Unit 1

Question 1

Why do businesses exist?

Answer 1

-to provide goods and services including public services such as the NHS

-to develop a good idea (enterprise)

-to provide help and support for others e.g charities

Question 2

What is a mission statement?

Answer 2

-Defines what an organisation is and why it exists

• It is a declaration of its core purpose and focus

-Also called a ‘vision statement’

Question 3

Key business objectives

Answer 3

-survival
-growth
-profit
-customer service
-corporate social responsibility

Question 4

Define corporate social responsibility (CSR)

Answer 4

The commitment of a business to behave ethically towards its workforce, the local community and society

Question 4

What should objectives have?

Answer 4

S pecific- must be clear and well defined
M easurable- must know when an objective is completed
A greed- objectives should be agreed with staff
R ealistic- must be challenging but possible to achieve
T ime based- must have a deadline

Question 5

What are objectives?

Answer 5

An objective is a goal to help a business achieve its mission.

Question 6

Why do businesses set objectives?

Answer 6

Objectives are used to evaluate performance.

Question 7

Profit calculation

Answer 7

total revenue - total costs

Question 8

What is the private sector?

Answer 8

Part of the economy that is made up of private enterprises (businesses that are controlled by individuals or groups of individuals)

Question 9

Corporate businesses

Answer 9

Have a legal identity separate to their owners which gives them limited liability

e.g plcs, ltds

Question 10

Examples of non-corporate businesses

Answer 10

-sole traders (or sole proprietors)
-partnerships

Question 11

Private limited companies

Answer 11

-smaller than public limited companies
-share capital must not exceed £50,000
-‘Ltd’ must be included after the company’s name
-Shares can’t be bought and sold without the agreement of other shareholders
-Shares can’t be sold on the Stock Exchange
-often family businesses

Question 12

Public limited companies

Answer 12

-Shares can be traded on the stock exchange and bought by any business or individual
-must have the term ‘plc’ after their name
-must have a minimum capital of £50,000
-They have to publish more financial information than ltds

Question 13

Sole trader advantages

Answer 13

-simple and cheap to establish with few legal formalities
-the owner receives all profits
-able to respond quickly to market changes
-confidentiality is maintained as financial details do not have to be published

Question 14

Sole trader disadvantages

Answer 14

-the owner is likely to be short of capital for investment
-few assets for collateral to support applications for loans
-unlimited liability
-it can be difficult for sole traders to take holidays

Question 15

partnership advantages

Answer 15

-between them, partners may have a wide range of skills and knowledge
-partners are able to raise greater amounts of capital than sole traders
-the pressure on owners is reduced as cover available for holidays and there is support in making decisions

Question 16

partnership disadvantages

Answer 16

-control is shared between the partners
-arguments are common among the partners
-there is still an absolute shortage of capital
-unlimited liability

Question 17

private limited company advantages

Answer 17

-shareholders benefit from limited liability
-companies have access to greater amounts of capital
-ltds are only required to divulge a limited amount of financial information
-companies have a separate legal identity

Question 18

private limited company disadvantages

Answer 18

-ltds cannot sell their shares on the Stock Exchange
-requires permission to sell shares limits for flexibility and growth
-ltds have to conform to a number of expensive administrative formalities

Question 19

public limited company advantages

Answer 19

-plcs can gain positive publicity as a result of trading on the Stock Exchange
-Stock Exchange quotation offers access to large amounts of capital
-Stock Exchange rules are strict which encourages investors to part with their money
-suppliers are more willing to offer credit to plcs

Question 20

public limited company disadvantages

Answer 20

-a Stock Exchange listing means emphasis is placed on short-term financial results, not long term performance
-plcs are required to publish a lot of financial information
-trading as a plc can result in significant administrative expenses

Question 21

Not-for-profit/ social enterprise

Answer 21

-to provide services to local communities
-give people job related skills
-fair trading activities

Question 22

mutuals

Answer 22

Private businesses whose ownership base is made up of their clients and policy holders.
They are characterised by the fact that they are run for the benefit of their members

Question 23

public sector organisations

Answer 23

Some services and businesses in the UK are controlled and run by the government or local authorities.
This includes police, fire service the BBC and NHS as well as local council run services such as rubbish collection.

Question 24

Privatisation

Answer 24

The process of converting government owned and government controlled industries or businesses to the private sector.

Question 25

reasons for choosing different forms of business

Answer 25

formalities and expenses
size and risk
objectives of owners

Question 26

reasons for changing business form

Answer 26

circumstances e.g growth of a business
capital- trying to raise capital
acquisition or takeover- may be a change in structure

Question 27

why do shareholders invest?

Answer 27

income- shareholders are entitled to dividends
capital growth- shareholders hope the shares will increase in value over time

Question 28

why shares fluctuate in value

Answer 28

-performance: worse than expected profits
-changes within the market
-world uncertainty eg conflict, wars, covid-19

Question 29

what is market capitalisation?

Answer 29

The value of the company by taking the share price and multiplying by number of shares issued.

Question 30

market capitalisation calculation

Answer 30

share price x number of shares issued

Question 31

what are external environmental factors?

Answer 31

-competition
-market conditions
-economic factors (interest rates, incomes
-social and environmental
-demographic factors

Question 32

what are market conditions?

Answer 32

The characteristics of a particular market and might include its size, growth rate, barriers to entry, seasonal factors and competition.