Understanding business part 1 Flashcards
What are needs?
Needs are the basic items required to survive
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 are wants?
Wants are items that we do not need but improve our life and make is more enjoyable
What is the role of an entrepreneur?
Identify gaps in the market
Combining the factors of productions
Taking financial and personal risks
Making strategic decisions about the business e.g the pricing and marketing
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 third sector?
Charities/Voluntary Organisations
Social Enterprises
What type of businesses are in the public sector?
Local Government
Central Government
What type of businesses are in the private sector?
Sole Traders
Partnerships
Private Limited Company (Ltd)
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 legal document 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.
What is the private sector financed by?
They are financed through owners investment, bank loan, grants and new investors.
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.
Who are private sector businesses owned by?
Businesses in the private sector are owned by private individuals.
What are the main objectives of the private sector?
The main objective of these businesses is to maximise profits.
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 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 objectives of private limited companies?
Main objectives are to maximise profits, maximise sales, survival and growth
Who is the public sector owned by?
Local Government
Central Government
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.
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 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)
Who is the central government controlled by?
Controlled by Ministers and elected MPs who influence policy and civil servants who manage departments.
What is the public sector financed by?
Financed via taxation
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.
Who is the local government controlled by?
Controlled by elected councillors and civil servants who manage departments.
Give examples of central government
United Kingdom: The central government operates through the Parliament in Westminster, which includes:
* The Prime Minister and the Cabinet (Executive Branch)
* The House of Commons and the House of Lords (Legislative Branch)
Give examples of local government
Dundee City Council
What is the local government financed with?
Financed by central government grants, council tax and charges for local services
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 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
Who are charities owned and controlled by?
“Owned” and controlled by a Board of Trustees.
Give examples of voluntary organisations
Girl Guides
Scouts
Charities
What is the aim of a charity?
Aim is to raise finance to support a specific cause e.g. cancer research
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
What is an objective?
An objective is an aim, target or goal
Describe profit maximisation
To bring in more income than costs
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 social responsibilities
Not harming the environment or community e.g. recycling schemes
Describe providing a service
Doing something for a customer that is paying you e.g. local government might aim to provide a high-quality education service
Describe survival
To continue trading, the other objectives would be pointless if the business did not survive
Describe customer satisfaction
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 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.
Describe place
Place refers to where the customer is able to purchase the product or service. This can include:
Aretail store
an online store or app
directly from the manufacturer
What are the 4 Ps?
Product, price, place, and promotion of a good or service.
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.
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.
What factors influence customers?
Quality of products
Packaging
Up-to-date, fashionable products
Competitive prices value for money
Product/business Image
What does the local government function
Education and Leisure Services
Social Work
Planning and Transport
Environmental Services
Housing
Finance
Information Technology
Describe promotion
The methods used to communicate and advertise the product to customers.
Describe price
The cost customers pay for the product.
Describe product
The goods or services offered to meet customer needs.
What are the sectors of industry
Primary, secondary, tertiary
Describe primary sector
Primary - using natural resources, farming, fishing, oil exploration
Describe secondary sector
Secondary - Manufacturing including cars, computers, food.
Describe tertiary sector
Tertiary - providing a service, hair dresser, bank, schools
What are the factors of production
Capital, enterprise, land, labour
Describe land
Raw materials: Such as minerals, water, forests, and agricultural land.
Space: For building factories, offices, and infrastructure.
Natural resources: Like oil, gas, and timber.
describe labour
The human effort, both physical and mental, used in the production process.
describe capital
Man-made resources used to produce goods and services.
describe enterprise
The ability to organize the other factors of production and take risks to create goods and services.
Describe sole traders
A business owned and operated by one individual.
Describe partnerships
A business owned and run by two or more individuals who share responsibility, profits, and risks.
Why is customer satisfaction important
If customers enjoy a good experience they will return and tell their family/friends, this increases profit levels.
Political -
These could include changes in the law, e.g minimum wage act or Taxation changes, how much the company has to pay the government.
Economic -
inflation is the rate at which prices go up (currently 0%), unemployment
goes up and down, when it is low it may be difficult to employ staff. Recession, people
lose their jobs reducing demand for certain products.
Social -
People communicate using Facebook and twitter far more now so companies
have to advertise there now. Fashions change eg tattooists have never been busier.
Technological -
Websites, apps, social media far more common now. The sales of PCs
are falling as people are using phones/tablets far more often.
Environmental -
Products like ice cream, bikinis and barbeques are influenced by the
weather.
Competitive -
Other companies who offer the same product/service can change their
approach - more advertising, new products, cut their prices, improve their customer
service which would have an effect on the business.
What does PESTEC stand for
political, economic, social, technological, environmental, competitive
What are external factors
External factors are things outside the business that have
a positive or negative impact on the business.
What are internal factors
Internal factors are things within a business that impact on how it operates
What is the central government
the governing authorities that oversee an entire nation, as opposed to local or regional governments. They typically have the power to make laws, enforce policies, and manage the country’s affairs.
