Unit 1 (1.1, 1.2, 1.4) Flashcards
What is a business
An organization that uses resources to produce goods and services that satisfies the needs of consumers
Business Outputs
Goods
- Tangible products sold by businesses
Services
- Non-tangible - e.g. banking, education
Primary Sector
Extraction, harvesting and conversion of natural resources for use by firms
- E.g. coffee, metals, fruit
Secondary Sector
Manufacture and production of products from raw materials
- E.g. clothing, mobile phones, input for other companies (e.g. steel)
Tertiary Sector
Service industry, e.g. banking, insurance, education, tourism
Quaternary Sector
Businesses involved in intellectual, knowledge based activities regarding information
- E.g. R&D, ICT, drug research
Entrepreneur
(Definition)
Someone who:
- Takes the financial risk
- Starting and managing a new company
- In return for profit
Challenges and opportunities for starting up a business
Challenges:
Financial Problems:
- Lack of own start up capital
- Lack of cash flow (liquidity)
- Dont have enough money to pay your bills
- Lack of customers
- Strong Competition
- Poor Marketing - unwanted product, wrong pricing, etc.
- Hiring the wrong people and managing them poorly
Opportunities:
- Money
- Inheritence - taking over the family business
- Autonomy - be your own boss - can choose hours, salary, etc
- Challenge - personal satisfaction and self-esteem
Business Plan
Document that sets out the business idea, its goals and objectives and other details of how the business will operate
Elements of the Business Plan
Executive Summary - covers the main parts of the business plan
Marketing and Sales:
- What product?
- Why will customers buy the product
- How the business will sell to them
Human Resources:
- Details of the management team
- Staff to be required
- Operations Management
- Location of shop/factory
- IT systems, machinery, etc
Finance:
- Where capital will come from
- Projected profits and cash flow for 1+ years
Public Sector
Firms who are owned and controlled by the Government
- Hospitals, police, public schools
Private Sector
Firms that are owned and controlled by the people
Sole Trader
When one person owns and control the business
- Unincorporated and Unlimited liability
- Gets to keep all profit
- All the decision making
- Have full control of the business
- They may hire employees to help them run the business
Partnership
2 or more people combine to form a business enterprise. They may combine their finances, run the business together, share the risk and the profit
- Share start up capital
- Share responsibility
- Share profit
- They are unincorporated and have unlimited liability
Unincorporated
Owner is same legal entity as company
Incorporated
Company and owners are different legal entities
Privately - held Company (Private Limited Company)
- Incorporated
- Limited liability
- Owned by shareholders
- Shares cannot be sold on the open market
- Often has small amount of shareholders that holds high % of shares
- Shares can only be sold with the agreement of other shareholders
Publicly-held Company (Public Limited Company)
- Incorporated
- Limited liability
- Owned by shareholders
- To “go public” mean to go from private to public-held company
- IPO - Initial Public Offering = Stock market flotation
- Will sell a % of the company to raise finance
- Shares can be bought freely on the stock market
Social Enterprise
A business that makes revenue and profits but also has social and/or environmental objectives as part of its business model
Its objectives:
- Makes some profit (so don’t go bankrupt)
- Benefit society
Private Sector For Profit Social Enterprise
Similar to other private sector businesses that make profit
Differences:
- Some of the profit is used to benefit society rather than paid out to the owners
- They try to run their business in socially responsible ways
Public Sector for Profit Social Enterprises
Government owned and run businesses that are run similar to private sector business
They aim to:
- Make profit (or avoid large losses)
- Raise tax money through profits
- Provide essential goods and services
Cooperative
- For profit social enterprises owned and controlled by its members and run for the common benefit of it members
- Decisions can be voted by members democratically
Non-profit Social Enterprise
Business that are run not for the purpose of making profit but to benefit society
Non-Governmental Organisations (NGO)
Business with a social mission which operates out of the Government control
Stakeholder
A person or organisation who is interested in or impacted by the decisions of a business
Internal Stakeholders
- Shareholders (investors)
- Owners
- Employees
External Stakeholders
- Bank
- Pressure Groups
- Customers
- Government
- Supplier
- Competitors
Types of conflicts
- Managers vs consumers
- Managers/employees vs shareholders
- Shareholders vs pressure groups
Managers vs consumers
- Managers may want to raise the price of the product
- Consumer would not want to price rise
Managers/employees vs shareholders
- Shareholders want high divident payouts
- High dividend payout may lead to lower bonuses for managers/employees
Shareholders vs pressure groups
- Shareholders might not be worries about environmental harm if it means higher profits
- Pressure groups would be concerned
