Unit 1 Flashcards
Why do businesses exist?
To provide goods and services
Goods
Physical or tangible products: e.g. consumer electronics, industrial components, cars
Services
Intangible products: e.g. insurance, dental services, cleaning
Purpose of business objectives
Make a clear statement of what needs to be achieved
Provide a focus for all business activity
Aid and inform management decision-‐making
Help set targets for individual and group achievement
Provide a means of measuring performance
SMART
Specific
measurable
achievable
realistic
timed
Mission statement
The mission of a business is the over-‐riding goal of the business and the reason for its existence.
Effective mission statements
Differentiates the business from its competitors
Defines the markets or business in which the business wants to operate
Is relevant to all major stakeholders -‐ not just shareholders and managers
Excites, inspires, motivates & guides – particularly important for employees
Criticisms of mission statements
Not always supported by actions of the business
Often too vague and general or merely statements of the obvious
Viewed as a public relations exercise
Sometimes regarded cynically by employees
Not supported wholeheartedly by senior management
Corporate objectives
are what a business as a whole wants to achieve.
Functional objectives
are set for the individual functions of a business and are designed to support (and be consistent with) corporate objectives.
Functions of a business
HR
Marketing
Finance
Operations
Common business objectives
Profit (value, margin)
Return on investment
Growth (revenues, profit)
Market share
Cash flow
Business value (market capitalisation)
Private sector
Owned by private individuals eg.ASDA
Public sector
A relatively small number of companies are owned or controlled by the Government Examples include the bank RBS (nationalised during the banking crisis) and Network Rail.
Unincorporated
The owner is the business -‐ no legal difference
Owner has unlimited liability for business actions (including debts)
Most unincorporated businesses operate as sole traders/ partnerships
Incorporated
There is a legal difference between the business (company) and the owners
The company has a separate legal identity
Owners (shareholders) have limited liability
LTD,PLC
Unlimited liability
Business owner/s is personally responsible for the debts and liability of the business
Limited liability
What this means is that shareholders can only lose (are therefore liable for) the value of their investment in the share capital of the company.
Sole trader
A sole trader is just an individual owning the business on his/her own. Remember that a sole trader can also employ people – but those employees don’t share in the ownership
Advantages of a sole trader
Quick & easy to set up – business can always be transferred to a limited company once launched
Simple to run – owner has complete
control over decision-‐making
Minimal paperwork
Easy to close / shut down
Disadvantages of a sole trader
Full personal liability – “unlimited
liability”
Harder to raise finance – sole traders often have limited funds of their own and security against which to raise loans
The business is the owner – the business suffers if the owner becomes ill, loses interest etc.
Can pay a higher tax rate than a company
