Unit 1 Flashcards
What is a good
Tangible products
What is a service
Intangible products
Examples of goods
Phone, toothpaste, food, chocolate,water, car etc
Examples of services
Window cleaner, dentist, plumber, haircut etc
Transformation process
Input - transformation process - output
Transformation process definition
What happens inside the business where value is added to inputs to create outputs
Primary sector
Businesses that make direct use of natural resources
Secondary sector
Manufacturing products using raw materials
Tertiary sector
Businesses that provides a service to customers
Mission
A qualitative statement of the business’s aims - the reason the business exists
Aims
A long term plan from which business objectives are derived
Objectives (2)
A target which must be achieved in order to realise the stated aim.
A time assigned target derived from the goals and set in advance of strategy
Main business objectives (7)
Profit
Growth
Survival
Cash flow
Shareholder value
Social/ ethical objectives
Diversification
The value of revenue
Achieved in a given period is a function of the number of product sold multiplied by the price that customers paid
How do business increase revenues? (6)
Reduce costs
Increase selling price
Have fewer employees
Increase number of sales
Reduce waste
Online presence
Variable cost
Costs that changes with output
Fixed costs
Costs that don’t change as output changes
Semi fixed costs
Fixed costs in the short term, but then changes once a certain level of output is achieved. Eg. Salaries
Total costs equation
Fixed costs + variable costs
Profit
The reward or return for taking risks and making investments
Profit equation
Revenue - total costs
Why is profit important to a business? (5)
A return on investment
A reward for taking risks
A key source of finance
A measure of business success
A motivation factor and incentive
Contribution per unit equation
Selling price - variable costs
Unincorporated businesses
A business that doesn’t possess a separate legal identity from its owner e.g a window cleaner
Incorporated businesses
A business that has its own separate legal identity separate from the owners e.g M&S
Private limited company (ltd)
Incorporated
Registered with government
Owned by shareholders
Ltd Advantages
Profits only shared between shareholders
Able to raise money by borrowing and through the share issue of ordinary shares
If the company failed, investors are protected by the rules of limited liability
Ltd disadvantages
Must be registered by government
Legal set ups are expensive
Hard to control and motivate workers as profit only goes to shareholders
Public corporation
Incorporated
State owned enterprises
Public corporations advantages
Easy planning and coordination
Raising funds through private sources
Protection of public interest
Public corporations disadvantages
Misuse of power
Consumer interest ignored
Financial burden
Often difficult to manage
Public Limited Company (PLC)
Incorporated
Legallly allowed to offer its shares for sale to to the public
Needs two shareholders, two directors and company secretary
PLC advantages
Visible on stock market
Can offer investors liquidity in that investors can sell quickly
PLC disadvantages
Less flexibility
Financial position disclosed to public
Sole trader
Unincorporated
Self employed
Sole trader advantages
Flexible
Independent
Financially rewarding if is a success
Doing what you like
Sole trader disadvantages
Financial risk if not successful
Uncertainty
Stress
Charity
Incorporated
Non profit organisation
Charity advantages
Exempt from tax
Increase public trust
Locked assets- no private benefit
Charity disadvantages
Can’t make profit
Trade can be limited
Partnership
Two or more owners that set up a business
Partnership advantages
Spreads risk
Helps decision making
More skills and ideas
Increased credibility
Partnership disadvantages
Share profit between them
Less control
Problem when partners disagree
Stakeholder
An individual or group that has vested interest in the business. They can affect the business and/or be affected by it
Shareholders
Owners of a company
Dividends
Payments made to the shareholders by the company from earned profits
Capital growth
Arises from an increase in the value of the business
Share
An individual part of the issued share capital of a company
Share price
Determined by the interaction of supply and demand
What is liquidity?
Business liquidity is your ability to cover any short-term liabilities such as loans, staff wages, bills and taxes. Strong liquidity means there’s enough cash to pay off any debts that may arise.
What is limited liability
Limited Liability is a legal structure whereby shareholders or directors are legally responsible for their company’s debts only up to the value of their share. The owner and the business have separate legal identities e.g. PLC or LTD
What is unlimited liability?
each business owner is equally responsible for whatever debt accrued within a business if the company is unable to repay or defaults on its debt. An owner’s personal wealth can be seized to cover the balance owed.
