unit 1- business in the real world Flashcards
Why do people start businesses?
-to make profit
-to benefit others
What is a good?
-actual objects. They are tangible
What does tangible mean?
they can be touched
What is a service?
-activities provided for you by another people or businesses.
What does intangible mean?
you cannot touch them
What are 6 examples of a good?
-food
-phones
-pens
-books
-clothes
-jewlery
What are 6 examples of a service?
-school
-restaurant
-Nail tech
-Hairdresser
-bus driver
-holiday/travel
What is a need?
goods and services that we have to consume to survive
What is an example of a need?
food,shelter,warmth
What is a want?
goods and services that we would like, but do not have to consume to survive
What is an example of a want?
holidays,phones
What is an opportunity cost?
-the cost of the next best alternative
-losing out on one of the options
What is an entrepenur?
someone who takes a calculated risk through starting a business
What does enterprise mean?
-another name for a business
-describes the actions of someone who takes a risk by setting up, investing in and running a business
What are the 8 characteristics of entrepenurs?
-innovative
-Risk taker
-hard working
-organised
-determined
-persuasive
-leadership
-lucky
Why would someone choose to start their own business?
-make a profit
-investing money
-turn a hobby into a business
-to be your own boss
-to make a difference
What are the 4 factors of production?
-land
-capital
-labour
-enterprise
What is land (factors of production)?
the natural resources used to provide a good or service
such as water, a plot of land. fields, fish or coal
What is labour (factors of production)?
the workforce used to produce a product or provide a service
such as builders, teachers or plumbers
What is capital (factors of production)?
Money, but ALSO the man-made resources used to produce a product or provide a service
such as machinery, tools, money or delivery truck
What is enterprise (factors of production)?
The ideas and organisation behind the other factors
What are the three types of activities (secors)?
-primary
-secondary
-tertiary
What is the primary sector?
extracting or harvesting raw materials
What is the secondary sector?
manufacturing
What is the tertiary sector?
services
What are the three characteristics of a sole trader?
-one trader=one owner
-this does not mean there is only one person in the business
-to set up-register with tax authorities as self-employed
-pay income tax on profits
What does unlimited liability mean?
-the owners of a business are responsible for all of the debts of a business
What are the characteristics of unlimited liability?
-personal belongings can be taken to pay off debts
-Business and owner=ONE ENTITY
What does limited liability?
-the shareholders of a business are not responsible for thee debts of a business
What are the characteristics of limited liability?
-personal belongings will not need to be given up to pay the debt
-the owners will lose the money they invested in the business if it fails
What is sole traders suitable for?
-start ups
-working alongside their normal jobs
-people with little personal wealth
Advantages of Sole Traders(6)?
-easy/cheap to set up
-quick decisions/complete control
-less capital needed
-keep all profit
-flexible working hours
-dont need company information public
Disadvantages of Sole Traders (4)?
-Unlimited liability
-Difficult to raise money
-impact of illness/holidays -long hours
-no one to share ideas with
Characteristics of partnerships?
-JOINT ownership
-2-20 partners
-set up by-deed of partnership
-sets out who is going to do what and what share of profit each partner will get
-protects each partner of aa DISPUTE arise
-commonly used for, Doctors, Accountants, dentists, lawyers, vets
Advantages of partnerships (5)?
-wider range of skills/expertise that ST
-greater access to finance/capital
-shared decision making
-pressure reduced due to shared roles
-shared responsibility for debt
Disadvantages of partnerships (6)?
-capital can still be limited
-unlimited liability
-profits are shared
-if one partner dies-it dissolves
-can cause arguments
-need for a deed of partnership
Characteristics of Private Limited Company?
-wrote ad LTD
-shares are sold to friends and family
-all shareholders have to agree before issuing more shares
Characteristics of Public Limited Company?
-wrote as PLC
-Shares are sold to the public on the STOCK EXCHANGE
-Anyone can buy shares
-RISK OF TAKEOVER
what are the advantages of a Private Limited company?
-limited liability
-shares can only be sold, if all the shareholders agree-no risk of takeover
-capital can be raised through selling shares
-other businesses and lenders are more likely to trade and invest
-the business continues if the owners dies.
-possible tax benefits for the owners
What are the disadvantages of Private Limited companies?
-longer legal process to set up
-increased costs in setting up
-profits have to be shared with shareholders
-have to prepare annual accounts for all shareholders
-annual accounts are published to the general public.
advantages of public limited companies?
-limited liability
-huge amounts of capital can be raised through selling shares to the public.
-it is easier to raise finance from banks and other lenders who are more willing to lend to PLCs.
-they are likely to have economies of scale
-shareholders can appoint specialist managers to run the company for them
What does economies of scale mean?
buying in bulk (e.g Costco)
Disadvantages of public limited companies?
-increased costs in setting up
-anyone can buy shares so risk of losing control
-increased legal requirements
-the company accounts are in the public domain
-divorce of ownership and control
-the increased size may result in inefficiencies
What does the legal structure depend on?
-size of business
-type of business
-lender requirements
-investment protection
-control
-growth
Characteristics of not-for-profit organisation?
-have an objective of something other than profit
-dedicated to a social cause
-they have limited liability
Characteristics of charities
-make most of the money through donations
-all conduct business activities
-all proceeds need to be spent in accordance with charity aims
Characteristics of enterprises?
-make money from business activities
-at least 50% of profit must be reinvested into their mission-not paid to shareholders
Define aims?
long term plan of a business which direct its objectives
Define objectives?
medium to long term goals of a business
What are some objectives for a business?
-survival
-profit maximisation
-growth(domestic/international)
-sales maximisation/market share
-customer satisfaction/quality
-social and ethical objectives
What are the roles of objectives?
Why do businesses set objectives?
-provide direction for businesses
-without clear objectives, a business may provide goods and services that are not appropriate to why the business was set up
-may result in it not being successful
-provides focus for employees
-allows planning
-provides a way of reassuring success
What objectives differ between businesses?
-size of the business
-level of the competition faced
-type of business
What external objectives may change as businesses evolve?
-larger more established businesses vs smaller start up businesses
-become the dominant business in the market
-ethical and environment considerations
What internal objectives may change as businesses evlove
-international expansion
-increasing shareholder value
What are other ways to measure a business other than profit?
-high quality service/products
-customer loyalty
-social cause
Define shareholder?
owns shares in a business
Define stakeholder?
someone with an interest in the business
Give some examples of stakeholders?
-competitors
-supplies
-customers
-shareholders
-employees
-owners
-credit
-lenders (banks)
define customer
someone who buys s product from a business
define consumer
someone who uses goods and services produced by a business
define social enerprise
a business that is set up to help society rather than to make profit
define interest
the money paid by banks as a reward to attract people to save with them
define interest rates
the cost of borrowing money or the reward for saving money, given as a %
define inflation
the rate at which prices are increasing
define stock exchange
a market for buying and selling shared of public limited companies.
define a flotation
occurs when a private limited company becomes a public limited company and has its shared listed on the stock exchange
how to calculate the sales per employee
sales / number of employees
how to calculate market share
sales of product / total market sales x 100
define dividends
the financial rewards paid out to shareholders each year
define protectionist measures
policies that government use to protect their own businesses against foreign competition
define a tariff
a tax on foreign goods imported into a country
define imports
goods and services purchased from overseas by consumers of businesses
define a quota
a limit on the number if foreign goods imported into a country
what are the 5 factors that influence where a business is located?
-proximity to the market
-availability of the raw materials
-labour
-competition
-costs
Proximity to Market: what are customers important for
-retail businesses
-convenience stores
Proximity to Market: What are customers less important for
-businesses require larger physical space
-online businesses
Availability of Raw Materials: Near suppliers if…
-products produced are larger or costly to transport
-they need to be close to natural resources
Labour: Skills that businesses
-finance, London
-Silicon Valley, USA
-Aero technology, Coventry, Bristol
Labour: Availability
-population
-job seekers
Labour: cost
-salary expectations
Competition
-some businesses locate near competitions (electrical stores in retail parks)
-some locate away from competitors (newsagents)
Costs: Setting up a new businesses will incur a number of location costs include
-planning permission
-purchasing or rental
-refurbishment
-labour costs
-transport costs
what are the main reasons why businesses fail?
-flawed business plans
-poor financial control
-lack of knowledge of market
