Understanding business (unit 1) Flashcards
What is a need?
A need is something that a human being requires in order to survive.
give 3 examples of needs
food;
water;
clothing;
shelter.
What is a want?
A want is something that a human being can live without but which can make life more enjoyable.
Name 3 wants
mobile phones;
holidays;
Netflix;
cars.
any non need
What are goods?
Goods are items that we can see, touch and pick up.
Name 3 examples of goods
clothing;
magazines;
televisions;
washing machines;
cars.
What are durable goods?
Durable goods are goods that can be used more than once such as mobile phones, fridges/freezers and bicycles.
What are non durable goods?
Non-durable goods are goods that can only be used once or that only last for a short period of time such as a piece of cake, a single journey bus ticket and a pair of shoes.
What are services?
Services are things that are done for us
Name 3 examples of services
getting your hair done;
a plumber fixing a leak in the house;
going out for dinner;
going to the doctor for medical advice;
internet connection.
What are factors of production?
These are the factors that the entrepreneur needs in order to start up the business.
Name the 4 factors of production
The factors are capital, enterprise, land and labour. These can also be remembered using the acronym CELL.
What is capital
Capital - money, tools and equipment invested into a business.
What is enterprise?
Enterprise - the idea behind a business (i.e. the entrepreneur who set it up).
What is land?
Land - the natural resources a business will use.
What is labour?
Labour - the employees of a business.
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.
Name 3 reasons for wanting to be an entrepreneur
to make money;
they have been made redundant and see it as an alternative option;
they have spotted a gap in the market, e.g. they may have noticed there is demand for a service in the local area such as cleaning;
they wish to pursue a hobby/interest, e.g. someone may enjoy baking and decide to make a business out of it;
to be their own boss - some people prefer doing their own thing rather than being told what to do.
Name 3 skills possesed by an entrepreneur
Leadership
Communication
Organisation
Problem-solving
Interpersonal
Name 3 qualities possesed by an entrepreneur
Determined
Motivated
Risk-taking
Innovative
Confident
What are the 3 sectors of industry
Primary sector
Secondary sector
Tertiary sector
What is the primary sector of industry
Primary sector industry involves extracting raw materials from the environment or growing raw materials, e.g. mining and farming.
What is the secondary sector of industry
Secondary sector industry involves manufacturing products, e.g. factories and house building.
What is the tertiary sector of industry?
Tertiary sector industry involves any business which provides a service, e.g. gyms and hotels.
Describe private sector organisations in terms of ownership control and funding
Private sector organisations are:
owned by private individuals;
controlled by the owners or a board of directors;
funded through personal investment, loans and through the profits the business generates.
Describe sole traders
A sole trader is a business that is owned and controlled by one person. The owner will make all decisions on how the business is run themselves.
In the private sector
What does it mean to 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.
What are the advantages of a sole trader business
it is a relatively easy type of business to set up as it does not involve completing complicated legal documents;
owner does not have to discuss or compromise on decisions meaning they can be made quickly;
owner gets to keep all profit made to themselves.
What are the disadvantages of a sole trader business
owner has no one to consult or share ideas with which can make running a sole trader stressful;
owner will find it difficult to take time off for holidays or if they are sick;
owner has unlimited liability.
Describe a partnership
A partnership is a type of business that has between 2 and 20 owners. Owners of a partnership are referred to as partners.
Partnerships tend to be found in professional practices such as solicitors, accountants and dentists.
In the private sector
What is a partnership agreement?
When setting up a partnership, a partnership 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.
What terms are included in the partnership agreement
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.
What are the advantages of partnership business?
different partners can bring different skills and experience to the business;
workload and decision-making can be shared between partners;
larger amounts of finance can be raised compared to a sole trader.
What are the disadvantages of a partnership business?
disagreements and arguments can occur when partners don’t agree on a decision;
profits have to be shared between partners;
partners have unlimited liability.
Describe the ownership of a private limited company
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 can an individual become a shareholder in a private limited company
To become a shareholder of a private limited company, an individual must be formally invited to buy shares in it. This allows the business to control who becomes a shareholder which reduces the risk of control of the business being lost to outsiders.
Describe how a private limited company is controlled
A private limited company is controlled by a board of directors. This is a group appointed by the shareholders who oversee the running of the business.
What does it mean to have limited liability?
(LTD)
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.
Describe divedends
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.
What are the advantages of a private limited company business
by selling shares - known as a share issue - the business can quickly raise a large amount of capital;
control of the company cannot be lost to outsiders;
shareholders have limited liability.
What are the disadvantages of private limited company business
setting up a private limited company 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.
Describe public sector organisations in terms of ownership control and finance
Public sector organisations are:
owned by the government;
controlled by elected officials such as MSPs and councillors;
primarily funded through taxation.
Describe the local government (Public sector organisation)
Scotland is divided into 32 local authorities, often referred to as councils. Each local authority is responsible for providing vital services to the people who live within that area. Councils are responsible for services such as waste collection, street lighting and leisure facilities.
Local authorities receive an annual amount of money from the Scottish Government. They also collect a tax known as Council Tax. These are both used to fund the services they provide.
Each local authority is run by elected officials known as councillors. The people who live within each local authority vote for who they want their councillors to be every five years.
Describe third sector organisations in terms of ownership control and finance
Third sector organisations are:
not owned by any one particular individual;
controlled by a board of trustees;
usually funded through donations and fundraising activities.
Name 3 examples of third sector organisations
Charities
Social enterprises
Voluntary groups
Describe a charity
A charity is an organisation that has been set up to help a particular cause.
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.
What are the four purposes accepted for charites in the UK
to relieve poverty;
to advance religion;
to advance education;
to carry out activities beneficial to society.
What are voluntary groups
(Unlikely to come up)
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.
What are the advantages of having public sector organisations
Public sector organisations prioritise the public interest and provide essential services that benefit society as a whole.
They often have stable funding sources and can provide consistent services even during economic fluctuations.
Public sector organisations play a crucial role in promoting social equity, providing services to disadvantaged populations, and reducing disparities in access to essential services.
What are the down sides associated with public sector organisations
Public sector organisations may face challenges associated with bureaucratic processes, which can slow down decision-making and implementation of initiatives.
They often rely on government funding, which can be subject to budgetary constraints and political considerations, impacting their ability to meet all public demands.
Public sector organisations can be subject to political influences, leading to potential challenges in maintaining independence and impartiality in decision-making processes.
What are the advantages of charities
Charities are dedicated to addressing societal needs, improving lives, and making a positive impact on communities and individuals.
They provide opportunities for individuals to contribute their time, skills, and passion to meaningful causes as volunteers.
They often receive financial support from individuals, corporations, and grant-making organisations that share their goals and want to make a difference.
Charities often have the flexibility to respond to emerging needs and develop innovative solutions to address societal challenges.
What are the down sides associated with charities
Charities rely heavily on donor support and grants and may face challenges in securing adequate funding to sustain their programs and activities.
Charities often compete with other charities for limited funding and grants.
Charities may face challenges in recruiting and retaining a consistent pool of dedicated volunteers, which can impact the organisation’s ability to deliver services effectively.
Charities may be susceptible to changes in economic conditions, shifts in public priorities, or fluctuations in donor support, which can impact their financial stability and ability to sustain their operations.
What are the advantages of having voluntary/community groups
Community groups have an intimate understanding of local needs, challenges, and resources, enabling them to respond with action that can make a difference.
They empower individuals to take an active role in shaping their community’s future,
Community groups can quickly respond to emerging issues and adapt their strategies to meet evolving community needs.
What are the disadvantages of having community groups
Community groups often face financial limitations, lack of specialised expertise, and limited access to facilities.
The demanding nature of community group involvement can lead to volunteer burnout and turnover.
Maintaining a committed and dedicated volunteer base can be a challenge.
Community groups often don’t receive formal recognition or support from government or institutional bodies. This lack of recognition can limit their access to funding and resources.
Describe a social enterprise
They operate very much like a private sector business except that all profit that is made by a social enterprise is invested into good causes.
Social enterprises primarily have a social or environmental aim.
What are the benefits of operating 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 the disadvantages of owning a social enterprise
Social enterprises may face challenges in accessing adequate funding and investment, as their nature and social objectives may not fit within traditional funding models.
Social enterprises operate in competitive markets
What is a business plan?
The business plan is a document which will detail all the key information about the business and how it will operate. Preparing a business plan allows the entrepreneur to better understand each aspect of the business.
What common details are typically found in business plans?
the business idea - what goods and services will the business provide;
the aims and objectives of the business;
projected costs and profit;
the target market for the business;
how the business will be funded;
the location of the business;
how the business and its products will be marketed.
What are the private sector business objectives?
Survival
Profit and profit maximisation
Sales maximisation
Customer satisfaction
Market share and market leader
Enterprise and innovation
Corporate social responsibility
Describe the survival objective
Survival means to keep the business open and trading.
the primary goal of any new small business in the UK in their first few years of trading will be to survive and not have to close.
Businesses that have previously been very successful might also revert back to survival as a primary objective if market conditions change
Describe the profit objective
Profit is achieved when the money generated from selling goods and services is greater than the costs of running the business.
Making a profit is essential for the long-term survival of the business, but it is also one of the rewards the owner receives for starting and running the business.
Describe the profit maximisation objective
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 sales maximisation objective
Sales maximisation is where the business aims to sell as many goods and services as it possibly can.
How is sales maximisation achieved?
Common strategies used by businesses to achieve sales maximisation are through increased advertising and promotional activities, and reducing the price of the goods and services.
What is the customer satisfaction objective
The objective of customer satisfaction is when an organisation aims to treat its customers well by providing excellent customer service and to make them happy with their buying experience from the business.
Why might a business have the customer satisfaction objective?
Happy customers offer many benefits to a business including repeat custom, recommending the business to family and friends, and becoming loyal to the company so they will only buy from them.
What is the market share objective
An organisation might set the objective of increasing market share. This means increasing the number of customers in the market who buy from them.
What is market share
Market share is the number of customers in the market who buy from a business. Market share is commonly represented with percentages
What is the market leader objective
An organisation might also aim to become the market leader. This is the company in the market that has the most customers buying from them.
What is the enterprise and innovation objective
This objective is 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 customer tastes and demands; a business needs to be as responsive to these as possible.
What is corporate social responsibility
Corporate social responsibility is when the business aims to act in ways which are beneficial to the environment, their staff or the communities in which they operate.
What issues are covered under corporate social responsibility
Corporate social responsibility covers a wide variety of issues including:
environment - increased recycling of materials, minimising packaging used on their products, reducing their carbon footprint, reducing their use of plastic and using more renewable energy sources;
staff - paying staff above minimum wage rates, providing good working conditions and offering staff flexible working practices;
community - making donations to charity, and sponsoring local community groups and youth sports teams.
Describe the advantages of corporate social responsibility
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 are the objectives of public sector organisations
provide vital services to the public such as healthcare and education;
make best use of the funds it has been allocated by the government;
stay within an allocated budget;
continually aim to improve the quality of the services offered;
cut costs and reduce spending where possible;
corporate social responsibility.
What are the objectives of third sector organisations
help their specified cause;
raise as much in funding and donations as possible to help their cause;
raise and increase awareness of their cause;
increase the number of volunteers helping them;
provide a service to those in need;
survive and be able to continue to help their cause;
continually aim to improve the quality of the services offered;
corporate social responsibility.
What is customer service?
Customer service is the way that 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 methods can businesses use to make sure they provide good customer serivce (name atleast 3)
providing training to all staff on customer service procedures to ensure all staff know what to do;
using rigorous recruitment and selection methods to ensure they are hiring helpful and polite staff with the appropriate skills;
gathering customer feedback using surveys and comment cards, and using the feedback to identify and improve in areas poorly rated by customers;
implementing a customer complaints procedure to ensure that all complaints are handled consistently and efficiently;
offering excellent after-sales services such as helplines, extended warranties and a generous returns policy;
offering a customer care policy which outlines standards for customer service and guidance for staff regarding how to offer good customer service;
keeping staff morale and motivation up so that they will go out of their way to help customers.
List 3 benefits of having good customer service
increased customer retention - customers who feel they have been treated well will return and buy from the business again;
customers will become loyal to the business;
image and reputation will improve, which is likely to attract more new customers to the business;
the business will be able to charge a higher price for its products and services;
happy customers will recommend the business to their family and friends as well as posting positive reviews online;
fewer unhappy customers will result in fewer complaints;
the business will experience an increase in sales and profits.
What are internal factors?
Internal factors refer to anything within an organisation which can affect it, either positively or negatively.
What are the 3 main internal factors
Finance
Human resources
Current technology
Describe the internal factor of finance
finance refers to the lack of finance or the availability of finance to a business.
A lack of finance may mean that a business is unable to:
pay its bills, e.g. electricity;
purchase raw materials, which can lead to a halt in production;
take on more staff;
grow, e.g. open up a new store;
carry out marketing activities.
Describe the human resources internal factor
Human resources refers to all of the employees in a workplace.
Human resources can provide good or bad customer service which will result in customer loyalty and improved reputation or customers not coming back and not recommending the business
If human resources are unhappy they may undertake industrial action such as strikes.
Describe the current technology internal factor
Current technology is the technology that a business is currently using. This could be the software, hardware, equipment or machinery they are using.
The current technology that a business is using may be out-of-date, which may lead to the following:
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.
Competitors using up-to-date technology can gain an advantage over a business using out-of-date technology as their tasks can be completed much more quickly.
What are external factors
factors outwith a business that can affect how it performs or operates.
What are the external factors
Pestec
Political
Economic
Social
Technological
Environmental
Competetive
What are poltical factors
Political factors are laws/legislation passed by the government which can influence business.
The government also determine the level of tax businesses and individuals have to pay.
the government can also benefit businesses, for example by granting planning permission to a business to extend its premises
What are economic factors
Economic factors are anything which affects how much people are spending.
During a recession and high unemployment, many people will not spend money on holidays, new cars or branded products.
Economic factors also refer to interest rates and exchange rates of currencies
What are social factors
Social factors refer to people’s changing values, beliefs and lifestyles.
These can be demographic changes which are changes in the population, for example people living longer due to better health care and better medicines.
What are technological factors
Technological factors refer to the technology that a business is not currently using.
What are environmental factors
Environmental factors refer to weather conditions, including natural disasters, and the extent to which a business is environmentally friendly.
What are competitive factors
Competitive factors refer to any activities carried out by businesses which provide similar goods or services to one another.
Competitive factors could also relate to a new competitor opening up,
What is a stake holder?
A stakeholder is an individual, group or organisation that has an interest in the success of a business; they can also take actions or make decisions which will influence how the business operates or how successful the business can be.
What is stakeholder interest?
Stakeholder interest means what stakeholders wants from the business, i.e. the reason(s) why they want the business to be successful.
What is stakeholder influence?
Stakeholder influence means the actions that stakeholders take which impact - positively or negatively - on the business.
What are internal stakeholders
Internal stakeholders are those within the business.
The internal stakeholders that are covered at National 5 level are:
owner(s)/shareholder(s);
employees.
What are external stakeholders
External stakeholders are those individuals, groups or organisations outwith the business.
The external stakeholders that are covered at National 5 level are:
customers;
banks;
suppliers;
the local community;
government;
pressure groups.
What is the owner/shareholder stakeholder
This is the person or the people who have set up and own a business.
What are the interests of owners/shareholders
The main interest of owners and shareholders is to make a good return on the money that they have invested into the business. They will want the business to make a good level of profit as they will then receive more of that profit themselves.
How can owners/shareholders influence a business
They can influence the business by increasing or decreasing the amount of capital that they invest into the business. They will also be involved in making key decisions for the business; the quality of these decisions will also impact on the success of the business.
What is the employees stakeholder
Employees are the people paid by a business to perform a certain role within it.
What are the interests of employees
The main interests of an employee are to receive a good rate of pay and for the business to provide good working conditions. They will also want job security, for example being employed on a permanent contract, and for there to be promotional opportunities available for them to progress their career.
How can employees influence a business
Employees can influence the business through their level of productivity and the quality of the service that they provide to customers
. Employees can also take industrial action.
What is the customers stakeholder
Customers are the individuals who buy products and services from a business.
What are the interests of customers
The main interest of customers is value for money; this is a good quality product or service at a reasonable price. They will also want to receive good customer care and be treated well by the business.
How can customers influence a business
Customers have a huge level of influence on the success of businesses. They can decide whether to buy from the business or not; a company with little or no customers will not be in business for long! They can also share good and bad reviews of the business through word of mouth and online which can impact the reputation of the business.
What is the banks stakeholder
Banks are organisations which lend finance, for example loans and mortgages, to individuals and businesses.
What are the interests of banks
The primary interest of a bank will be that they will want to know that a business will be able to pay back any money it has borrowed on time and in full.
How can banks influence a business
A bank can influence a business by deciding whether to lend finance to the business or not. If the bank decides not to give the business a loan, this could mean that the business is unable to meet its objectives, such as growth. The bank might also change the rate of interest charged on loans or change the loan repayment lengths; both could impact the cash flow of the business.
What is the suppliers stakeholder
A supplier is an organisation that a business buys its raw materials or inventory from
What are the interests of suppliers
A supplier will want a business that deals with them to be successful because that means the business will continue to place orders with the supplier. The supplier will also want the business to pay for any materials ordered quickly.
How can suppliers influence a business
The supplier can influence the business by increasing or decreasing the price charged for materials. An increase in the cost of supplies will mean that the business makes less profit on each final good sold unless it also increases the price of the final good. The supplier can also change the lead (delivery) time for orders.
What is the local community stakeholder
The local community is the residents who live in the surrounding area of where a business is located. Not all members of the local community will be customers of the business; therefore, they can have very different interests and influences than that of customers.
What are the interests of the local community
Residents in the local area will want the business to provide jobs for local people. They will also want the business to be socially responsible and contribute positively to the local environment and community.
How can the local community influence a business
The local community can influence the business by protesting and petitioning against it if they are unhappy with how it is operating. Residents might also make formal complaints to the local council. All these actions could be highly damaging to the reputation and image of the business.
What is the government stakeholder
Governments are the elected MPs and MSPs who are appointed to run the country.
What are the interests of the government(s)
The government will want businesses to be successful as this means it will receive more Corporation Tax from them. It will also want to make sure that businesses are adhering to all necessary laws and regulations.
How can the government(s) influence a business
The government has a wide range of influences on businesses. It can raise or lower the rate of Corporation Tax; an increase in this tax would mean that a bigger portion of the profits from businesses would go to the government. The government can also introduce new legislations or update current laws which businesses will have to make sure to keep up with.
What is a pressure group stakeholder
A pressure group is a group of individuals who have joined together to protest against a particular issue. For example, Greenpeace is a pressure group which protests against businesses with the aim of pressurising them to take greater steps to help protect the environment.
What are the interests of a pressure group
The interest of a pressure group is that they want businesses to take actions which support their cause.
How can pressure groups influence a business
Pressure groups can influence businesses by holding protests and demonstrations.
