Unit 1 - Business Activity and influences on business Flashcards
Business things
Financial aims or objectives
5 aims
Survival
Profit
Sales
Market share
Financial security
Non-financial aims or objectives
4 aims
Social objectives
Personal satisfaction
Independence
Control
Types of business ownership
8 types
Sole trader
Partnership
Limited companies (private/public)
Public corporations
Franchises
Social enterprises
Multinationals
Why might objectives change as businesses evolve?
5 types
Market conditions
Technology
Performance
Legislation
Internal reasons
Sole trader
A single person who is the exclusive owner of the business.
2 advantages of being a sole trader
Any 2 of the following:
The owner keeps all the profit.
They are independent - owner has
complete control.
It is simple to set up with no legal
requirements.
Flexibility - for example, can adapt to
change quickly.
Can offer a personal service because they are small.
May qualify for government help.
2 disadvantages of being a sole trader
Any 2 of the following:
Have unlimited liability.
May struggle to raise finance - considered too risky by those that lend money.
Independence may be too much of a
responsibility.
Long hours and very hard work.
Usually too small to exploit economies of scale.
No continuity - the business dies with the owner.
Partnership
When between 2 and 20 people own a business together.
Deed of partnership and what does it state?
4 statements
This is a legal document that states partners’ rights in the event of a dispute. It states:
- how much capital each partner will contribute
- how profits (and losses) will be shared among the partners
- the procedure for ending the partnership
- how much control each partner has
rules for taking on new partners.
2 advantages of partnerships
Any 2 of the following:
Easy to set up and run - no legal formalities.
Partners can specialise in their area of expertise.
The job of running a business is shared.
More capital can be raised with more owners.
Financial information is not published.
2 disadvantages of partnerships
Any 2 of the following:
Partners have unlimited liability.
Profit has to be shared.
Partners may disagree and fall out.
Any partners’ decision is legally binding on all.
Partnerships still tend to be small.
Private limited companies (Ltd)
A firm that is privately owned by shareholders.
2 advantages of Ltds
Any 2 of the following:
Shareholders have limited liability.
More capital can be raised.
Control cannot be lost to outsiders.
Business continues if a shareholder dies.
Has more status - for example, than a sole trader.
2 disadvantages of Ltds
Any 2 of the following:
Financial information has to be made
public.
Costs money and takes time to set up.
Profits are shared between more
members.
Takes time to transfer shares to new
owner.
Cannot raise huge amounts of money,
like PLCs.
Public limited companies (PLCs)
A company that sells shares on the stock exchange.
2 advantages of PLCs
Any 2 of the following:
Large amounts of capital can be raised.
Shareholders have limited liability.
PLCs can exploit economies of scale.
May be able to dominate the market.
Shares can be bought and sold very
easily.
May have a very high profile in the
media.
2 disadvantages of PLCs
Any 2 of the following:
Setting up costs can be very expensive.
Outsiders can take control by buying
shares.
More financial information has to be made public.
May be more remote from customers.
More regulatory control owing to
Company Acts.
Managers may take control rather than
owners.
Public corporations
A business organisation owned and controlled by the state/government.
Reasons for public ownership
5 reasons
Avoid wasteful duplication
Maintain control of strategic industries
Saves jobs
Fills the gaps left by the private sector
Serve unprofitable regions
Reasons against public ownership
4 reasons
Cost to government
Inefficiency
Political interference
Difficult to control
Limited liability
A legal structure in which the assets of the owners are considered to be separate to those of the business. If the business is sued the owners cannot lose their own possessions.
Unlimited liability
Where owners are fully responsible for all debts incurred by the business.
Which types of business ownership do not have limited liability?
2 businesses
Sole trader
Partnership
Franchise
When a franchisor gives permission for its brand name to be used by a franchisee.
2 advantages to franchisor
Any 2 of the following:
Fast method of growth.
Cheaper method of growth.
Franchisees take some of the risk.
Franchisees more motivated than employees.
2 disadvantages to franchisor
Any 2 of the following:
Potential profit is shared with franchisee.
Poor franchisees may damage brand’s reputation.
Franchisees may get merchandise from elsewhere.
Cost of support for franchisees may be high.
2 advantages to franchisee
Any 2 of the following:
Less risk - a tried and tested idea is used.
Back-up support is given.
Set-up costs are predictable.
National marketing may be organised.
2 disadvantages to franchisee
Any 2 of the following:
Profit is shared with the franchisor.
Strict contracts have to be signed.
Lack of independence - strict operating rules apply.
Can be an expensive way to start a business.
Social enterprise
A business that aims to improve human or environmental well-being.
Not-for-Profit
A business that aims to cover their costs through the products or services they provide.
Multinationals
A large business with significant production or service operations in at least two different countries.
Benefits of becoming a multinational
Larger customer base
Lower costs
Higher profile
Avoiding trade barriers
Lower taxes
Benefits of multinationals to a country/economy
Increase in income and employment
Increase in tax revenue
Increase in exports
Transfer of technology
Improvement in the quality of human capital
Enterprise development
Possible drawbacks of multinationals to a country/economy
Environmental damage
Exploitation of less developed countries
Repatriation of profits
Lack of accountability
Factors affecting the appropriateness of different forms of ownership
5 factors
Growth
Size
The need for finance
Control
Limited liability
What do businesses in the primary sector do?
Extract raw materials from the earth.
What do businesses in the secondary sector do?
Convert raw materials into finished or semi-finished goods.
What do businesses in the tertiary sector do?
Provision of a wide variety of services.
Shareholders
A person or organisation that owns shares in a company.
Stakeholders
Someone who has an interest in a business’ activity and decision making.
Factors influencing the location of a business
5 factors
Proximity to market
Proximity to materials
Proximity to labour
Proximity to competitors
Nature of business activity
Nature of business activity examples
4 examples
Services
Office-based businesses
Manufacturing and processing
Agriculture
Factors for E-commerce stores to consider
Lower business costs
Cost and availability of labour
Proximity to transport infrastructure
Reliable IT infrastructure and power
Why would a business choose to be located in a less economically developed country?
Businesses enjoy lower costs as they have to meet fewer legal requirements.
Labour can be paid very low rates as no minimum wages exists.
Employees and customers have less opportunity to pursue legal action.
Why would a business choose to be located in a more economically developed country?
Good infrastructure
Highly-skilled workers
High standards of living
Trade bloc
Group of countries situated in the same region that join together and enjoy trade without barriers.
Major trade bloc examples
EU
NAFTA
ASEAN
Brownfield sites
Areas of land that were once used for urban development.
Greenfield sites
Previously undeveloped areas of land, usually on the outskirts of towns and cities.
Assisted areas
Areas that are designated by a government as having economic problems and are targeted to receive support in a variety of forms.
Viability studies
Careful study of how a planned activity will work, how much it will cost, and what income it is likely to produce.
Globalisation
The business and economic integration of different countries through increasing freedoms in the cross-border movement of people, goods, services, technology and finance.
Opportunities of globalisation
4 opportunities
Large markets
Economies of scale
Labour
Reduced Taxation
Threats of globalisation
4 threats
Increased competition
Increased need to develop a profitable niche
Vulnerability to international takeovers
Greater risk from external shocks
Exchange rates
The price of a currency in terms of another.
Calculation for exchange rates
Value of currency 1 x Exchange rate = Value of currency 2
What does SPICED stand for?
Strong
Pound
(means)
Imports
Cheaper
(and)
Exports
Dearer
What impact does a fall in exchange rate have?
Price of imports - RISES
Demand of imports - FALLS
Price of exports - FALLS
Demand of exports - RISES
What impact does a rise in exchange rate have?
Price of imports - FALLS
Demand of imports - RISES
Price of exports - RISES
Demand of exports - FALLS
