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A-level business > Unit 1 - What is a business > Flashcards

Unit 1 - What is a business Flashcards

1
Q

Why do businesses exist

A
  • Making a profit
  • Provide goods and services
  • Enterprise (develop a good idea)
  • Provide help and support to each other
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2
Q

What is a mission statement

A
  • A declaration of an organisations core purpose and focus
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3
Q

What are the applications of a mission statement

A

Can act as a guide when making critical decisions that may affect the direction of the business

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4
Q

What is an objective

A

A goal to help a business achieve its mission

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5
Q

What are some key business objectives

A

survival
growth
profit

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6
Q

The global nature of business and the intense competition in many markets has lead to which objectives becoming more important

A

Customer service and corporate social responsiblility (CSR)

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7
Q

What is corporate social responsibility (CSR)

A

The commitment of a business to behave ethically towards their workforce, local community and society at large

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8
Q

How do objectives differ from the mission?

A

Objectives are actionable and measureable

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9
Q

What does putting together the mission and objectives to a business provide

A

A balance that helps shape a businesses operation and services

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10
Q

What characteristics should objectives have

A

The SMART characteristics

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11
Q

What does SMART stand for

A

Specific, Measurable, Achievable, Realistic and Time based.

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12
Q

What is a specific Objective

A

One that is clear, precise and well identified

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13
Q

What is a measurable objective

A

One that is possible to know when it has been completed

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14
Q

What is an achievable objective

A

One that must be within capablities and resources

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15
Q

What is a realistic objective

A

One that must be challenging but possible to achieve given the capabilities and resources

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16
Q

What is a time based objective

A

One that has a deadline to work to

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17
Q

What are the advantages of a business setting objectives

A
  • They can be used to evaluate performance as they are measurable and time based
  • Provide motivation by being realistic and achievable
  • Ensures the business remains focused on its mission by being specific
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18
Q

What are variable costs

A

Costs that vary as a direct result of changes in the level of output

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19
Q

What are fixed costs

A

Costs that don’t change as a result of changes in the level of output

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20
Q

What is the private sector

A

Part of the economy made up of private enterprises - businesses that are controlled by and individual/s

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21
Q

What are corporate businesses

A

businesses that have a legal identity separate from the identity of their owners

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22
Q

what is limited liability

A

restricts the financial responsibility of shareholders for a company’s debt to the amount they have individually invested

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23
Q

What are the two types of corporate businesses

A

Public limited company (PLC)
Private limited company (LTD)

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24
Q

What are the two types of non-corporate businesses

A

Sole trader
partnerships

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25
Q

What are the two ways by which the liability of shareholders can be limited

A

By shares and by guarantee

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26
Q

How can liability of shareholders be limited by shares

A

A shareholders liability is limited to the value of the shares they have purchased

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27
Q

How can the liability of shareholders be limited by guarantee

A

Each members liability is limited to the amount they have agreed to pay if the business becomes wound up - this is most common in not for profit businesses

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28
Q

What is a private limited company

A

They are usually much smaller than a PLC, the shares cannot be brought or sold without the agreement of other shareholders. share capital cannot exceed £50,000

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29
Q

What is a public limited company

A

Their shares can be brought on a stock exchange by any business or individual, they have a minimum share capital of £50,000 by law, the have to public more financial details than a LTD

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30
Q

What two documents must be sent to the Registrar of Companies to those wanting to form a company

A

Memorandum of Association
Articles of Association

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31
Q

What does the Memorandum of association include

A

This sets out details of the company’s name and address and its objectives in trading

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32
Q

What does the Articles of Association include

A

This details the internal arrangements of the company, including the frequency of shareholders’ meetings

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33
Q

What is sent to a newly formed business to approve it for trading

A

The Certificate of Incorporation

34
Q

Whats the relationship between non corporate businesses and their owners

A

They are not treated as separate elements meaning that in the event of failure the assets of the owners are at risk

35
Q

What is a sole trader

A

A non-corporate business run by one person

36
Q

What is a partnership

A

A business run by 2-20 people who contribute capital and their expertise.
A partnership is based on the deed of partnership

37
Q

What is the deed of partnership

A

A document which states how much capital each partner has invested, share of profits and rules for electing new partners.

38
Q

What is a sleeping partner

A

partners who only contribute capital to the business and are not active in running the business

39
Q

What are not-for-profit businesses

A

Businesses which have objectives other than making a profit

40
Q

What are some examples of objectives for not for profit businesses

A
  • To provide services to local community
  • To give people job related skills
  • Fair trading activities
41
Q

What are fair trading activities

A

When a business chooses to pay above market price for imports in less developed countries

42
Q

What are the advantages of being a sole trader

A
  • simple and cheap to establish with few legal formalities
  • Owner receives all the profits
  • No financials need to be published
43
Q

What are the disadvantages of being a sole trader

A
  • Owner is likely to be short of capital
  • Unlimited liability
  • Difficult for the owner to take time of work
44
Q

What are the advantages of being a partnership

A
  • Wide range of knowledge between partners
    -Raise greater amounts of capital than sole trader
  • Pressure is reduced as cover is available for time off
45
Q

What are the disadvantages of being a partnership

A

Control is shared between partners
Disagreements between partners
Unlimited liability
Still a shortage of capital

46
Q

What are the advantages of being a private limited company

A
  • Limited liability
  • Little amount of financial data has to be released
  • Separate legal identity
47
Q

What are the disadvantages of being a private limited company

A
  • Can’t sell stocks on stock exchange
  • Limited potential to grow due to permission to sell shares
  • Expensive administrative formalities
48
Q

What are the advantages of being a public limited company

A
  • Access to large amounts of capital by trading on the stock exchange
  • Public limited companies can gain public publicity as a result of trading on the stock exchange
  • Supplies are more likely to offer credit to public limited companies
49
Q

What is the public sector

A

The part of the economy that is owned and controlled by the government or local authorities

50
Q

What is privatisation

A

The process of converting government owned and controlled industries to the private sector

51
Q

What are the reasons for choosing different forms of businesses

A

-Formalities and expenses: sole traders and partnerships are relatively easy to set up
- Size and risk: If a business is and intends to remain small then a sole trader/partnership is more appropriate
- Objectives of the business: If a business has an objective of growth then forming an incorporated business is more appropriate

52
Q

What are the reasons to change business form

A
  • Changing circumstances within a business e.g. growth
  • Capital
  • Acquisition or takeover- may change the structure of the business
53
Q

What is ordinary share capital

A

The money invested into a company by shareholders

54
Q

What are shareholders

A

The owners of limited companies and can be people, company’s or other institution’s

55
Q

What are the two reasons individuals and businesses invest in shares

A

Income- shareholders are entitled to dividends (share of company’s profits)
Capital growth- Shareholders hope the value of their share will increase over time

56
Q

What are the influences on changes in share price

A

Performance- if profits are worse than expected, share price will decrease and vice versa.
Expectation of better or worse profit performance
Changes within the market or competitive environment
World uncertainty

57
Q

What is Market capitalisation

A

Gives a valuation of a company by calculating the share price by the number of shares issued

58
Q

What is business to business (B2B)

A

One business selling products/services for another business

59
Q

What is business to consumer (B2C)

A

One business selling products/services for consumers

60
Q

What is the transformation process

A

The process of inputs into outputs which adds value to inputs.

61
Q

What is added value

A

An amount added to the value of inputs or to a product/service

62
Q

What is the primary sector

A

Extracts or develops natural resources

63
Q

What is the secondary sector

A

Makes use of extracted primary materials to build, manufacture or develop finished goods.

64
Q

What is the tertiary sector

A

Provides the services needed to meet the needs of the end users e.g. retailers, insurance etc.

65
Q

What are corporate objectives

A

Targets for the business as a whole that are set to achieve its mission

66
Q

What are functional objectives

A

Targets set for each business function

67
Q

What is cash flow

A

The movement of money in and out of the business

68
Q

What is profit maximisation

A

Trying to make the most profit possible to reward the owners, investors and shareholders

69
Q

What is short-termism

A

When a business prioritises short-term profit rather than long-term performance

70
Q

What is profit satisficing

A

Trying to make enough profit to keep the owners comfortable - aim of smaller businesses (sole trader)

71
Q

What is the external environment

A

Refers to the aspects that are out of control of the business

72
Q

How can factors of the external environment affect a business

A

It can change the demand and cost for a product or service

73
Q

How can competition affect how a business operates

A

The strategies adopted by competitors will impact the costs of the business e.g. discount retailers such as Lidl gaining an advantage over Tesco

74
Q

What are the market conditions

A

The characteristics of a particular market

75
Q

What are some examples of market conditions

A

size, growth rate, amount and intensity of competition

76
Q

What are some examples of economic factors

A

interest rates, inflation, income, exchange rates

77
Q

How can increasing interest rates affect cost and demand

A
  • lower demand as consumers have less disposable income due to higher borrowing costs
  • Discount retailers may benefit over competitors
  • Businesses with high amounts of borrowing will have increased costs
78
Q

What is the result of falling incomes

A

Lower demand as people have less disposable income

79
Q

What is demography

A

The study of human populations which include factors such as: birth and death rates, income, level of health and migration etc.

80
Q

What is the result of successive UK governments introducing legislation to help protect the environment and pollution

A

Businesses have to spend large amounts on measures to ensure that water, air and land are kept free from pollution

81
Q

What are examples of technological factors

A

Innovation, AI, social media, data storage

A-level business (5 decks)

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