Unit 1 - What is a business Flashcards
Why do businesses exist
- Making a profit
- Provide goods and services
- Enterprise (develop a good idea)
- Provide help and support to each other
What is a mission statement
- A declaration of an organisations core purpose and focus
What are the applications of a mission statement
Can act as a guide when making critical decisions that may affect the direction of the business
What is an objective
A goal to help a business achieve its mission
What are some key business objectives
survival
growth
profit
The global nature of business and the intense competition in many markets has lead to which objectives becoming more important
Customer service and corporate social responsiblility (CSR)
What is corporate social responsibility (CSR)
The commitment of a business to behave ethically towards their workforce, local community and society at large
How do objectives differ from the mission?
Objectives are actionable and measureable
What does putting together the mission and objectives to a business provide
A balance that helps shape a businesses operation and services
What characteristics should objectives have
The SMART characteristics
What does SMART stand for
Specific, Measurable, Achievable, Realistic and Time based.
What is a specific Objective
One that is clear, precise and well identified
What is a measurable objective
One that is possible to know when it has been completed
What is an achievable objective
One that must be within capablities and resources
What is a realistic objective
One that must be challenging but possible to achieve given the capabilities and resources
What is a time based objective
One that has a deadline to work to
What are the advantages of a business setting objectives
- 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
What are variable costs
Costs that vary as a direct result of changes in the level of output
What are fixed costs
Costs that don’t change as a result of changes in the level of output
What is the private sector
Part of the economy made up of private enterprises - businesses that are controlled by and individual/s
What are corporate businesses
businesses that have a legal identity separate from the identity of their owners
what is limited liability
restricts the financial responsibility of shareholders for a company’s debt to the amount they have individually invested
What are the two types of corporate businesses
Public limited company (PLC)
Private limited company (LTD)
What are the two types of non-corporate businesses
Sole trader
partnerships
What are the two ways by which the liability of shareholders can be limited
By shares and by guarantee
How can liability of shareholders be limited by shares
A shareholders liability is limited to the value of the shares they have purchased
How can the liability of shareholders be limited by guarantee
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
What is a private limited company
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
What is a public limited company
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
What two documents must be sent to the Registrar of Companies to those wanting to form a company
Memorandum of Association
Articles of Association
What does the Memorandum of association include
This sets out details of the company’s name and address and its objectives in trading
What does the Articles of Association include
This details the internal arrangements of the company, including the frequency of shareholders’ meetings
What is sent to a newly formed business to approve it for trading
The Certificate of Incorporation
Whats the relationship between non corporate businesses and their owners
They are not treated as separate elements meaning that in the event of failure the assets of the owners are at risk
What is a sole trader
A non-corporate business run by one person
What is a partnership
A business run by 2-20 people who contribute capital and their expertise.
A partnership is based on the deed of partnership
What is the deed of partnership
A document which states how much capital each partner has invested, share of profits and rules for electing new partners.
What is a sleeping partner
partners who only contribute capital to the business and are not active in running the business
What are not-for-profit businesses
Businesses which have objectives other than making a profit
What are some examples of objectives for not for profit businesses
- To provide services to local community
- To give people job related skills
- Fair trading activities
What are fair trading activities
When a business chooses to pay above market price for imports in less developed countries
What are the advantages of being a sole trader
- simple and cheap to establish with few legal formalities
- Owner receives all the profits
- No financials need to be published
What are the disadvantages of being a sole trader
- Owner is likely to be short of capital
- Unlimited liability
- Difficult for the owner to take time of work
What are the advantages of being a partnership
- Wide range of knowledge between partners
-Raise greater amounts of capital than sole trader - Pressure is reduced as cover is available for time off
What are the disadvantages of being a partnership
Control is shared between partners
Disagreements between partners
Unlimited liability
Still a shortage of capital
What are the advantages of being a private limited company
- Limited liability
- Little amount of financial data has to be released
- Separate legal identity
What are the disadvantages of being a private limited company
- Can’t sell stocks on stock exchange
- Limited potential to grow due to permission to sell shares
- Expensive administrative formalities
What are the advantages of being a public limited company
- 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
What is the public sector
The part of the economy that is owned and controlled by the government or local authorities
What is privatisation
The process of converting government owned and controlled industries to the private sector
What are the reasons for choosing different forms of businesses
-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
What are the reasons to change business form
- Changing circumstances within a business e.g. growth
- Capital
- Acquisition or takeover- may change the structure of the business
What is ordinary share capital
The money invested into a company by shareholders
What are shareholders
The owners of limited companies and can be people, company’s or other institution’s
What are the two reasons individuals and businesses invest in shares
Income- shareholders are entitled to dividends (share of company’s profits)
Capital growth- Shareholders hope the value of their share will increase over time
What are the influences on changes in share price
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
What is Market capitalisation
Gives a valuation of a company by calculating the share price by the number of shares issued
What is business to business (B2B)
One business selling products/services for another business
What is business to consumer (B2C)
One business selling products/services for consumers
What is the transformation process
The process of inputs into outputs which adds value to inputs.
What is added value
An amount added to the value of inputs or to a product/service
What is the primary sector
Extracts or develops natural resources
What is the secondary sector
Makes use of extracted primary materials to build, manufacture or develop finished goods.
What is the tertiary sector
Provides the services needed to meet the needs of the end users e.g. retailers, insurance etc.
What are corporate objectives
Targets for the business as a whole that are set to achieve its mission
What are functional objectives
Targets set for each business function
What is cash flow
The movement of money in and out of the business
What is profit maximisation
Trying to make the most profit possible to reward the owners, investors and shareholders
What is short-termism
When a business prioritises short-term profit rather than long-term performance
What is profit satisficing
Trying to make enough profit to keep the owners comfortable - aim of smaller businesses (sole trader)
What is the external environment
Refers to the aspects that are out of control of the business
How can factors of the external environment affect a business
It can change the demand and cost for a product or service
How can competition affect how a business operates
The strategies adopted by competitors will impact the costs of the business e.g. discount retailers such as Lidl gaining an advantage over Tesco
What are the market conditions
The characteristics of a particular market
What are some examples of market conditions
size, growth rate, amount and intensity of competition
What are some examples of economic factors
interest rates, inflation, income, exchange rates
How can increasing interest rates affect cost and demand
- 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
What is the result of falling incomes
Lower demand as people have less disposable income
What is demography
The study of human populations which include factors such as: birth and death rates, income, level of health and migration etc.
What is the result of successive UK governments introducing legislation to help protect the environment and pollution
Businesses have to spend large amounts on measures to ensure that water, air and land are kept free from pollution
What are examples of technological factors
Innovation, AI, social media, data storage
