Unit 1 Flashcards
What is business?
Why do businesses exist?
-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
What is a mission statement?
-Defines what an organisation is and why it exists
- It is a declaration of its core purpose and focus
-Also called a ‘vision statement’
Key business objectives
-survival
-growth
-profit
-customer service
-corporate social responsibility
Define corporate social responsibility (CSR)
The commitment of a business to behave ethically towards its workforce, the local community and society
What should objectives have?
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
What are objectives?
An objective is a goal to help a business achieve its mission.
Why do businesses set objectives?
Objectives are used to evaluate performance.
Profit calculation
total revenue - total costs
What is the private sector?
Part of the economy that is made up of private enterprises (businesses that are controlled by individuals or groups of individuals)
Corporate businesses
Have a legal identity separate to their owners which gives them limited liability
e.g plcs, ltds
Examples of non-corporate businesses
-sole traders (or sole proprietors)
-partnerships
Private limited companies
-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
Public limited companies
-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
Sole trader advantages
-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
Sole trader disadvantages
-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
partnership advantages
-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
partnership disadvantages
-control is shared between the partners
-arguments are common among the partners
-there is still an absolute shortage of capital
-unlimited liability
private limited company advantages
-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
private limited company disadvantages
-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
public limited company advantages
-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
public limited company disadvantages
-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
Not-for-profit/ social enterprise
-to provide services to local communities
-give people job related skills
-fair trading activities
mutuals
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
public sector organisations
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.
Privatisation
The process of converting government owned and government controlled industries or businesses to the private sector.
reasons for choosing different forms of business
formalities and expenses
size and risk
objectives of owners
reasons for changing business form
circumstances e.g growth of a business
capital- trying to raise capital
acquisition or takeover- may be a change in structure
why do shareholders invest?
income- shareholders are entitled to dividends
capital growth- shareholders hope the shares will increase in value over time
why shares fluctuate in value
-performance: worse than expected profits
-changes within the market
-world uncertainty eg conflict, wars, covid-19
what is market capitalisation?
The value of the company by taking the share price and multiplying by number of shares issued.
market capitalisation calculation
share price x number of shares issued
what are external environmental factors?
-competition
-market conditions
-economic factors (interest rates, incomes
-social and environmental
-demographic factors
what are market conditions?
The characteristics of a particular market and might include its size, growth rate, barriers to entry, seasonal factors and competition.
What is the effect of higher interest rates?
Lower demand- consumers are likely to have less disposable income due to higher borrowing costs for loans and mortgages. Other consumers may be encouraged to save more as a result of higher interest rates.
Benefits to a business of rising interest rates
Discount retailers may benefit as for example consumers may switch from traditional grocery stores such as Tesco to discount ones such as Lidl.
What are demographic factors?
Based on factors such as:
-age
-gender
-income
-occupation
-birth and death rate
-level of public health
-immigration
Important demographic factors in the UK
-population is growing with immigration making a large contribution
-the population is an ageing one
What has legislation that has been introduced help protect the environment from pollution in the UK
-businesses have to spend large amounts on measures to ensure that water, air and the surrounding countryside are kept free of pollution
-some businesses have located themselves overseas where legislation is less stringent, but there they are not always free from the public gaze
Acronym for external factors affecting a business
Political
Econimc
Social
Technological
Legal
Environmental
Political
-government type and policy
-funding, grants and initiatives
Economic
-inflation and interest rates
-labour and energy costs
Social
-population, education, media
-lifestyle, fashion, culture
Technological
-emerging technologies, web
-information and communication
Legal
-regulations and standards
-employment law
Environmental
-weather, green and ethical issues
-pollution, waste, recycling
