Unit 1 - Understanding business Flashcards
What is a business?
A particular type of organization that provides goods and services to customers
Needs and wants
Need-
An item which is necesary for survival such as water, food or shelter
Want-
Something which is not required however it increases the quality of our lives such as cars, TVs or holidays
Goods and services
Goods-
Things that are tangible, you can see and hold such as a phone or clothes
Service-
Things that are done for you such as a haircut or window cleaning
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Reasons for buying a service
- You don’t have the time
- You’re too lazy to do it yourself
- You don’t have the correct equipment
- Its convenient
- Its messy or dangerous
- Status (Going to a fancy restaurant)
Durable and non-durable
Durable-
Long-lasting, could be something like a television which is likely to last several years
Non-durable-
Something which has a short life span such as movie tickets which may only last for a 2-3 hour long movie
Factors of production
Capital
Enterprise
Land
Labour
(Remember CELL)
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Capital
The man-made tools, machinery, and equipment that a business uses to operate
e.g tractor, lorry, oven, building
Enterprise
This means the business ideas that the entrepreneur or owner has on how to best combine the other factors of production to make a profit and achieve their aims.
e.g the ingredients, ovens, tables, fridges, waiters, chefs are all utilised in a restaurant
Land
The natural resources that business use (raw materials)
e.g Plot of land, coal, forest, water
Labour
The workforce or the employees of a business
e.g joiner, farmer, shop assistant, teacher
Wealth creation
By adding value to a product as it goes through the production process
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Sectors of industry
- Primary
- Secondary
- Tertiary
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Primary sector
Uses the natural resources
E.g farming, oil drilling, mining, fishing
Secondary sector
Concerned with the making of products. Takes the raw materials from industries in the primary sector and converts them into products
e.g Kellogs cereal, fish fingers
Tertiary sector
Do not produce a product. They offer services.
e.g banking, tourism, hairdressers
What is an entrepreneur
Someone who has a good business idea and..
- Binds the factors of production
- Prepared to take risks with their money as to develop their business
- Invests their own money
Responsible for all aspects managing a business, employs workers + managers for help
Examples of entrepreneurs
Anita Roddick - Body shop (cosmetics)
Tom Farmer - Quick fit ( Car maintenance)
Duncan Bannatyne - Gyms and spas
Skills of an entrepreneur
- Time management
- Takes risks
- Good communication skills
- Doesn’t give up easily
- Good decision-making skills
- Good leadership skills
- Spots a gap in the market
Whats a gap in the market?
When no existing companies are selling that specific product or service
or
The product or service is not close or easy to get to
e.g American candy
Sources of help and fianance
- Bank - Financial advice, business plan, starting a business
- Enterprise agency - Advice, support, training courses
- Lawyer - What legal documents do you have to prepare
- other entrepreneurs - What mistakes to avoid, how to manage your business
- Princes trust - Practical and financial advice (18-30)
Cycle of business
- Business produces goods and services to meet customers’ wants
- Customers buy goods and services to satisfy their wants
- Wealth is created for businesses, employees and owners
- Customers have money to spend from their wages on other goods and services.
REPEAT
What is a business plan
A document that outlines the objectives of a business and how to achieve them.
Includes:
1. Costs of running the business
2. Estimates of potential income
3. Details of the products/services
4. If the business is worth setting up
Can influence people to invest in your business and give you guidance
Product life cycle
Four stages are-
1. Introduction (lots of advertising to encourage sales
2. Growth (Sales are growing because more customers know about it from the advertising)
3. Maturity (Sales are at their highest, most profitable stage)
4. Decline (sales fall, newer versions, getting older and customers no longer want it)
Type of business organisations
Private
Sole traders
Partenerships
Private limited companies
Public
National government
Local government organisations
Third
Charities
Social enterprises
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Sole trader
Usually a small business, owned and ran by one person
Pros of a sole trader
- Easy to set up; do not need to do loads of legal documents
- All the profits are kept by the owner
- The owner can chose when to work without having to consult others
Cons of a sole trader
- Nobody to share workload or responibility with
- Raising large amounts of capital can be hard
- Unlimited liability
- Difficult to aquire economy of scale e.g no discounts for bulk buyinh
Partnership
Small to medium sized business, owned by 2-20 people, run and owned by the partners
Pros of a partnership
- Workload, responsibility and decision making is shared
- Different partners bring different experiences and skills
- Fianance can be raised more easily compared to a sole trader
- Customers and suppliers see a partnership as less risky than a sole trader
Cons of a partnership
- Any profit has to be shared
- Unlimited liability
- Arguments may happen, slowing decision making
- A legal document needs to be created (partnership agreement) whihc sets out how the profits will be split
Unlimited liability means that if debts or costs are not paid off, the owner will be directly reponsible and will have to pay it off with their assets
Private limited company (Ltd)
A company owned by people who have been invited to buy shares. Owned by the share holders, ran by the board of directors
Pros of a private limited company (Ltd)
- Limited liability for share holders
- Fianance can be raised by selling more shares to existing shareholders or inviting new people to buy
- Shareholders and directors bring different experiences and skills
Limited liability means that the business will only lose money if unable to cover costs and will not have to give up their personal assets
Cons of a private limited company (Ltd)
- More compliacted to set up because of the legal processes
- Rules are laid down by the law (The Companies Act)
- financial position of the company has to be shown annually
- high setup costs
The public sector
Owned by the government on the behalf of the tax payer and provide a service to the general public.
UK parliament
UK parliament have the overall responsibility, comprised of elected MPs
Funded through taxes e.g Income tax, road tax or council tax
Scottish government
Scottish government deal with education, health and transport and is ran by the Scottish Parliament (MSPs) who are elected by the public
Local government organisations
Local government organisations get funding from the scottish government and deal with a specific area of scotland. Running schools, providing leisure facilites and emptying bins
Third sector
Non - profit making organisations
(charities and voluntary organisations)
Social enterprises
Non-profit making organisations
Set up to support specific causes.
Charities regulated by government, income made is put to a specific cause
Volentary organisations such as community football clubs aim to provide a service to people (not profit making motive)
Social enterprises
Have a main social or environmental aim. Run in a business-like way but at least half the profit goes to the cause they are supporting.
can make money through the sales of products and services
The main difference between a social enterprise and a charity is the legal structure and social enterprises are less regulated by the government
Ways to achieve customer satisfaction
- Providing the highest possible quality product
- making sure employees are trained
- Having a customer care stratagy
- Having a customer complaints procedure
- having an after-sales service
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Pros of having high customer satisfaction
- Increased loyalty -
Customers will return, taking profit from competitors and will give your business more profit in the long run - Good reputation-
Helps to maximise sales and profit (can charge more for products and services - Helps increase the share of a market
(the number of customers it has)
Objectives
Something a business aims for - a target or a goal to be achieved
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Different kinds of objectives
- Survival
- profit maximisation
- provision of a service
- Customer satisfaction
- Enterprise
- Social responsibility
- Market share
External factor
Things outside a business that an impact how it operates
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PESTEC
Internal factor
Things within a business that impact how it operates
Pestec
external factors
- Political
- economical
- social
- technology
- environmental
- competition
Political influences
- New laws (new health and safety training ect) - UK parliament
- Change the amount of tax people have to pay - Scottish government
- Can refuse planning premission - Local government
Economic influences
- Levels of employment
- Recession
- Intrest rates
Social influences
Those that are concerned with changing opinons, values and peoples beliefs
Could be a change in peoples taste in fashion, work/life balance ect
Technological influences
- Tablet computers
- Wireless technology
- Web 2.0
- Cloud computing
Environmental influences
- Weather
- A social demand to be sustainable
Competitive influences
- Can take away customers and profits
- has benefits for customers
Financial influences
The aim of growth cannot be acheived:
* Machinery cannot be bought
* No new employees
* Cannot carry out advertising
* Loans are needed
* Raw materials cannot be paid for
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Stakeholders
A person or group that has an intrest in the success of a business
Different kinds of stakeholders
- Owner
- Shareholders
- Employees
- Banks
- Customers
- Suppliers
- Local communityy
