UNIT 1 - Business and its environment Flashcards
Chapter 1 - enterprise
What are the four factors of production?
- Land (land used and land affected)
- Labour
- capital (finance and resources used)
- Enterprise - the initiation of an entire business
Chapter 1 - Enterprise
consumer goods
the physical and tangible goods sold to the general public
- durable consumer goods: eg. cars & washing machines
- Non-durable consumer goods: eg. food & drinks
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consumer services
the non-tangible products sold to the general public
- eg. public transport, hotel accomodation
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capital goods
The physical goods used by industry to aid in the production of other goods and services
- eg. machines and commercial vehicles
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Creating value
increasing the difference between the cost of purchasing bought-in materials and the price the finished goods are sold for
the process
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added value
The difference between the cost of purchasing bought-in materials and the price the finished goods are sold for
The result
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What are the 7 business needs?
- land
- capital
- government
- enterprise
- labour
- suppliers
- customers
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opportunity cost
The benefit of the next most desired option which is given up
Chapter 1: Enterprise
Entrepreneur
Someone who takes the financial risk of starting and managing a new venture
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characteristics of a successful entrepreneur
- innovation
- Commitment and self-motivation
- multi-skilled
- Leadership skills
- Self- confidence
- risk-taking
- motivated
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Challenges faced by entrepreneurs (5)
- Identifying successful business opportunities
- sourcing capital
- determining a location
- competition
- building a customer base
Chapter 1 - Enterprise
Why do businesses often fail? (4)
- lack of record keeping
- lack of cash and working capital
- poor management skills
- changes in the business environment
Chapter 1 - Enterprise
Impact of enterprise on a country’s economy (6)
- Employment creation
- Economic growth
- firms’ survival and growth
- innovation and technological change
- exports
- personal development
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Social enterprise
a business with mainly social objectives that reinvests most of its profits into benefiting society rather than maximizing returns to owners.
Chapter 1 - Enterprise
Triple bottom line
The three objectives of social enterprises:
- economic
- Social
- Environmental
Chapter 2 - Business structure
Primary sector business activity
Firms engaged in farming, fishing, oil extraction and all other industries that extract natural resources so that they can be used and processed by other firms
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Secondary sector business activity
Firms that manufacture and process products from natural resources, including computers, brewing, baking, clothes-making and construction.
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Tertiary business activity
Firms that provide services to consumers and other businesses, such as retailing, transport, insurance, banking and hotels
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What is industrialisation?
Industrialisation is the increased importance of secondary-sector businesses in developing countries
Chapter 2 - business structure
What is deindustrialisation?
Deindustrialisation is the decreased importance in secondary-sector activity, and increased importance in the tertiary sector. This is often suited for more developed countries.
Chapter 2 - Business structure
Public sector
Compromises organisations accountable to and controlled by the central or local government.
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Private sector
Compromises businesses owned and controlled by individuals or groups of individuals
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What comes under the private sector of businesses? (4)
- Sole traders
- Partnerships
- Limited companies (Private Ltd; Public PLC)
- Cooperatives
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Command economy
economic resources are owned, planned and controlled by the state.
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Free-market economy
Economic resources are owned largely by the private sector with very little state intervention
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Mixed economy
Economic resources are owned and controlled by both private and public sectors
Chapter 2 - Business structure
Sole trader
a business in which one person provides the permanent finance, and, in return, has full control over the business and is able to keep all its’ profits.
Chapter 2 - Business structure
What are some advantages of being a sole trader? (4)
- Easy to set up
- Complete control of business and running
- personal relationships with staff
- Business can be based on own interests of the individual
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Disadvantages of being a sole trader (5)
- Unlimited liability
- competition of bigger firms
- difficulty raising additional capital
- long hours
- lack of continuity
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Partnership
A business formed by two or more people to carry on a business together, with shared capital investment and, usually, shared responsibilities.
Chapter 2 - Business structure
Advantages of a partnership (4)
- both people may specialise in different areas of management
- shared decision-making
- additional capital invested by both people
- losses shared between two+ people
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Disadvantages of a partnership (5)
- Unlimited liability
- profits must be shared
- no continuity of the business if it goes down or people die
- cannot gain equity finance through shares
- Not as much control in decisions as a sole trader
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limited liability
- to do with shares
The only liability - or potential loss - a shareholder has if the company fails is the amount invested in the company, not the total wealth of the shareholder (unlimited liability)
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Private limited company
A small - medium sized business that is owned by shareholders who are often members of the same family; this company cannot sell shares to the general public
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Advantages of a private limited company (6)
- limited liability
- separate legal personality
- continuity
- original owner still able to maintain control
- capital able to be raised through family and friends
- greater status than unincorporated businesses
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disadvantages of a private limited company (3)
- More legal formalities
- equity capital not able to be received by the public
- less secrecy over financial affairs than sole trader or partnership.
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Share
A certificate confirming part ownership of a company and entitling the shareholder owner to dividends and certain shareholder rights.
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Shareholder
A person or institution owning shares in a limited company
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Public limited company
a limited company, often a large business, with the legal right to sell shares to the general public. - Share prices are quoted on the national stock exchange
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Memorandum of association
States the:
- name of the company
- Address of the head office through which it can be contacted
- Max share capital
- declared aims of the business
Helpful for potential shareholders
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Articles of association
Covers the internal workings and control of the business. eg.
- names of directors
- procedures to be followed at meetings
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What are the 4 other forms of business organisation?
- Franchises
- Cooperatives
- Joint ventures
- Holding companies
Chapter 2 - Business structure
Franchise
A business that uses the name, logo and trading systems of an existing successful business
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Advantages of a franchise (5)
- fewer chances of a new business failing
- Advice and training offered by franchiser
- National advertising paid for by franchiser
- Supplies obtained from established and quality-checked suppliers
- Franchiser unlikely to open another branch in same local area
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Disadvantages of a franchise (4)
- Share of profits and revenue to be paid to franchiser each year
- Initial franchise license can be pricey
- No choices of supply or suppliers
- Strict rules over pricing and workings of the business
Chapter 2 - Business structure
What are cooperatives?
- all members contribute to running of the business, decision making, workload and responsibilities
- Profits shared equally
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Advantages of a cooperative business (3)
- Buying in bulk and increased economies of scale
- teamwork
- motivation from all members with shared profits
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disadvantages of cooperative businesses
- Slow decision making
- Capital shortages due to no sales of shares to general public
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Joint venture
Two or more businesses agree to work closely together on a particular project and create a separate business division to do so.
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Advantages of a joint venture (3)
- costs and risks of a new venture are shared
- Different companies can put their strengths together
- May be able to attract major markets in different countries
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Disadvantages of a joint venture (3)
- Styles of management and culture may clash
- blame for errors and mistakes
- Failure of one partner could lead to danger for the whole product
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Holding company
A business organisation that owns and controls a number of separate businesses, but does not unite them into one uified company
eg. Meta
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Public corporation
A business enterprise owned and controlled by the state - also known as nationalised industry
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Advantages of a public corporation (2)
- Social objectives rather than purely for profits
- Finance raised mainly from the government
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disadvantages of a public corporation (2)
- government interference for political reason
- potential inefficiency due to lack of strict profit targets
Chapter 3 - Size of business
What are the 6 ways to measure a business?
- revenue
- Number of employees
- Capital employed
- Market capital
- Market share
- Business specific measures
Chapter 3 - Size of business
Revenue
Total number of sales made by a business in a given time period
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Capital employed
Total value of all long-term finance invested
Chapter 3 - Size of business
Market capitalisation
Total value of a company’s issued shares
Current share price x total number shares issued
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Market share
sales of a business as a proportion to total market sales
- total sales of a business / Total sales in the market*
- x100*
Chapter 3 - size of business
What is the importance of small businesses? (6)
- Job creation
- Dynamic entrepreneurs with new ideas
- Competition for larger businesses
- Supply of specialist goods
- All businesses start off small
- Lower average costs
Chapter 3 - size of business
How can the government assist smaller businesses? (3)
- reduce profits tax
- Loan guarantee
- Information
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Strengths of family businesses (3)
- Commitment
- reliability & pride
- Knowledge & Continuity
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Weaknesses of family businesses (4)
- may have lack of continuation down generations
- informality
- Traditions - may make it difficult to evolve & change
- Conflict
Chapter 3 - size of business
Why might a business want to grow? (5)
- increased profits
- increased market share
- Increased economies of scale
- Increased power & status
- Reduced risk of being a take-over target
Chapter 3 - Size of business
Internal growth
Expansion of business by means of opening new branches, shops or factories (also known as organic growth)
Chapter 4 - Business objectives
SMART
S - Specific
M - Measurable
A - Achievable
R - Realistic and Relevant
T - Time specific
Chapter 4 - Business objectives
What is the order of the hierarchy of objectives?
- Aim
- Mission (statement)
- Corporate objectives
- Divisional objectives
- Departmental objectives
- Individual Objectives
AMCDDI
Chapter 4 - Business objectives
What are corporate aims?
- Long term goals that a business hopes to achieve. - The core central purpose of a business will be expressed in its corporate aim(s)
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Mission statement
A statement of the business’s core aims, phrased in a way to motivate employees and to stimulate interest by outside groups
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Advantages and disadvantages of mission statements
Advantages
- Inform outside groups
- Motivate employees
- Helps establish ‘what the business is about’
Disadvantages
- very general, so not very specific
- Impossible to analyse
- Often very general, so hard to make completely unique
Chapter 4 - Business objectives
What are corporate objectives?
Goals or targets for a business - shorter term than a corporate aim. More specific and broken down
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Common corporate objectives (7)
- Profit maximisation
- Profit satisficing
- Survival
- Growth
- Increased market share
- Maximising Shareholder value
- Corporate social responsibility (CSR)
Chapter 4 - Business objectives
corporate social responsibility (CSR)
This concept applies to those businesses that consider the interests of society by taking responsibility for the impact of their decisions and activities on customers, employees, communities and the environment
Chapter 4 - Business objectives
What are some reasons a corporate objective may change? (3)
- A new business may have satisfied the “survival” stage
- Change in competition - may lead to growth down to survival
- Short term objective may want to transition into a longer-term objective
Chapter 4 - Business objectives
Factors that determine the corporate objectives of a business
- Corporate culture
- Size & legal form of business
- Public or private sector business
- How many years business has been operating
- Divisional, departmental, and individual objectives
Chapter 4 - Business objectives
Management by objectives (MBO)
A method of coordinating and motivating all staff in an organisation by dividing its overall aim into specific targets for each department, manager and employee.
Chapter 4 - Business objectives
Ethical code of conduct
A document detailing a company’s rules and guidelines on staff behaviour that must be followed by all employees
Chapter 5 - Stakeholders in a business
stakeholders
People or groups of people who can be affected by - and therefore have an interest in - any action by an organisation
Chapter 5 - Stakeholders in a business
Stakeholder concept
The view that businesses and their managers have responsibilities to a wide range of groups, not just shareholders
Chapter 5 - Stakeholders in a business
Internal stakeholders examples (4)
- Suppliers
- owners/management
- employees
- shareholders
Chapter 5 - Stakeholders in a business
External stakeholders examples (5)
- customers
- employees’ families
- local communities
- Government
- Lenders
Chapter 5 - stakeholders in a business
Explain compromise for businesses and it’s stakeholders
Meeting as many stakeholder objectives as possible, or meeting the needs of the most important ones. This may have to be put in place, as not all business decisions will appeal to all stakeholder groups.
