Unit 1- Business in the Real World Flashcards
What are characteristics of entrepreneurs?
Willingness to take risks
Hardworking and committed
Innovative
Organized
List and explain the different business sectors
Primary sector: first stage of production, extract the Earth’s natural resources, eg: mining.
Secondary sector: organizations that use raw metal to manufacture goods or construct items, eg: car manufacturing.
Tertiary sector: organizations that provide services to consumers or to other organizations, eg: education.
What is a PLT?
list the advantages and disadvantages
A business owned by shareholders whose shares cannot be freely traded on the Stock Exchange
ADV
- Limited Liability
-Have a separate legal identity
-Able to hire experts and specialist managers to run it.
DIS
-Complex to set up
-Expensive to set up
-Financial information available online, benefits rivals.
-Selling shares to raise money can lead to control loss over the business.
What is limited liability?
Exists when a business and its owners are legally separate. The owners personal possessions cannot be sold to pay the business’s debts.
What is unlimited liability?
The personal possessions of the owner of the business are at risk if there are any problems. There is no limit to the amount of money the owner might have to pay out.
Explain shareholder
A person or organization that owns a part of a company, Each shareholder owns a ‘share’ of the business.
Who are stakeholders
Individuals and businesses that are affected by, and affect a business.
Name the main stakeholder groups
Owners:
Customers:
Employee:
Local community:
Suppliers:
What are the factors influencing business location?
Proximity to market: how close the business’s location is to its customers.
Availability of raw materials: The easy availability of raw materials for businesses that manufacture products, especially if those raw materials are bulky and expensive to transport.
Suitable supplies of labour: when a business seeks to locate where there are supplies of labour with required skills and low wages.
Competition: when more than one business who both sell the similar products, attempt to attract the same customers.
Costs: the expenditure that is necessary to set up and run a business.
What is revenue?
The income that a firm receives from selling its goods and services.
What is total cost?
fixed costs + variable costs
What is fixed costs?
Those costs that do not change when a business increases its output. (or production)
What is a variable cost?
Those costs that vary directly with a business’s level of output.
What is profit?
A business makes profit when its revenue is greater than its total costs over a period of time.
What is loss?
The amount by which a business’s costs are larger than its revenue from all sales over a period of time.
What is the formula for revenue?
Revenue = the number of products sold x their average selling price
What is the formula for total costs?
Fixed costs + variable costs
What is the formula for profit?
Profit = revenue - total costs
What are the methods of business expansion?
Expansion: when a business becomes bigger by increasing its output and sales.
Internal growth: the growth occurs when a business get bigger by selling more of its products.
External growth: the growth occurs when a business gets bigger by joining with, or buying another business.
What is franchising?
- type of growth
-advantages and disadvantages
Internal Growth
When a franchisor sells the rights to sell its products to a franchisee; this is usually in return for a fee or percentage of its revenue.
ADV
- Can expand rapidly as it does not need to raise finance to expand. (the franchisee does)
-Selling a franchise provides the franchisor with finance.
-Franchisees are more effective and hardworking than employees as they are managing their own business
DIS
- Franchisee can make errors which could ruin franchisors name and reputation
Most profits go to franchisee rather than the franchisor.
What is e-commerce
-type of growth
-advantages and disadvantages
Internal Growth
Act of buying or selling a product using an electronic system eg: internet.
Adv
-Businesses grow quickly with mix of online and in store.
-Avoids the need for shops to sell products
-Fewer employees needed, reducing running cost
-Customers can buy products 24/7, leads to increase in sales.
Dis
- Retailers may suffer from falling sales in their shops.
-Difficult and expensive to distribute goods to customers, especially if bulky or heavy.
-Customers prefer to see products irl.
What is outsourcing?
-type of growth
-advantages and disadvantages
Internal Growth
Occurs when a business uses another business to produce for it.
ADV
-Reduce cots as it is not necessary to buy a new factory or hire employees.
DIS
-Risky as business is dependent on other business.
Sales may be lost and reputations damaged if the outsourcing business does not deliver on time or quality is low.
What is a merger
-type of growth
External Growth
Occurs when two or more businesses join together to form a new business.
-Merger is not expensive method of growth.
-Merger can lead to the owners of both businesses loosing some control.
What is a takeover
-type of growth
External Growth
Occurs when one business buys control of another business,
-Expensive method of growth
What is the advantage of business growth (Economies of scale)
Occurs when a business’s unit costs of production falls as its output rises and the business expands.
What is purchasing economies?
businesses buying larger quantities of raw materials, giving a lower price per unit.
What is technical economies?
When cost per unit falls as a result of a business using expensive machinery in production.
What is unit cost?
The cost of purchasing a single unit of production.
unit costs = total costs / number of units of output produced.
Disadvantages of growth (diseconomies of scale)
Occurs when the cost per unit increases as a business expands too much/quickly.
-Difficult for employees to communicate, resulting in errors.
-Some employees might feel demotivated in a large business, less efficient.
-Failure to meet customers needs.
what is an entrepreneur?
someone who is willing to take the risks involved in starting a business
reason for starting a business?
spot business opportunities
take financial risks
objectives of entrepreneurs?
turn an idea to an business
stop a gap in the market
want to be their own boss
keep all profit
doesn’t like current job, made redundant
what are the factors of production
LAND- natural rsources
LABOUR- inputs by humans
CAPITAL- man made resources
ENTERPRISE- skills of the people used
what is opportunity cost
what is given up as a consequence of a particular decision or choice.
functions of a business?
operations
marketing
human resources
finance
what are the external factors which affect a business?
technological change
economic change (interest and exchange rates)
legal change
environmental expectations
what is a sole trader, name adv and disadvantages
someone who sets up a business on their own.
- simple quick, inexpensive to set up
- keeps all profit
- all control over decision making
- hardworking and stressful
- unlimited liability
- difficult to raise finance on their own
what is a partnership ADV and DIS
when two or more people join together in a business to pursue profit.
- wider range of skills available
- more access to finance
- reduces stresss
- disagreements between partners
- profits must be shared
- unlimited liability.
what is a PLC
ADV and DIS
large companies
- can sell shares via stock exchange
easier to raise money - receive lost of coverage from media, boosts sale
- banks are more willing to led money.
- pressure to increase profits in short terms.
- can be bought by other companies
- more laws and regulations.
what is a not for profit organization
organisation set up to achieve objectives other than to make profit, charity.
what is a business aim?
a general goal for a business
what is a business objective?
a specific target that is set for a business to achieve.
purpose of setting objectives?
To guide decision makers
to provide a measurable target
can assist in raising finances
co-ordination
what are the business aims
survival: trading
growth
profit maximization: to make the highest possible profits.
what are business objectives
market share: percentage of sales in a particular market.
customer satisfaction
shareholder value: dividends
social and ethical objectives
explain stakeholder: owner
individuals to whom a business belongs to, eg: sole traders, partners or shareholders.
explain stakeholder: customer
people or businesses who pay for the products produced by a business.
explain stakeholder: employees
a person who works for a business.
explain stakeholder:local community
the people in the area surrounding a business.
explain stakeholder: suppliers
Individuals or businesses that provide goods or services to the business.
objective of stakeholder: owner
financial rewards
business growth
objective of stakeholder: customers
value for money
quality products
objective of stakeholder: employees
good working conditions
fair pay
secure jobs
objective of stakeholder: local community
protection of the environment
employment for local people
objective of stakeholder: suppliers
regular orders
payment on time
clear communication
impact of business activity on stakeholders
financial activities
production activities
selling activities
influence of stakeholders on a business
communication
direct action
using their power
purpose of business planning
to raise finance
to set business objectives
to organize the business
