Understanding Business - Part 1 Flashcards
What are needs?
Needs are the basic items required to survive
What are wants?
Wants are items that we do not need but improve our life and make is more enjoyable
What is an entrepreneur?
An entrepreneur is an individual who develops a business idea and combines the factors of production – land, labour and capital – to produce a good or provide a service, with the aim of making a profit.
What is the role of an entrepreneur?
Setting up a business is risky – it could be successful or it could fail
The entrepreneur has to decide
What to sell – goods and/or services
Where to sell
Who to sell to
What are the reasons for setting up a business?
They believe they can provide goods and services better than an existing business
To develop a hobby into a business
Inventing a new product
To be their own boss
Made redundant from job
What are the risks of setting up a business?
Giving up financial security of a wage/salary
Losing their investment if the business fails – could include their personal possessions
Uncertainty over demand for products/services
Competition may enter the market
What are the sources of help/advice?
To reduce the risks when setting up a business an entrepreneur can get help and advice from a number of sources, for example; Bank Enterprise Agency e.g. Business Gateway The Prince’s Trust Other entrepreneurs Lawyer Accountant
What are the sectors of economy?
Private Sector
Public Sector
Third Sector
What type of businesses are in the private sector?
Sole Traders
Partnerships
Private Limited Company (Ltd)
What type of businesses are in the public sector?
Local Government
Central Government
What type of businesses are in the third sector?
Charities/Voluntary Organisations
Social Enterprises
What are the advantages of a sole trader business?
All profits kept by owner
Owner makes all decisions – fast decision making
Easy to set up as no legal paperwork
Small amount of capital needed to set up
What are the disadvantages of a sole trader business?
Owner has unlimited liability
Cannot share workload or decision making
Business could close if owner is ill or on holiday
Can be difficult to raise finance
What should be produced in a partnership?
A legal document called a Partnership Agreement should be produced. This will state:
The original investment by each partner
The split of profits (or losses) between partners
The responsibilities of each partner
Procedure if partner leaves
What are the main objectives of a partnership?
Main objectives are survival and profit maximisation
What are partnerships financed with?
Financed by owner’s savings, bank loan, bank overdraft and government grants.
Can also raise finance from a new partner joining the partnership
Who are partnerships owned and controlled by?
A business that is owned and controlled by 2-20 people (Partners).
Partnerships are owned and controlled by the partners
What are the main objectives of sole traders?
Main objectives are survival, profit maximisation and good relationship with local community.
What are sole traders financed with?
Financed by owner’s savings, loan from family or friends, bank loan, bank overdraft and government grants.
Who are sole traders owned and controlled by?
A business that is owned and controlled by a private individual.
Can employ others to work in the business.
No legal procedures required to start up.
What is the private sector financed by?
They are financed through owners investment, bank loan, grants and new investors.
What are the main objectives of the private sector?
The main objective of these businesses is to maximise profits.
Who are private sector businesses owned by?
Businesses in the private sector are owned by private individuals.
What is unlimited liability?
If the business owes money, then the owner will have to pay this debt which may mean that their personal possessions such as their car and home are at risk.
What does the “private” stand for in private limited companies?
“Private” means that they can only sell their shares to private individuals – usually family and friends
Who are private limited companies owned by?
Shares are owned privately (family and friends) and are not available on the stock market
Owned by a minimum of 1 shareholder
Who are private limited companies controlled by?
Controlled by a Board of Directors (who are usually shareholders)
What are private limited companies financed by?
Financed by shareholder investment, inviting new shareholders, bank loan, bank overdraft and retained profits.
What are the objectives of private limited companies?
Main objectives are to maximise profits, maximise sales, survival and growth
What are the advantages of a private limited company?
Owner(s) retain control
Easier to raise finance than sole trader or partnership
Limited liability for shareholders
Shareholders bring different skills
Company does not cease to exist if owner(s) dies
What are the disadvantages of a private limited company?
Profits are shared between all shareholders
Shares cannot be sold to the public – limits finance raised
Must register with Registrar of Companies; and
Abide by Company Law e.g. publish financial information
What is limited liability?
If the business gets into debt the owner (shareholders) will only lose the money they have invested in the business to buy their shares. Their personal possessions are not at risk.
Who is the public sector owned by?
Local Government
Central Government
What are the main objectives of the public sector?
Main objectives are to provide a service to the public and use allocated budgets effectively (they do not operate to make a profit)
What is the public sector financed by?
Financed via taxation
Who is the central government controlled by?
Controlled by Ministers and elected MPs who influence policy and civil servants who manage departments.
Public sector taxation include…
Income tax (individuals) VAT Council tax (individuals) Business rates (businesses) Corporation tax (businesses) Road Tax
What is the central government funded with?
Funded by income tax, corporation tax and VAT
What does the central government provide?
It provides national services e.g. NHS, defence and the emergency services.
Give examples of central government
Westminster
Scottish Parliament
Give examples of local government
Dundee City Council
What does the local government provide?
It provides services such as education, environmental services e.g. refuse collection and leisure and recreation e.g. swimming pools
What is the local government financed with?
Financed by central government grants, council tax and charges for local services
Who is the local government controlled by?
Controlled by elected councillors and civil servants who manage departments.
What are the non-profit organisations?
Voluntary organisations
Charities
Social enterprises
Describe organisations in the third (voluntary) sector
Organisations that operate in the third sector are known as non-profit making organisations.
Describe the ownership of voluntary organisation
There is no owner
Volunteers staff the organisation
Who are voluntary organisations run by?
Voluntary organisations are run by a committee or elected volunteers.
What are voluntary organisations financed by?
Finance is raised through grants (e.g. government, lottery) and charging a fee to join the organisation or attend groups
Give examples of voluntary organisations
Girl Guides
Scouts
Sports Clubs
What is the aim of a charity?
Aim is to raise finance to support a specific cause e.g. cancer research
Who are charities owned and controlled by?
“Owned” and controlled by a Board of Trustees.
Who are charities staffed by?
May have some paid employees but mainly staffed by volunteers
How are charities financed?
Raise finance through donations from the public or businesses, lottery grants and income from charity shops
Charities do not pay tax
Who are social enterprises owned and controlled by?
Owned and controlled by shareholders/directors
How are social enterprises financed?
Finance by grants, loans and fundraising
What are the main aims of social enterprises?
Main objective is to generate income for their specific social or environmental aim.
How do social enterprises operate and run?
Operates like a private sector business but profit is reinvested into the social enterprise rather than paid to owners
Set up and run with a specific social or environmental aim e.g. The Big Issue
What are the advantages of a social enterprise?
Help tackle social problems it has chosen
Publicity for the social issue promotes the business
Attract 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 an aim, target or goal
Objectives of an organisation will depend on…
Type of business
Size of business
Competition
Goods/services provided
What are the main business objectives?
Profit maximisation
Providing a service
Social responsibility
Survival
Customer satisfaction
Growth/market share
Enterprise/innovation
Describe profit maximisation
To bring in more income than costs
Describe providing a service
To provide consumers with the service they want e.g. local government might aim to provide a high-quality education service
Describe social responsibilities
By not harming the environment or community e.g. recycling schemes
Describe survival
To continue trading, the other objectives would be pointless if the business did not survive
Describe customer satisaction
To meet customers needs and expectations and encourage them to make repeat purchases
Describe growth/market share
Increase the number of customers the business has
Describe enterprise/innovation
Combine the resources needed to produce the product or service the consumer wants. It might involve developing a new idea and trying to satisfy customers needs in a different way
Describe customers
All organisations have customers;
The customers of a hairdresser are the clients
The customers of a dentist are the patients
The customers of a school are the pupils
These are all EXTERNAL customers
Organisations also have INTERNAL customers – groups within the organisation.
What are the 4 Ps?
Product, price, place, and promotion of a good or service.
Describe place
Place refers to where the customer is able to purchase the product or service. This can include:
a retail store
an online store or app
directly from the manufacturer
What kind of advice does a bank give?
A bank will give financial advice, e.g., on how also give to manage money coming in and going out of your business. A bank can also give advice about bank accounts and bank loans.
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What kind of advice does a enterprise agency give?
For example, Business Gateway offers free business advice support service through local advisers. They offer training courses for people wanting to set up a new business and give advice on such things as preparing a business plan.
What kind of advice does the prince’s trust give?
The Prince’s Trust provides practical and financial support for young people (13-30) setting up in business. It will assist them with producing a business plan, give advice on applying for grants and will also provide grants if certain criteria’s are met.
What kind of advice do other entrepreneurs give?
Other entrepreneurs may give advice, for example, which suppliers to choose or what mistakes to avoid.
What kind of advice does a lawyer give?
A lawyer will provide legal advice on business law, for example, Health and Safety at Work Act.
What kind of advice does the internet give?
A vast amount of information is available online which provides advice for people thinking about starting up a business.
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What does the local government function
Education and Leisure Services Social Work Planning and Transport Environmental Services Housing Finance Information Technology
What factors influence customers?
Quality of products Packaging Up-to-date, fashionable products Competitive prices value for money Product/business Image
