Unit 1-Business In The Real World Flashcards
What is Enterprise?
The actions of someone who takes a risk by setting up, investing in and running a business.
What is an Entrepreneur?
Someone who takes a calculated risk through starting a business and makes an investment of their own money to set it up.
What are some characteristics of an Entrepreneur?
-Innovative
-Risk-Taker
-Hard working
-Organised
Why might someone decide to become an entrepreneur?
-Be their own boss
-Flexible working hours
-Earn more money
-Identify a gap in the market
-Dissatisfaction with current job
-Personal development
What is a Business?
An organisation that exists to produce goods or supply services to customers.
What are goods?
-Actual objects, that can be felt and touched and are produced and consumed.
What is a service.
Activities that are intangible, provided by a business.
What are needs?
Goods and services we need to live. E.g. Food, water.
What are Wants?
Goods and services that we like to consume but do not need to survive. E.g. Phone, Holidays.
What does Opportunity Cost mean?
The cost of what has been given up, sacrificed or forfeited when another option has been chosen.
What are Not-For-Profit Organisations?
An organisation set up to provide a good or service to help others without gaining a profit. E.g. Charities.
What is the first business sector?
The Primary Sector-Extracting raw material. E.g. Farming,Mining
What is the second business sector?
The Secondary Sector-Manufacturing goods. E.g Car manufacturing, Chocolate factory.
What is the third sector?
The Tertiary Sector-Providing services. E.g. Shops, hairdressing.
What are the four factores of production?
Land-Where the business is based.
Labour-People working in the business.
Capital-Machinery,buildings needed by the business to produce the products.
Enterprise-Refers to the entrepreneurs who take risks and create things from the other factors of production .
What does dynamic nature of business mean?
-Changes that could be outside the control of the organisation. Successful businesses will be able to meet those changes. E.g. What customers want.
What are some changes in the business environment?
-Legislation
-Economic
-Technological
-Environmental
-Social
-Staff training.
What is a Sole trader?
An individual who has sole ownership of a business, can also employ people. E.g. hairdressers.
What are some drawback of being a sole trader?
-Unlimited liability
-May not have all the skills needed
-Making decisions can be stressful
-heavy workload.
What is a partnership?
A business is owned by more than one person. E.g. doctors.
What are the benefits of being a partnership?
-Simple to form
-Losses will be shared
-Workload shared.
What are the drawbacks of being a partnership?
-Unlimited liability
-Decision-making can take longer
-Profits are shared.
What dies unlimited liability mean?
Owners have to use their own personal funds to pay for debts.
What are limited companies?
A company is formed when a business is set up to have a separate legal identity from its owners. Finances are separate from the owners personal finances. Owners are known as shareholders and have limited liability.
What does limited liability mean?
Shareholders only lose the money they have invested.
What is a Private limited company?
An LTD can raise funds from investors, such as friends and family but not from the public as its shares are not listed on the stock change.
What are the benefits of being a Private Limited Company?
-Limited Liability
-Easier to raise finance
-There is a stable form of structure.
What are the drawbacks of being a Private Limited Company?
-Shareholders have to agree about how profits are distributed
-Less privacy
-Greater administrative costs
What is a Public limited company?
A PLC is complicated and expensive to set up, but can raise money through selling its shares on the stock exchange.
What are the advantages of being a Public limited company?
-Limited liability
-Stable form of structure
-Can raise money through the stock exchange
What are the disadvantages of being a Public limited company?
-Shareholders may not agree on things
-Public can see company information and accounts.
What are some factors that may influence choosing the most suitable legal structure?
-Size of the business
-Type of business
-Control
-Growth-Becoming a PLC allows a large amount of finance to be raised
-Investment protection-Limited company chosen so investors have limited liability.
What is a Social enterprise-Not for profit Organisations?
-To be classed as a social enterprise, at least 50% of surplus money must be reinvested into the enterprise or to help the social need.
What is an aim?
It states the overall purpose for the business, the long term goal.
What is a Mission statement?
A description of the overall aims of a business.
What is an objective?
Specific, measurable targets to help meet the aims of the business.
What are some examples of a business’s objectives?
Survival-Often entrepreneurs find that their idea was not that good which means the business find it hard to gain a profit.
Profit Maximisation-To make as much profit as possible.
Market share/sales maximisation-Increasing market share and becoming market leader.
Growth-Increase profits through expanding within the home market or internationally.
Shareholder value-Want to increase dividend payment so Shareholders are happy.
Social/Ethical responsibilities-Environment and correct ethical issues.
Customer Satisfaction-Providing a quality service or products so customers will return.
What are the role of objectives in running a business?
-Direction
-Focus for employees
-Allows planning
-Measurement of succes
How will objectives differ between businesses?
The size of the business-Different sized businesses will have more complex or easier objectives.
Level if competition faced-If there is little competition a business might focus on profit maximisation while if there is a lot of competition they may focus on customer satisfaction or market share.
Type of business-Not-For-Profit organisations will focus on social/ethical objectives. Sole trader may focus on survival. PLC’s may focus on growth and maximising shareholder value.
How can you judge success from objectives?
-Most will focus on financial objectives.
What is a Stakeholder?
Any individual or organisation who has a vested interest in the activities and decision-making of a business. For example:Employees, Customers, Suppliers, Government, Local Community and shareholders.
What are the different objectives of different stakeholders?
Shareholder-Growth of business and high dividend payments.
Employees-Rewards, job security, job satisfaction.
Customers-Value for money, product quality.
Suppliers-Continued, profitable trade.
Government-Help business grow, correct payment of taxes.
Local Community-Creating jobs, minimal environmental impact.
What are some factors affecting Locatiom?
-Availability of raw materials.
-Proximity to the market.
-Costs.
-Labour
-Competition.
What is a business plan?
A written document that describes a business, its objectives, strategies, market and its financial forecast.
What information is included in a Business Plan?
-The idea, objectives and targets, market overview, marketing, cash-flow forecast.
What are the advantages of having a Business Plan?
-Reduces risk, allows to review the business’s progress, help to secure finance, includes market research.
What are the disadvantages of having a Business Plan?
-Sales may be overestimated.
-May need constant updating.
-Requires time.
What does Economies of Scale mean?
-Achieved when the average cost per unit falls as the scale of production increases.
What are the two types of Economies of Scale?
Purchasing-Achieved when big businesses are able to negotiate discounts for buying bulk supplies, reduces unit cost.
Technical-Investing in expensive machinery for production, allows bigger businesses to produce greater quantities resulting in average unit cost of production decreasing.
What does Diseconomies of scale mean?
Occurs when the average cost per unit increases and the scale if production increases.
What are the two types of Diseconomies of Scale?
Control-Large businesses may experience problems monitoring productivity and work quality.
Motivation-May decrease in a growing business, as workers may feel that managers don’t value them as individuals, may result in a decrease of productivity.
What are some factors that may affect the method growth?
-Size of business
-Nature of product
-Position in the market
-Financial position of business
-Regulation
What are the advantages of external growth?
-Quicker, increased market share and power and risk is spread.
What are the disadvantages of External growth?
-Can be expensive, managers may not be experienced enough.
What are the advantages of growth?
-Economies of Scale
-Access to more retailers
-Greater brand awareness, less vulnerable to takeovers
-Easier to raise finance and can employ specialists
What are the disadvantages of growth?
-Diseconomies of Scale, Slower decision-making, Communication more difficult
-Employees may become de-motivated, Co-ordination can be diffcult
-Increased costs and relationships with customers may be lost.
