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business management (national 5) > Understanding Business > Flashcards

Understanding Business Flashcards

1
Q

types of business

A
  • sole trader
  • partnership
  • limited company (ltd)
  • franchising
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2
Q

sole trader advantages

A
  • easy to set up
  • small capital investment means reduced start up costs
  • freedom to make decisions
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3
Q

sole trader disadvantages

A
  • responsibility
  • long hours
  • unlimited reliability
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4
Q

what is a sole trader?

A

A sole trader describes any business that is owned and controlled by one person - although they may employ workers. Individuals who provide a specialist service like plumbers, hairdressers or photographers are often sole traders. they also have unlimited liability.

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5
Q

what is unlimited liability (sole trader)?

A

Sole traders do not have a separate legal existence from the business. In the eyes of the law, the business and the owner are the same. As a result, the owner is personally liable for the firm’s debts and may have to pay for losses made by the business out of their own pocket. This is called unlimited liability.

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6
Q

what is a partnership?

A

Partnerships are businesses owned by two or more people.

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7
Q

advantages of a partnership

A

One advantage of partnership is that there is someone to consult on business decisions.

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8
Q

disadvantages of a partnership

A

The main disadvantage of a partnership comes from shared responsibility. Disputes can arise over decisions that have to be made, or about the effort one partner is putting into the firm compared with another. Like a sole trader, partners (who have not registered as an LLP) have unlimited liability.

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9
Q

what is a limited company?

A

A limited company has special status in the eyes of the law. These types of company are incorporated, which means they have their own legal identity and can sue or own assets in their own right.

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10
Q

what does shareholder mean?

A

the people who own the limited company, this is divided up into equal parts called shares. Whoever owns one or more of these is called a shareholder.

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11
Q

two types of limited companies

A

private limited company

public limited company

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12
Q

do limited companies have unlimited liability?

A

Because limited companies have their own legal identity, their owners are not personally liable for the firm’s debts. The shareholders have limited liability, which is the major advantage of this type of business legal structure.

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13
Q

board of directors

A

make the decisions on behalf of the company. unlike a sole trader and a partnership, the owners of a limited company are not necessarily involved in running the business, unless they have been elected to the Board of Directors.

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14
Q

what is franchising?

A

An entrepreneur can opt to set up a new independent business and try to win customers. An alternative is to buy into an existing business and acquire the right to use an existing business idea. This is called franchising.

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15
Q

who is a franchise bought by?

A

A franchise is bought by a franchisee

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16
Q

what is a franchisee?

A

someone who buys a franchise

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17
Q

what is the role of a business?

A

to satisfy a consumers needs and wants

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18
Q

what are needs?

A

are basic requirements that are essential for survival such as food, water, clothing, shelter and warmth

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19
Q

what are wants?

A

are things we would like to have but arent essential items to survive. these include luxuries like a mobile phone or holidays

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20
Q

what is a good?

A

are products that you can see/touch

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21
Q

what is a service?

A

are products that you cant see/touch e.g public transport or a haircut

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22
Q

what are the factors of production?

A

enterprise, land, capital and labour

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23
Q

what is land? (CELL)

A

land is the natural resources needed to provide a good or a service such as fields, fish or coal

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24
Q

what is labour? (CELL)

A

the workforce used to provide a good or a service such as builders, teachers or plumbers

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25
Q

what is capital? (CELL)

A

the man made resources used to produce a product or provide a service such as machinery and tools

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26
Q

what is enterprise? (CELL)

A

The idea the owner had to create the business. How the land, labour and capital is used to make a good or provide a service

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27
Q

what is wealth creation?

A

At each stage of the production process, value is added to the product. The total value of a dress is worth more than the raw materials used to produce it. The additional wealth that is added at each stage of the production process is known as wealth creation.

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28
Q

what are the sectors of industry?

A

primary
secondary
tertiary

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29
Q

what is the primary sector of industry?

A

The primary sector of industry is concerned with the extraction of raw materials or natural resources from the land. Any business that grows goods or extracts materials from the land would be classed as a primary sector business.
Examples of businesses that operate in the primary sector would be farming, mining, fishing or oil production.

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30
Q

what is the secondary sector of industry?

A

The secondary sector of industry is concerned with manufacturing. This would involve taking the raw materials from the primary sector and converting them into new products.
Examples of businesses that operate in the secondary sector would be car manufacturers, food production or building companies.

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31
Q

what is the tertiary sector of industry?

A

The tertiary sector of industry is concerned with providing a service. Services are activities that are done by people or businesses for consumers.
Examples of businesses that operate in the tertiary sector would be hairdressers, banks, supermarkets or cinemas.

32
Q

why are customers important to businesses?

A

Customers are important to a business as they are the people who buy the goods or services it provides. If customers are not satisfied the business will not be able to sell its goods or services, therefore no profit will be made and the company may go out of business.

Customer satisfaction relies on good customer service. Customer service is the service a consumer receives before, during and after they have purchased a good or a service.

33
Q

what does it mean by identifying a gap in the market?

A

being able to spot where their product or services will fit and make a profit

34
Q

what is risk taking?

A

all business start-ups come with an element of risk. Many people do not wish to take that gamble

35
Q

what are the three levels of government in scotland?

A

There are three different levels of government in Scotland:

UK Government
Scottish Government
local government

36
Q

what are the 4 functional areas?

A

finance, operations, marketing, human resources

37
Q

what are spreadsheet used for?

A

can be used to track costs at the business startup stage

38
Q

what are databases used for?

A

can help speed up decision making by making it easy to search for information

39
Q

what are emails used for?

A

can be used to communicate with bank managers, suppliers and other stakeholders

40
Q

what is internet used for?

A

can be used to find out vast amounts of information

41
Q

what is video conferencing used for?

A

can be used to speak to other entrepreneurs to carry out online training to learn new skills

42
Q

what is the private sector?

A

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.

43
Q

what is the public sector?

A

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.

44
Q

what is the third sector?

A

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

45
Q

survival (types of business objectives)

A

This is the most basic business objective. Every business must make enough of a profit to keep operating or else it will fold. Many new businesses will have this as an objective in their first few years. Some small businesses will continue to have this objective as they struggle against economic recession or face fierce competition.

46
Q

profit (types of business objectives)

A

The profit objective is easy to measure and is achieved when you have more income than costs. Most private sector businesses have this as their main objective.

47
Q

profit maximisation (types of business objectives)

A

Profit maximisation is a variation of the profit objective. This is 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 the costs of production.

48
Q

enterprise (types of business objectives)

A

This objective is about taking the initiative to turn an idea into reality. To do this a business or entrepreneur will take the risk of bringing together the factors of production. Finance, production, market research and testing will all need to be organised before the product or service can be taken to market.

49
Q

market share (types of business objectives)

A

This objective, like profit, is easy to measure. Market share relates to the sales made in a particular market. To increase market share a businesses will aim to increase their sales or aim to become the number one business in that industry.

50
Q

customer satisfaction (types of business objectives)

A

This objective aims to ensure customers are happy with the product and level of service offered by the business. One of the major aims of customer satisfaction is that customers will show loyalty and return to buy from the business in the future.

Customer satisfaction may be measured by surveys and interviews. Feedback from such market research will then be acted upon.

51
Q

social responsibility (types of business objectives)

A

This objective is concerned with the business’s activities not causing damage to the environment or people. For example, some businesses use biodegradable packaging to reduce the harm it does to wildlife or the atmosphere.

However socially responsible products and services may cost more. This will result in either a smaller profit margin for the business or higher costs being passed on to the consumer.

52
Q

internal stakeholders

A

owners/shareholders
employees
managers

53
Q

external stakeholders

A 
customers
suppliers
bank
government 
local community
54
Q

what is a shareholder?

A

Owners and shareholders are the same. Shareholders are part-owners in the business.

55
Q

why do owners want the business to succeed?

A

Owners have an interest in a business doing well so that they:

make a profit
receive high dividends

56
Q

how can owners influence how a business operates

A

Owners can influence how a business operates by:

investing or withdrawing equity into the business
changing management (at AGM)
57
Q

what are managers?

A

Managers are entrusted by owners with the day-to-day running of their businesses. Managers have to motivate employees to be productive and to offer excellent customer service. Managers also have to report to the owners.

58
Q

external factors

A

Businesses operate in an ever changing world. External factors are things outside a business that will have an impact on its success. Their impact can be positive or negative.

A business cannot control external factors. All it can do is react to them and make decisions to help it remain successful.

59
Q

political (external factor)

A

Political factors involve the decisions and laws that governments make. These include:

tax
laws
political stability

governments can raise or lower corporation tax, which will impact on profits. They can also affect businesses by increasing value-added tax on products or business rates.

60
Q

economical (external factors)

A

Economic factors are all concerned with the so called ‘levers’ of the economy. These include:

economic growth
interest rates
unemployment
inflation
exchange rates
61
Q

economic growth

A

If there is economic growth then more jobs will be created and more tax will be paid.

62
Q

intrest rates

A

When interest rates are high, businesses borrow less and invest less. However they receive more interest on money saved in the bank.

When interest rates are low, businesses may borrow and invest more, but will receive less interest on money in the bank.

63
Q

unemployment as an external factor

A

If unemployment is high, then firms have more potential workers to choose from. More competition for jobs means that it is easier for a business to keep wages down. If the rate of unemployment is low then businesses will have to offer higher competitive wages to secure new employees.

64
Q

inflation (external factors)

A

When inflation is high, prices rise and customers may stop buying luxury goods and focus on essentials.

65
Q

exchange rates (external factors)

A

Exchange rates can rise or fall. When there is a fall in the pound it has both positive and negative impacts on businesses. When the exchange rate for the pound falls it becomes weak. A weak pound makes our goods cheaper to sell abroad. However if UK firms need to buy in raw materials from abroad then the weak pound buys less, making the cost of production higher. This extra cost may be passed on to the customers, resulting in higher prices.

66
Q

social (external factors)

A

Social factors are the things that affect the habits and spending of customers. These include:

demographics
lifestyles
tastes and trends

67
Q

lifestyle (external factor)

A

Lifestyles are changing too. We are more health-conscious so healthy foods and habits are becoming more important to customers. Food packaging lists nutritional information. More electronic products such as pedometers and fitness trackers are being used.

68
Q

technology (external factor)

A 
Technological factors refers to the ways new practices and equipment can affect businesses. These include:
ICT
research and development
automation
e-commerce
69
Q

environmental factors (external factors)

A

The physical conditions that a business has to deal with, such as:
climate change
weather

The green credentials of global business, including:
recycling
pollution

70
Q

how can weather impact sales/

A

The weather can have a major impact on a firm’s sales. Many products and services are seasonal and good summers mean the increase in sales of fizzy drinks and sun tan lotion.

71
Q

green credentials

A

Being a ‘green’ firm is also important. Firms that recycle goods will attract customers who want to buy from companies that are environmentally friendly. Firms that work to minimize their carbon footprint or to cut down on pollution to rivers and the environment may also be more attractive to customers who are interested in the environment.

72
Q

competitors (external factors)

A

Competitive factors cover how businesses who offer similar products or services affect each other. This includes:

imitators
price wars
product differentiation

73
Q

what are imitators?

A

When a successful product is introduced, rival organisations will often respond by trying to undercut it by quickly producing cheaper alternative versions.

74
Q

what are price wars?

A

Companies may start a price war in order to gain customers and increase market.

A price war happens when companies compete for customers by dropping their prices below the rate of their competitors. A price war can be good for customers as they can get the goods and services they want at lower prices.

In a price war, prices can drop so low that none of the competing companies can make much of a profit on the goods.

75
Q

product differentiation

A

Businesses can become more competitive by making products that stand out from the competition in terms of price, quality or service. This is called product differentiation. Methods of creating product differentiation include:

Establishing a strong brand image (personality) for a good or service.
Making the unique selling point of a good or service clear. For example, opening a chain of discount shops with the tagline ‘Quality items under a pound’.
Other competitive factors, such as a product having a better location, design, appearance or price than rivals.

76
Q

internal factors

A

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.

The three main internal factors are:

human resources
finance
current technology

business management (national 5) (5 decks)

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