Unit 1

Question 1

Why do businesses exist?

Answer 1

To provide goods and services

Question 2

Goods

Answer 2

Physical or tangible products: e.g. consumer electronics, industrial components, cars

Question 3

Services

Answer 3

Intangible products: e.g. insurance, dental services, cleaning

Question 4

Purpose of business objectives

Answer 4

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

Question 5

SMART

Answer 5

Specific
measurable
achievable
realistic
timed

Question 6

Mission statement

Answer 6

The mission of a business is the over-­‐riding goal of the business and the reason for its existence.

Question 7

Effective mission statements

Answer 7

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

Question 8

Criticisms of mission statements

Answer 8

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

Question 9

Corporate objectives

Answer 9

are what a business as a whole wants to achieve.

Question 10

Functional objectives

Answer 10

are set for the individual functions of a business and are designed to support (and be consistent with) corporate objectives.

Question 11

Functions of a business

Answer 11

HR
Marketing
Finance
Operations

Question 12

Common business objectives

Answer 12

Profit (value, margin)
Return on investment
Growth (revenues, profit)
Market share
Cash flow
Business value (market capitalisation)

Question 13

Private sector

Answer 13

Owned by private individuals eg.ASDA

Question 14

Public sector

Answer 14

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.

Question 15

Unincorporated

Answer 15

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

Question 16

Incorporated

Answer 16

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

Question 17

Unlimited liability

Answer 17

Business owner/s is personally responsible for the debts and liability of the business

Question 18

Limited liability

Answer 18

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.

Question 19

Sole trader

Answer 19

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

Question 20

Advantages of a sole trader

Answer 20

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

Question 21

Disadvantages of a sole trader

Answer 21

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