Unit 1- Understanding Business activity Flashcards
My flashcards I made during my GCSE course.
factors fo production
Define capital
money in terms of business
factors of productions
Define enterprises
-Someone who takes a risk
-Entrepreneurs
factors of production
Land
natural resources; oil, water, the land, etc.
factors of production
Labour
The people who make and market the products
Oppurtunity cost
The cost of a choice
Specialization
When you, people, and/or businesses concentrate in a field they’re good at/best at.
Division of Labour
When the task is devided between workers (usually what they specialize in)
Define Entrepreneurs
Soemone who starts a business, and bares most of the risks and takes most of the benefits.
Define Added Value
difference between the selling price and the cost price of a good or service
HOW can we add value to a service/product
Quality- Charging more/ making premium
Design- New packaging(unique/interestign)
Convenience- avalability of soemthing, like an item in a store or how a store is placed.
needs,wants, security
Define a need
something required to live
needs, wants, security
Define a want
Something you desire.
stages of economic sectors
how many classifications of businesses are there?
Three
Name the 3 economic sectors in order
- Primary: natural resources
- Secondary sector: Manufacturing
- Teritiary sector: A service or good provided
3 economic sectors
Which sector involves the harvest of natural resources
Primary sector
3 economic sectors
Which stage involves providing of a service, leisure and untility services?
Tertiary
3 economic sectors
Which sector would I classify a chef as and why? what about his food?
The chef is a service meaning he belogs to tertiary, although his food is a manufactured product, therefore its secondary.
What is the difference between added value and profit?
Added value refers to the extra amount made from a product more than its initial cost. However, it’s important to note that this additional revenue is distrubuted to cover expenses like wages, bills, and other operational costs. What remains after deducting these expenses is the profit.
Define a business
Combined factors of production in order to provide good or service to fulfill peoples wants
Give a reason for scarcity.
Limited resurces(factors of production) and unlimited wants, leading to choices(oppurtunity costs) and prioritization.
Development of economic activity
Basically the 3 economis sectors and how they develop over time.
use of specialization
Working in an area you are confident/good at; a use would be division of labour- when a task is divided amongst people who specialize in each task for example: a hospital, every doctor works in a department they specialize in.
3 examples of primary sector
- Agriculture
- Fishing
- forestry
- Mining
- Oil farming
3 examples of secondary sectors
- Textile industries
- food processsing
- Printing and Publishing
- Building tool production
- Construction
- Electronic manufacturing
3 examples of tertiary sectors
- Barber
- Restaurant
- Mall
- tourism
- Health care
- ICT services
Purpose of business activity
To satisfy our wants and needs. And to make profit.
Define public sector
A government owned business, in order to provide for country, has no competition or aim of profit but can make profit.(some are however free)
Define the private sector
The business is owned by an owner, has competition with other businesses about the same goal; to make a profit.
Define a mixed economy and give an example.
Includes public and private sectors, for example in the UAE we have public(government rub) and private(enterpreneur run) schools, public ones with the aim of educating citizens and private with the aim of making a profit.
unlimited wants + limited resources = ???
Scarcity
3 sectors of economy
Factors of a developed country
atleast 3
- Few primary sectors
- More secondayr and tertiary sectors(moslty tertiary)
- High income
- Manufacturing is imported
- Living standards improved
Factors of a developing counrty
atleast 3
- Low life expectancy
- Low income
- Birth rates exceed death rates.
- Employed in primary sector
- low levels of educationa nd health care.
3 economic sectors
Define De-industrialization and an example of it.
Decline in workers of primary sectors and secondary sector while increase in tertiary sector. In the UK it became easier/cheaper to import materials and resources.
Advantages of specialization
- Workers work efficiently(increasing output)
- Less time wasted
Disadvantages of specialization
- Workers may get bored
- One persons absence may effect or stop the project entirely.
Benefits of being an enterpreneur
- Induced in your hobbies and interests
- More income(likely) than and employee
- independence
- Power of putting ideas into practice
Disadvantages of being an enterpreneur
- Risk
- Lack of experience
- Capital needed(from servings)
- oppurtunity costs
common characteristics of an enterpreneur
- Confident
- optimistic
- risk-taking
- hard-working
- innovative
- independent
Why do governments support business start-ups?
- Low unemployment
- more income(output)
- more competition
- can grow further
- benefit the society
Define an Overdraft?
withdrawal of a set amount of money every month.
Who would measure the size of businesses?
- investors: who they’re investing in
- Governments: who they’re supporting and often a different tax.
- Competitors: who they’re up against
- workers: who they’re working with
- Banks: how important the loan/capital plays a part.
How would you measure the size of a business?
- No. of employees
- No. output
- No. of capital employed
- Value of sales.
What does capital employed mean?
The capital spent.
Definition of a business plan
A document that has information and objectives on the owners, operations, and finance.
HOW would a government help a business start-up?
- Business idea: Sessions with professionals+advice
- Premises:’eterprise zone’low cost for start-ups.
- finance: loans and grants
- Labour: provide training and productivity
- Researchers: tell universities to allow start-ups to access research/data.
A business plan includes…
- which products
- cash flow
- business costs
- location
- RESOURCES required
uses of a business plan
- reduces risks( provides guidelines to bank and enterpreneur)
- Gains trust of bank/government
- Helps gain finance.
How could a business be capital intensive ?
If they have newer technology/ factories/ don’t need many workers then they will have no problem producing a large output with fewer workers(meaning they don’t have to pay loads of wages) therefore being capital intensive.
5 private sector business organizations?
- Sole-traders
- Partnerships
- Co-operatives
- Public limited companies
- Private limited companies
What is a sole-trader?
A sole trader is a person in the private sector owning and managing a business, solely by themselves. They can hire employees, but still have unlimited liability.
Define Limited liability
When owners and share holders are only responsible for paying how much they invested of a loan or debt. E.g: A cafe takes a $1000 loan, but only utilize $500, they are liable to only pay back $500.
What is unlimited liability
When the owner/shareholders can be forced to sell all their property to pay off a loan/debt by the bank(the bank has the right to do this, in this case.). E.g: A cafe takes a $1000 loan, they may have to sell their, land, and everything they have in order to pay the 1000 dollars.
Advantages of sole-trading
List atleast 4
- Close contact w/ customers
- After paying tax, you keep profits(unless you hired workers)
- Secrecy - can avoid plagiarism as they only need to share business details with tax officer/Bank
- Few legal registrations
- You are your boss - you make decisions and aren’t required to ask someone.
- Choose your work hours and holidays
What are some legal registrations for a sole-trader that they must partake in/sign?
- A license(if they wish to start health care or sell alchohol)
- Government tax office
- Sometimes a business name is required and is significant.
Disadvantages of sole-trading
Name atleast 4
- No one to discuss ideas with/ get advice
- Unlimited liability(risk of loosing everything)
- Finance is limited to your savings making it harder to expand
- hard to expand
- Banks are often reluctant to lend money, as they most likely won’t expand and may fail
- no one else to proivde capital aside bank and you.
- Discontinued legally after owner dies.
Who would i recommend sole-trading to?
- people who want to start a business
- Business ideas that don’t require much capital to start
- Business plans dealing with the public.
List key point of Partnership business organizations
- 2 or more people making a business
- 20 people maximum( for e.g: in india)
- These people sign a (recommended) partnership agreement/ deed fo partnership
5 private business organizations
Components of ‘deed of partnership’ or partnership agreement are…
- How much capital each side invests(helpful in settling feuds)
- How to arrange for an absence
- Task of each partner
- How the profit is distrubuted(via checks, cash or card or how much each partner gets)
- If someone can join, how?
- Voting rights and how decisions are made
Why may it be a good idea to sign a partnership agreement though it isn’t legally required?
(I’m asking for a single reason)
To settle feuds like who put in more capital into the business or who may have more right.
Advantages of a partnership organization
- More capital invested(allowing for expansion)
- responsibilities of business are shared(workload distrubuted)
- Motivation- in order to make a profit, they’d have to work hard.
Disadvantages to a partnership organization
- Still in unlimited liability
- Not an LLC(unincorporrated business)
- If one partner is faulty there’s a loss
- Capital may be limited by how much 20 people can put in depending on the business
2 ways a business can grow
- Internally
- Externally
Define internal growth of a business
Expanding an existing franchise. E.g: A Mcdonald’s opening in another country. Is slow but managable growth.
3 types of external growth
Define conglomerate integregation
One of the 3 ways to grow externally-Activity in more than one industry.(diversification) E.g: A textile production company merging with a car parts factory.
3 external growths
3 ways a company can grow externally are:
- horizontal
- vertical
- conglomerate
What is external growth?
When a company merges with another sector in the same industry
3 types of external growth
horizontal growth and one advantage
integregation with the same sector and business industry, effectively reducing competition. E.g: a textile production company merging with a nother textile production company(secondary sector, cloth production)
Vertical growth
- Vertical: same business different sector.
- Backward vertical: merging with a business in lower sector (e.g: copper wire manufacturers merging with a copper mine)
- ** Forward vertical:** merging with business in a higher sector(e.g: copper wire manufacturers merging with electrical product manufacturer)
Benefits of horizontal integregation
- Reduces competition
- Both get more capital in addition to what the previously had
Benefits of vertical integregation (Both)
- Backward vertical:
- Prevent supply to other manufacturer.
- Assured supply of important parts.
Forward vertical:
- Assured outlet for product
- Information of consumer needs gained directly from retailer.
Benefits of conglomerate integregation
- Risks are divided; if ones demands goes down, the likeliness of the other going up is likely (e.g: newspaper and social network companies integregate - demand of newspapers goes down, social networking goes up.)
- Acitivity, ideas, and tips discussed; e.g: insurance company and advertising company, isurance may benefit from adverstisment tips.
Why would some businesses choose to stay small?
- type of industry(e.g: hairdressers, they don’t need to get bigger)
- Market size: amount of consumers is small.
- Owner objectives: some entrepreneurs prefer small and managable businesses with customer interaction
Why do some businesses fail?
- poor management: for example choosing a bad location or passing a family business to son/daughter who don’t manage it well nor hire experts.
- Failure to plan for change: if more competitors, new technology, and economic changes aren’t planned for nor responded to correctly, business may fail.
- Poor financial management: inability to pay wages, bills, loans, landlords, governments etc. due to lack of liquidity
- Over-expansion: expanding too quickly allowing for loans to build up and things to get out of hand/un-managable.
- Risk of new business : lack of experience in industry than an older owner may have. May lack resource or research.
Why do some businesses want to grow?
- Possibility of more profit
- More status and prestige for owners(most likely a higher salary too)
- lowers average cost: less wages and bills but more income for example purchasing a unit that’s faster uses less elecricity per hour but gets more income.
- Large share of market : more popularity means more customers.
What’s an LLP?
Limited partnership- an option in some countries that gives limitied liability to partnership companies, givign ability to still exist after the death of a partner, unlike in normal partnerships.
What is seperate legal identity?
Incorporated business- Owner(s) are seperate fromt he company- the company may; sign contracts, hire employees etc. but if company is sued, the owners aren’t effected.
an important point is that the owners have seperate accounts from company.
What is a share?
A part of a company the public can invest capital in or buy essentially gaining part ownership.
What is a Private limited company?
An incorporated business owened by shareholders and the company.
Advantages of Ltd.’s
- Shares can be sold to many people
- All shareholders get limited liability
- Owners keep control as long as they don’t sell too many shares
- Continues after death of an owner.(unlike partnership)
Disadvantages of Ltd.’s
- Have to sign many legal formaltities
- Can’t advertise to public
- Accounts must be public
- Uncertainty- not easy to transfer shares
Why is it important for people or businesses to know if the orginazation is not a sole-trader or partnership?
If they’re not a sole-trader or partnership they have limited liability, you can only make them payback what they invest, e.g: creditors- Should know so if business fails they have knowledge they can only take them to court to pay what they spent, and won’t get all their savings back.
2 legal formalities a Ltd. must sign?
- Article of assonance: has rules
- Memorandum of Association: has information.
What’s in the Article of association?
Rules such as:
- rights and duties of directors
- How to manage election of directors
- meetings
- how shares are distrubuted
Memorandum of association contains….
Important informations such as…
- About directors
- Objectives
- number of shares
- name of each director must be stated
- Address and name of Advisor of a registered office for sending shares
Both memorandum of association and article of association are required to….
issue a certificate of incorporation
Ltd is suitable for…
- Family businesses and partnerships who want to expand further while reducing risk to capital, status allowing more capital(sufficient for businesses)
Who is an Ltd not suitable for and why?
Large businesses - not allowed to sell shares to the public, only family or friends.
Why aren’t Ltd.’s allowed to sell shares to the public?
To maintain control and privacy of the sompany owners, as they don’t have the same level of disclosure as Limited companies. Therefore they’re able to focus on short-term goals without the pressure of the public scrutiny (investigation).
If an Ltd. wants to sell shares to the public, what must it do/undergo?
Become a Limited business(public limited company)
Advantages of limited companies
- No limit to the number of shareholders
- No restrictions to shares
- Also incorporated business
- High status(banks will be more will to lend money)
Disadvantages of limited companies
- Legal formalities
- More regulations such as publication of account
- Some become difficult to manage
- Selling shares to public’s expensive; you must hire a bank merchant who helps print thousands of prospectors(both items are additional costs)
What is publication of account in limited companies?
Making your account public to protect a customers interest or to show a bank; overall there’s lots of publication of information in Limited companies so be prepared to share a lot of it.
What is the “divorce between ownership” and control?
In limited companies; shareholders own, directors(and managers) control
Shareholders only get a say at the —- meeting where they can —– a manager, the manager is now seen as a —-(they may not even be a shareholder)
- AGM
- Elect
- Company director
Why may electing a good company director be important for shareholders?
A good director could justify higher payments and status while a bad director could change the company for their own selfish objectives or cut dividends.
What’s a dividend?
The payments made to shareholders form the profit(after tax) as their return for investing in the company.
What’s a public limited company called in the UK?
Plc
What’s a private limited company called globally(in abbreviation)?
Proprietary limited (Pty) or Ltd.
What’s a private limted company in the UK called?
Ltd. or limited
What’s a public limited company called globally(in abbreviation)?
Limited.
What is a joint venture?
When 2 business do a project together sharing capital, risks, and profits.
Advantages of a join venture
- Sharing costs
- Other company can have local knowledge of area of project
- Risks are shared
Disadvantages of joint venture
- If successful then profits are shared
- Disagreements on important decisions may occur.
- Different companies have different cultures and may run businesses differently.
Advantages of a franchisor
- All products franchisee sells are bought from franchisor
- Management is a franchisee’s responsibility
- Fast expansion via outlet
- Franchisee buys license from franchisor
Disadvantages of a franchisee to a franchisor
- One bad outlet leads to a bad reputation
- Franchisee keeps the outlets profits.
Disadvantages of a franchise to a franchisee
- License fee and(possibly) annual turnover fee must be payed
- Unable to make decisions for area(as the franchisor does that- they may not make the correct ones)
- Less independence
Advantages of a franchise to a franchisee
- Banks are willing to lend money to higher status
- Advertising done by franchisor
- Trained staff from franchisor
- Fewer decisions are to be made by you
- All supplies is from a central source
- Chances of failure reduced
Franchisee contributions to a franchise?
- capital
- enterprise
- management
Franchisor contributions to a franchise?
- Original idea
- Use of brand name and product
- Advertising and training
In a joint venture, both parties —-, but both praties must —–.
- Profit
- contribute.
Why is the franchisee an enterprise and not the franchisor?
Enterprise refers to taking the risk and running an individual bussiness run buy the franchisee, by using the franchisors brand, business systems, and support.
What is a franchise?
The use of the brand names, promotional logos, and training methods of an already existing business. That has been bought by a franchisee who was given a license to use them.
What is a franchisor?
A business with a product or service they do not want to sell to the consumers directly. (so they instead appoint franchisee’s to do it)
What is a franchisee?
Someone who buys the brand name, promotional logos, trading methids, business idea, product, or service via license, and sells it in an outlet.
Defien nationalization
When a government buys a private business.
Benefits of nationalization
Can secure jobs and the business, as well as be kept open.
How does a public corporation work?
Owned by government but run by board directors whose duty is to run and aim at onjectives that government clearly provides them.
Advantages of public corporations
- Trust: some major companies like water and electricity may seem safer in the hands of the government
- Less competition means you’re less likely to get ripped off; if government has monopoly over something, they can sell it for a price without ripping you off like some other companies may if they’re competing.
- Failing businesses can be nationalized
- Non-profitable things can be available (Like TV and radio)
Disadvantages of public corporations
- Private motive may not be as powerful without shareholders.
- Managers may take advantage of the government being a safety net.
- Less competition may lead to less effort.
- May use the business for politcal reasons.
Why set business objectives?
- To motivate workers
- To set a clear aim
- make wise decisions
- Can compare business success by how close they are to their goal
6 common private sector objectives are…
- Survival
- Profit
- Return to shareholders
- Growth
- Market share
- Service to community
Why may a private sector business have survival as an objective?
A new business may want to survive before making profits- to stay afloat
Why may a private sector business have growth as an objective?
- Secure jobs
- Increase salaries and status of managers
- Open up possibilities
- Higher market share
- Obtain cost advantages
Why may a private sector business have “Return to shareholders” as an objective?
- To keep selling shares
- For manager to keep position
Why may a private sector business have Profit as an objective?
- To pay back enterprises for risks and capital that was invested
- Provide finance for investments
Why may a private sector business have “service to community” as an objective?
- Social; help with finding/giving jobs
- Environmental help/support
- Financial; invest back into the business
Why may a private sector business have Market shares as an objective?
- increase customer trust in popular company(publicity)
- Influence of cutomers(setting or reducing prices)
- Supplier influence- Supplier will likely supply popular trusted company.
2 ways to return to shareholders
- Increase dividends
- Increase share prices, more profit, and make plans for business to improve.
Formula for market share
( Company sales/ Total market sales ) x 100
Why may objectives of a business change?
- Has survived 3 years, now it wants to increase profit.
- Operating in non-financially stable company/economy suddenly becomes unstable; their new short-term objective is to survive
- They achieved a higher market shares- now they must increase the returns/dividends to shareholders.
Objectives of public sector businesses
- Service: achieve goals set by government.
- Financial: Re-invest profits into business(but most of the time the government takes these)
- Social: secure/provide jobs
What is a stakeholder?
Anyone and everyone who is interested in or effects the business.
Examples of internal stakeholders
- Owners
- Managers
- Workers
Everyone working, running or ownign the business
Examples of external stakeholders
- Banks
- Governments
- Competitors
- Whole community
Groups outside of the businesss
