Unit 1 Flashcards
Key issues with different forms of business
Unlimited/ limited liability, Ordinary share capital, Market capitalisation and Dividends.
Budgets
Agreed ceiling on the monthly spending by any department or manger.
Corporate Objectives
Targets for the whole business, such as profit to rise by 20% a year for the next 3 years for the whole business.
Delegated
Decision making power is passed down the the hierarchy.
Entrepreneur
Person with the initiative and drive to make a business idea happen.
Mission
Over riding motivation or purpose of a business
Mission Statement
A short, powerful expressed sentence or two that explains the business aims clearly yet motivationally.
Objectives
Targets precise enough to allow praise or blame for the person in charge.
Profit Optimisation
the process of maximizing profits by finding the optimal balance between the prices of products or services and the costs associated with producing and selling those products or services.
Strategy
Medium to long term plan for meeting objectives
Four business functions
Marketing, Human Resources, Finance and Operations.
Reasons businesses exist
create a profit or surplus funds, sell or provide goods or services, survive, expand, maximize sales, improve product quality, beat the competition, provide voluntary services, be kind to the environment
Set businesses objectives
Managers cannot make every decision. Contributes towards achieving goals.
Benefits of setting objectives
Motivating for managers and for all staff to have a clear goal to aim towards. Also, they are the basis for devising a strategy.
Key Business Objectives
Profit Maximisation, Profit Optimisation, Growth, Cash Flow, Survival and Social and Ethical
SMART stands for - write each word
Specific
Measurable
Achievable
Realistic
Timebound
Bankrupt
INDIVIDUAL is unable to meet personal liabilities, some or all of which can be as a consequence of business activities.
Creditors
individuals or entities that have lent money to another individual or entity
. For example, suppliers and bankers.
Incorporation
Establishing a business as a separate legal entity from its owners, and therefore giving the owners limited liability.
Limited Liability
Owners are not liable for the debts of the business; they can lose no more than the sum they invested.
Monopoly
Where the sales of one business have a dominant share of its marketplace.
Registrar of Companies
Government department where firms register to be incorporated.
Sole Trader
Business owned by one person with unlimited liability.
Unlimited Liability
Owners are liable for any debts incurred by the business, requires them to sell their personal assets and possessions and become personally bankrupt.
Advantages of Limited Liability
- Owners may feel more secure in taking business risks e.g. expanding business; 2. Owners can sell shares to raise finance = advantages for Ltd and pic
Private Limited Company
Low start up capital, can be wholly owned by the entrepreneur, or investors. Shares cannot be bought and sold without agreement, cannot be listed on stock market. For example, Aviva.
Public Limited Company
Share capital of more than £50,000 required to float on stock market, members of the public can buy shares. Increases company’s access to share capital, e.g. Tescos.
Co-Operatives
a business or organisation that’s owned and controlled by its members, to meet their shared needs.
Mutual Business
This includes building societies/ mutual life assurance. They have no shareholder or owners. Exists solely for best interests of members; Customers. For example, Nationwide.
Charities
e.g. Oxfam, includes pressure groups, such as Greenpeace. Contributors are are not liable for any debts, but receive significant tax benefits.
Public Corporation
Government owned businesses - trade mainly within the private sector. Most have been sold to the private sector, often forming a private monopoly. Crown Estate is one example - earns rental income for the government from publicly owned lands.
Local Authority Service
Care homes for the elderly etc run by this public sector, even though there was alternative provision from the private sector. Priced below the private sector level or even free.
Private Public Partnerships
Public services run in partnership with the private sector. Idea promoted by the Government as being more efficient
Annual General Meeting (AGM)
Yearly meeting in which company directors invite all shareholders to come to hear results and vote on new resolutions. A legal requirement for PLCs.
Dividend Cover
Measures how well a firm’s dividends are covered by its profits for the year. Accountants recommend a figure of at least 2, company should pay out no more than half its profits to shareholders.
Market Capitalisation
Value placed on the business by the stock market, calculated as; share price x number of shares issued.
role of shareholders
They literally own a share of the business, proportionate to their shareholding. It is to provide the capital to get the business going and to keep it growing
shareholder rewards
Annual dividend payments and rise in the value of shares.
Key term:
Statergy
The medium-to-long term plans through which an organisation intends to achieve its objectives
Why do businesses set objectives?
- Act as a focus for decision making and effort
- can help measure out successes or failures
Key term:
Corporate objectives
- Govern objectives set by each department
- determinate how the business will develop ~ which intern provide a clear focus on how the business objectives can be set
Key term:
Business objectives
-Enable a business to achieve its aims or missions
- can be set at the corporate level and functional level
Key term:
Mission statement
-communicating to key stakeholders( shareholders, employees, customers, suppliers)
-what the organisation is doing
-what a business ought to be doing
How to calc total revenue
-total rev( or turnover or sales rev) the income received from an organisations activities
- total rev = price per unit x quantity of units sold
Key term:
Cash flow
-the amount of money flowing into and out of a business over a period of time
Key term:
Fixed cost
Costs that do not vary directly with output in the short run (e.g rent)
Key term:
Variable cost
-costs that vary directly with output in the short run (e.g raw materials)
Key term:
Mission
-purpose or intentions
-main aim or aims of a business
-stated in qualitative terms rather than numerical
What are the different types of business objectives?
- Businesses set objectives such as profit maximization, growth, survival, and social responsibility.
- Start-ups may focus on survival, while larger firms may prioritize market share or brand reputation.
- Objectives can change over time based on economic conditions, competition, or internal factors.
How does ownership structure affect business decisions?
- Sole traders make all decisions but have unlimited liability.
- Partnerships share responsibility, reducing workload but increasing potential conflicts.
- Private limited companies (Ltd) limit liability but may find it harder to raise finance.
- Public limited companies (Plc) raise capital through shares but face greater scrutiny and potential loss of control
Why do businesses need to consider stakeholders?
- Different stakeholders (employees, customers, suppliers, government) have conflicting interests.
- Shareholders may want higher profits, while employees seek higher wages.
- Ethical businesses balance these interests to maintain a good reputation and long-term success.
What factors affect business demand and supply?
- Demand is influenced by price, consumer income, trends, advertising, and competition.
- Supply is affected by production costs, technology, and availability of raw materials.
- A shortage (low supply, high demand) can lead to higher prices, while excess supply can force price reductions.
How do businesses use break-even analysis?
- Break-even shows how many units must be sold to cover fixed and variable costs.
- Lowering fixed costs (e.g., cheaper rent) or increasing price per unit reduces break-even output.
- However, increasing price may lower demand, impacting total revenue.
What are the main sources of finance for businesses?
- Internal: Retained profits, selling assets.
- External: Bank loans, overdrafts, share capital, venture capital, crowdfunding.
- Small businesses may struggle to access bank loans, relying on personal savings or government grants.
How do businesses decide on pricing strategies?
- Skimming: High initial prices for new, innovative products (e.g., iPhones).
- Penetration: Low initial prices to gain market share (e.g., Netflix’s early pricing).
- Competitive pricing: Matching rivals, common in supermarkets.
- Cost-plus: Adding a profit margin to costs, ensuring profitability but ignoring demand.
How does marketing mix influence business success?
- Product: Features, branding, differentiation.
- Price: Strategies depend on market position and competition.
- Place: Distribution methods—online, retail, wholesale.
- Promotion: Advertising, sales promotions, sponsorships.
What factors influence workforce planning?
- Labour turnover: High turnover means frequent recruitment, raising costs.
- Skills shortages: Businesses must train employees or offer competitive salaries.
- Technology: Automation may replace jobs but also require specialist skills
Why do businesses use financial ratios?
- Liquidity ratios check if businesses can pay short-term debts.
- Profitability ratios measure success (e.g., return on capital employed).
- Efficiency ratios assess stock control and asset usage.
- Ratios help investors and managers make informed decisions
How do businesses deal with competition?
- Offering better customer service, loyalty programs, and product innovation.
- Cost leadership (being the cheapest) or differentiation (unique branding, features).
- Mergers and acquisitions to reduce competition and increase market power
How do economic factors impact businesses?
- Inflation: Higher costs, lower consumer spending.
- Interest rates: Low rates encourage borrowing, high rates discourage spending.
- Exchange rates: Strong currency makes exports expensive, weak currency makes imports costly.
- Unemployment: High unemployment increases labour supply but reduces overall demand.
How do businesses use cash flow forecasts?
- Predicts inflows (sales, investments) and outflows (rent, wages).
- Helps identify potential shortfalls and secure finance if needed.
- Seasonal businesses (e.g., tourism) rely on accurate forecasts to manage peak and low seasons.
What are the benefits and risks of using debt vs equity finance?
- Debt (loans, bonds): No loss of control but requires repayments with interest.
- Equity (selling shares): No repayments, but ownership is diluted.
- High debt levels increase risk, especially if interest rates rise.
What is capacity utilization and why is it important?
- High utilization (above 85%) reduces costs but may cause strain on workers and machinery.
- Low utilization (below 50%) means wasted resources, higher unit costs, and inefficiency.
- Businesses may adjust capacity by outsourcing, investing in machinery, or reducing working hours.
How can businesses improve productivity?
- Training employees to work efficiently.
- Investing in technology to automate repetitive tasks.
- Motivating workers with financial (bonuses) and non-financial (job enrichment) incentives.
- Managing supply chains effectively to prevent bottlenecks.
Why do businesses use just-in-time (JIT) stock control?
- Reduces storage costs and waste by receiving goods only when needed.
- Requires strong supplier relationships and accurate demand forecasting.
- Risky if supply chain disruptions occur (e.g., delays from overseas manufacturers).
What Are the Advantages and Disadvantages of Outsourcing?
✅ Advantages:
- Focuses on core activities (e.g., Apple outsourcing production to Foxconn).
- Reduces costs (labour, infrastructure).
❌ Disadvantages:
- Less control over quality.
- Dependence on external firms (risk of delays, price increases).
How Do Businesses Use Lean Production?
- Kaizen (continuous improvement): Employees suggest small efficiency improvements.
- Cell production: Workstations organized into teams for efficiency.
- Reducing waste: Eliminating overproduction, unnecessary movement, and defects.
What Factors Affect Business Location Decisions?
- Costs: Rent, wages, transport.
- Proximity to market: Retailers need high footfall, manufacturers need distribution access.
- Infrastructure: Roads, ports, internet connectivity.
- Government incentives: Tax breaks for setting up in certain areas.
What Are the Main Leadership Styles in Business?
- Autocratic: Leader makes all decisions (useful in crises but demotivating).
- Democratic: Employees have input (boosts motivation, but decisions take longer).
- Laissez-faire: Minimal leader involvement (good for skilled teams but risky if unclear direction).
How Can Businesses Motivate Employees?
- Financial incentives: Bonuses, performance-related pay, profit-sharing.
- Non-financial incentives: Recognition, flexible working, career development.
- Motivation theories:
→ Taylor: Money is the main motivator (piece-rate pay).
→ Mayo: Social factors and teamwork improve motivation.
→ Maslow: Hierarchy of needs (basic needs first, self-actualization last).
→ Herzberg: Hygiene factors (pay, conditions) vs. motivators (recognition, responsibility).
How Do Businesses Measure Performance?
- Financial measures: Profit margins, return on investment, cash flow.
- Non-financial measures: Customer satisfaction, employee engagement, brand reputation.
- Benchmarking: Comparing with competitors to identify areas for improvement.
What Are the Main Growth Strategies for Businesses?
- Organic growth: Expanding through own resources (new stores, product lines).
- External growth: Mergers, acquisitions, franchising.
- Diversification: Expanding into new markets to spread risk.
What Is the Difference Between Mergers and Takeovers?
- Mergers: Two businesses agree to combine (e.g., Disney and Pixar).
- Takeovers: One business buys another (friendly or hostile, e.g., Amazon acquiring Whole Foods).
How Do Businesses Create a Competitive Advantage?
- Cost leadership: Offering the lowest prices (Aldi, Ryanair).
- Differentiation: Unique branding, features (Apple, Tesla).
- Niche markets: Targeting a specific audience (luxury brands, ethical products).
Why Do Some Businesses Fail?
- Financial issues: Poor cash flow, high debt.
- Poor planning: No market research, bad pricing decisions.
- Competitive pressure: New entrants, disruptive technology.
- External factors: Economic downturns, legal changes.
How Do Ethics and Corporate Social Responsibility (CSR) Affect Business?
- Ethical businesses build trust but may have higher costs.
- Socially responsible firms attract loyal customers (e.g., Patagonia’s sustainability).
- Some businesses engage in greenwashing (false claims of being environmentally friendly).
What Are the Effects of Globalization on Businesses?
- Opportunities: Access to international markets, cheaper labour, economies of scale.
- Challenges: More competition, fluctuating exchange rates, supply chain risks.
- Impact of trade agreements: Lower tariffs (EU Single Market), but Brexit has increased UK trade barriers.
How Do External Factors (PESTLE) Influence Business?
- Political: Tax policies, regulations (e.g., UK sugar tax affects drinks industry).
- Economic: Inflation, interest rates, unemployment.
- Social: Changing consumer tastes (veganism, online shopping).
- Technological: AI, automation, e-commerce growth.
- Legal: New laws (minimum wage, GDPR).
- Environmental: Sustainability pressures, climate change impact.
