Unit 1: Business in the Real World Flashcards
What does a Business do?
Sell products or provide services to customers.
What is a Good?
Physical Items
What is a Service?
Actions performed to aid customers
What are Needs?
Things you cant live without
What are Wants?
Things you would like to have
Why are Businesses set up?
Give 3 reasons
- Fulfil a Business opportunity
- To benefit people [Non-profit etc…]
- To sell a good or service they think people will want to pay for
What is the Primary Sector?
The production of Raw Materials
What is the Secondary Sector?
The manufacturing of Goods. Turning the Raw Materials into finished products
What is the Tertiary Sector?
The Provision of Services
What is an Entrepreneur?
Someone who takes the risk of enterprise activity [Taking up an especially complex project]
Why may someone become an Entrepreneur?
Provide 4 Reasons
- Financial Reasons
- Independence
- Dissatisfaction with current job
- They may believe they have found a gap in the market
What qualities do Entrepreneurs have?
Provide 4 Qualities
- Hardworking
- Organised
- Innovative
- Willingness to take calculated risk
What are the Four factor of production?
- Land; Earths natural recourses
- Labour; The work done
- Capital; the equipment that help produce goods or services
- Enterprise; The people who take risks
What is Opportunity cost?
The benefit that is given up in order to do something else
What is a Sole Trader?
A business with one owner
3 Advantages of being a Sole Trader?
- Easy to set up
- You are your own boss
- You have control of what is done with profits
3 Disadvantages of being a Sole Trader?
- Long hours of work
- Unlimited liability; you are legally responsible for everything that happens to the business
- Difficulty raising money; as banks see sole traders as risky
What is a Partnership?
Two or more people running a business
3 Advantages of a Partnership?
- More ideas
- Share workload
- More Money can be put into the business
3 Disadvantages of a Partnership?
- Legal Responsibility for partners action
- Unlimited liability; Legally responsible for business
- Profits are shared between partners; so may be less money earned
What is a Limited Company?
Companies owned by Shareholders. The more shares you own, the more control you get.
What is a Private Limited Company [Ltd]?
When the ownership of shares of a business are restricted - shares can only be bought if all the shareholders agree.
What are advantages of a Private Limited Company [Ltd]?
- Control; over how the business is managed and how many people get to share profits.
- Easier to get a Loan or Mortgage
- Limited Liability; you cant lose more than you invest
2 Disadvantages of a Private Limited Company [Ltd]?
- Expensive to Setup; due to legal paperwork
- Legally obliged to publish accounts; which competitors can see
What is a Public Limited Company [PLC]?
When a companies shares can be bought by anyone. [Traded on the Stock Market]
2 Advantages of a Public Limited Company?
- More capital can be raised; therefore easier to expand
- Limited liability
3 Disadvantages of a Public Limited Company?
- If someone buys enough shares they can take over the company
- Accounts have to be made public
- More share holders = More the profit has to be shared
What is a Not-for-Profit Business?
When a business aim to generate capital for the sake of funding the community
5 Aims for a Business?
- Survival
- Growth
- Maximise Profits
- Be more ethical
- Achieve Customer Satisfaction
What is an Objective ?
A specific target that measures whether we have achieved our Aim
[For example an aim can be to grow, the objective will be to set up 200 more firms nationally etc…]
Explain how objectives of of a start up business are likely to be different from that of a more established business?
A start up may prioritise survival whereas a more established business may have an objective of growth
What are Stakeholders?
People affected by a business [Owners, Employees, Local Community, Customers, Government etc…]
What is Revenue?
The income earned by a Business
What is a Fixed Cost?
A cost that does not vary with output
[They have to be paid whether the business is profitable or not. Like Salaries, rent etc…]
What is a Variable Cost?
Costs that increases or decreases depending on a Businesses output
[For example; running machinery. more machinery = more output = higher variable cost]
What is Profit [or loss] ?
The difference between revenue and cost.
What is a Business Plan?
A plan of what a business will do in order to achieve its aims
3 Advantages of creating a Business plan?
- Highlights possible flaws in business - before they’ve wasted time and money
- Convince investors
- Forces the business to be organised, careful and efficient
3 Disadvantages of a business plan?
- Can take up Time and Money
- Business plans may be overestimated
- Not Flexible; in business the unexpected can happen.
5 Factors that affect Location of a Business?
1) Location of Raw materials
2) Location of Market
3) Labour Supply
4) Competition
5) Cost
What is Average Unit Cost?
The average amount things cost
[Total cost ÷ Units Sold]
What is Economies of Scale?
When the Average Cost decreases [as your output grows]
3 ways Larger Firms benefit from Economies of Scale?
- More profit
- Can afford to decrease price; increasing customer engagement
- More profits can be reinvested into the business
What are Diseconomies of Scale?
When the Average Cost increases [as your output grows]
What is Internal Expansion [otherwise known as organic growth] ?
When a Business grows through doing more of its own activities.
3 Examples of Internal Expansion?
- E-commerce
- Outsourcing
- Opening new stores
What is Franchising?
When a company gives other firms the right to sell its products in return for a percentage of the profits.
3 Advantages of Franchising?
- Increase Market Share
- Increase Brand Awareness
- You don’t have to deal with the costs of opening up a new place
1 Disadvantage of Franchising?
- If Franchisee has poor standards the reputation can be tarnished
What is External Expansion?
Expanding by working with other Businesses
3 Examples of External Expansion?
- Joining with Supplier [control cost and quality of its raw materials]
- Joining with Competitors [bigger market share]
- Joining with Unrelated Firms [to diversify market]
What is one Reason why External Expansion may be Negative?
- A clash in Work-Culture and possibly leading to decrease productivity
