities
-Decisions to be successful
What are influences of a manager of a firm?
-Appraise staff
-Make decisions
-Decide on firm’s objectives
What are the interests of an employee of a firm?
-Good salaries
-Good working conditions
-Job security
What are influences of an employee of a firm?
-Wage demands on firm
-Their efforts control performance of the firm
What are the interests of a shareholder of a firm?
-High dividends
-Vote at AGM
What are influences of a shareholder of a firm?
-Vote at an AGM
-Invest more or sell shares
What are the interests of the government on a firm?
-Successful business to provide jobs
What are the influences of the government on a firm?
-Provide a grant to the firm
-Set legislation controlling firm
What are the interests of the local community on a firm?
-No pollution
-Jobs and wealth for the community
What are the influences of the local community of a firm?
-Pressurise the firm through pickets, letters to press
-Crate demand
What are the interests of the supplier on a firm?
-Repeated orders
-Paid on time
What are the influences of the suppliers on the firm?
-Change the price of products
-Extend the credit period
What are the interests of customers on the firm?
-Cheap prices
-Quality product/services
What are the influences of customers on a firm?
-Go to competitors
-Their damnd controls price
What are the interests of the bank on a firm?
-Firm to take out loans
What are the influences of the bank on a firm?
-Charge an interest rate
-Grant a loan
-Give advice of the finances of the business
