Unit 1-What is Business Flashcards
Business
Bisignis – which meant care, occupation, or anxiety.Over the years the word has mutated to the word we know and understand today which relates to the concept of being ‘busy’ – literally ‘busy-ness’.
Being a business
being busy transforming a variety of inputs into output – a business is busy taking resources and creating a product or service.
What’s the purpose of business?
Businesses turn resources (factors of production) into a product that is intended to satisfy the requirements of potential customers. The output of the production process may be a service (a haircut) or a finished good ( a toy)
Input —>Transformation process–> outputs
the transformation process is the conversion of the firms inputs into outputs that reach the customer and add value
4 MAIN RESOURCES WHICH ARE NEEDED IN THE PROCESS OF TURNING INPUTS INTO OUTPUTS AND ADDING VALUE
C - Capital - Goods that are made in order to produce other goods and services e.g. machinery, lorries, computer systems
E - Enterprise - The act of bringing the other factors of production together to create goods and services; making decisions and providing the finance
L- Land - all the natural resources that can be used for production e.g. coal, oil, livestock
L- Labour - Describes the Physical and mental effort involved in production e.g. manual effort in producing finished goods or individuals providing a service i.e. accountant
Goods
products which have a physical existence – literally something that, when purchased, you can hold.A Good is a physical product that can be purchased – car, pencil, book, house, television etc.
eg Peanut butter
Services
Products which are intangible/invisible, those products that we purchase but never actually hold in our hands ,
A Service is an untouchable product which meets a need or demand – insurance, electricity, dog-walking.
Product
Product has a bit more sense of specificity, eg. Skippy Peanut butter
A Product is the general term referring to something made or supplied by a business.
What Makes Business Important?
Wealth Can Be Created by Business
The process of creating and supplying products to meet demand is a financially based transaction – money is exchanged for the supply of products to customers. Typically, this is not a ‘like for like’ exchange, meaning customers do not necessarily pay just the cost of the product and its production. Businesses are trying to accrue money by charging the customer more to buy their product than it costs to provide. This creates a surplus.
Governments such as in the UK, for centuries, have utilised the financial surplus to invest into their countries. The surplus creates wealth in the country, and the wealth in the country can be used to create improvements within that country such as in infrastructure.
business pay corporation tax which can be used by the government to pay for public services such as hospitals and schools
New Products Are Created by Businesses
Businesses can be seen as responsible for improving the lives of the people of a country such as the UK. Businesses may invest heavily in pioneering and creating new goods and services for the betterment of people, whilst at the same time benefiting the business.
An example comes from the mighty company Apple. In 2008, following three years of development, they launched the iPhone 2G (now referred to as the iPhone1) – a device considered to be the first truly ‘Smart’-phone. This new product combined a variety of tools beyond just the function of having a phone in your pocket making life, in many ways, easier. In return, it sold 6.1 million units worldwide.
Pharmaceuticals to cure illnesses or green technology to solve environmental issues
Businesses Employ People
‘Estimates for April to June 2019 show 32.81 million people aged 16 years and over in employment’.
Businesses are a key part of the financial cycle. Businesses employ people as workers in a wide and varied range of roles. Employment then allows people to earn an income which they can then utilise on the purchase of goods and services. Not only that, but a country such as the UK is attractive to foreign businesses who further increase employment – hence companies such as HSBC have major bases in the West Midlands and other areas. Greater employment opportunities in a country also increases migration.
-Employed workers pay income tax, claim less benefits, and are able to purchase more goods and services to stimulate economic growth
Businesses Improve National Status
Britain, at one time, held the largest empire that the world has ever seen. This empire was not simply the product of a strong national army based in the UK. The empire was in fact driven by the might of big businesses such as the East India Company (EIC). Battles between the armies of the EIC and the Dutch Indies Company led to Britain winning exclusive trade deals with the rulers of India, ultimately the EIC helped to drive Britain’s seizing of India through their financial and military power.
In more modern times, successful businesses can reflect well on a country or even create an image of a country. The UK has a strong reputation related to Media production. The BBC is a publicly owned and operated company, as a publicly owned company it does not run to make profit. However, the BBC also includes BBC Studios, BBC America (jointly owned with AMC Networks) and BBC Worldwide. These for-profit business arms create content, which is popular and seen worldwide, in doing so they help to create a public image of the UK.
reputation, the UK music and film industry
Target Audience
The customer at whom a product is aimed, this can be defined by numerous parameters such as age, gender etc.
Nationalisation
This is the act of a government purchasing and controlling a business, typically ‘for the benefit’ of the people of the country, examples include the NHS and the BBC in the UK.
Publicly Owned Company
A business that has been nationalised and brought under government control, also known as State Owned Enterprises. Publicly owned companies may have public policies attached which ensure they operate for a specific benefit of the people.
Customers
An individual or business that purchases a product from a business.
SME
small to medium size enterprise
Three sectors of business
Primary - the extraction of raw materials from the earth e.g. farming, fishing, mining, oil extraction, forestry
Secondary- Transforming or refining the raw materials e.g. manufacturing, construction, oil refining, energy firms
Tertiary - the service industry, e.g. retail, restaurants, hotels, transportation, financial services, health industry and education
B2C
Businesses selling directly to customer /consumer
B2B
business selling to other business
Mission statement
a qualitative statement of an organisation’s aims, which describes the general purpose of the organisation
Corporate aims
The long term statement of what the business intends to achieve
Objectives
More precise and detailed goals and targets that must be achieved in order to achieve the corporate aims and mission
Corporate vision
what the company aspires to be
SMART GOAL
S - SPECIFIC and easily defined
M- MEASURABLE - objectives must be quantifiable, e.g. 15-20% a year
A- AMBITIOUS - agreed - managers and subordinates involved in setting should agree on objective to ensure all are motivated to work towards them or
attainable - challenging but possible
R- REALISTIC - achievable and not conflicting with other objectives
unrealistic targets do not motivate workers
or Relevant - improves the business in some way
T- TIMELY ( set a timeline)- time- bound - based on explicit time scales - e.g. over 3 years
Common Business Objectives
1.Survival - during early years of trading or during difficult economic or market conditions
2.Break even - Ensuring all costs are covered
3.Sales growth, profit growth, maximisation
4.Growth and expansion - increases in store numbers, product lines, workforce or by operating in more countries
5.Reducing risk- by releasing more products or operating in more countries
6.diversification - establishing a USP, launching new products in new markets
7.Improving cash flow and liquidity- ensuring cash inflows exceed outflows so short-term bills can be paid
8.increasing market share
9.increasing share holder value - better return on investment
10.maximising customer satisfaction
11.social and ethical objectives - better ethics, environmental considerations, contributing positively to society
12.staff retention, engagement, motivation, morale
Types of costs
fixed - costs that do not change directly with the level of output
they will increase as a firm grows, e.g. rents a larger store but will not go up by a set amount for each new unit made
output - 50 smoothies per week
rent for stores : 1000 per month
variable costs - costs that change directly with output , they will increase by a set amount each time a new unit is made
output - 20 sandwiches a day
variable costs of raw materials (lettuce , ham, bread etc) 1 pound per sandwich
total variable costs - 20 pounds a day
Total costs
total fixed costs + total variable costs
Profit
the difference between total revenue and total costs ; the money that is left from sales once all the costs have been paid
PROFIT - > TOTAL REVENUE - TOTAL COSTS
Mission Statement
A statement explaining why a business exists.
Aims
Overall goal of a business.
Aims, or Corporate Aims, are effectively the long-term plans of a business. Typically aims are expressed as a qualitative statement rather than a numerical value.
Objectives
Targets of the business in the long and short term
Liquid Assets
Something of value to a business which can easily be traded for legal tender (cash)
Cash Cycle
The length of time from investment into inputs and revenue raised from outputs
Profit
The difference between the cost of inputs and the revenue raised from sale of outputs
Revenue
The money raised by the sale of output
Stakeholders
A person with an interest, typically financial, in a business
Diversification
A business varying or expanding the range of their production offering
Why have a mission statement?
The idea of a mission statement is primarily to give a direction to everyone in the business. By having a mission statement, everyone in the business should be able to pull in the same direction, whether in the execution of their day-to-day duties or even tackling a decision with multiple options. Mission Statements are intended to stimulate and motivate employees to support the business.
It is important to remember that employees need to be invested in the mission statement.
Vision statement
What do we want to achieve in the future ?
Who do we want to become?
A vision statement describes what a company aspires to be, as opposed to what it is now.
A long-term view of what the company wants to achieve
Value statement
what’s important to your company, what it prioritises, and how it conducts itself.
A value statement shows the “soul” of the company.
Wants
Are goods or services you would like to have but can survive without. For example, a holiday/jewellery.
*Some businesses supply customers with products which technically they could live without. These are products that we desire because we enjoy them, they provide entertainment, provide comfort/ease, or convey status upon us. In what is referred to as the ‘first-world’ countries such as the UK or the US it can be seen a difficult to differentiate between what is essential to survival, and what may be considered a want.
Needs
Some businesses provide customers with products which are essential for survival. Examples of this are utilities such as electricity or water, and goods such as food.
Transformation process
Value added through manufacture, industry etc.
*A business operates to transform resources into products (goods and services) which meet the wants and needs of customers. The transformation process not only combines the various inputs into an output, but the process also actually adds increased value.
Why consumers may be willing to pay insane prices?
value-based pricing; customer-based pricing
- brand image
- status boost
- perceived benefit
- consumer’s perception of the product
A SOLE TRADER
It’s a business owned and run by one individual
A SOLE TRADER cons (pressures)
increase difficulty in gaining finance
high interest charges on any loans due to increased risk of failure
having a limited range of skills
workload pressure
its riskier as there is no legal distinction between the owner and the business
unlimited liability - the owners of the business are liable for all the debts that the business might incur ( sole trader and partnerships)
A SOLE TRADER Pros
Despite only having one owner, they can employ as many people as they want
they are no legal processes required to start up, the only must only declare the profits to HMRC to ensure they pay the required level of income tax
gives the owner more freedom and complete control over all aspects of the business
PRIVATE LIMITED COMPANY
Small-medium size business ,often run by the family or a small number of individuals who own it
PRIVATE LIMITED COMPANY (characteritics)
shareholders are rewarded by the value of the shares increasing knows as the dividends
the amount of profit paid to the shareholders is decided by the board of directors
it’s shares cannot be sold without the agreement of other shareholders
they are sold to other individuals who are usually invited to the company to invest
in an incorporated business, the business has separate legal identity and therefore has limited liability
must have Ltd after the company name
accounts must be produced and filed at the Companies House but are not available for the public to see
DIVIDENTS
share in the profits of a company, distributed equally over each share
PUBLIC LIMITED COMPANY
It’s a business with limited liability
PUBLIC LIMITED COMPANY characteristics
the company’s value is known as the market capitalisation
it must have share capital of over 50 000 pounds. min 2 shareholders, two directors, qualified company secretary and usually has a large numbers of shareholders
the company will have plc after it’s name
shares are traded publicly on the stock exchange
unlike Ltd, shareholders can sell share to whoever they like which may lead to potential takeover
MARKET CAPITALISATION
total value of the issued shares of a public limited company (current share price x number of shares issued )
PUBLIC SECTOR ORGANISATIONS
Are those run by the government
Their main objective would be providing service for the general public
example : NHS
PRIVATE SECTOR ORGANISATIONS
Are those owned and run by any private individuals
They will generally set as their main objective to maximise sales and profit
Examples : Tescos, Sony, Ford
NON-PROFIT ORGANISATIONS
Organisations established for particular social, community, environmental, welfare or cultural aims and objectives and not for financial gain.
Any profits will be reinvested into the organisation to further its objectives
MUTUALS
Are owned by, and run for the benefit of, their current and future members.
Their main aim to serve their members and often to contribute positively to society. They take many forms, including building-societies, co-operatives, and clubs.
CHARITIES
Are registered not-for-profit organisations with the main aim of raising money for a specific cause or purpose.
THE ROLE OF SHAREHOLDERS
A shareholder owns a share in the organisation in which they have invested.
-They may have a say in how the business is run by voting on some key issues, at the annual general meeting AGM or by post.
this includes issues such as the election or removal of members of the board of directors or putting pressure on executives to ensure pay and bonuses are in line with the company’s performance.
THE ROLE OF BOARD MEMBERS
They are the highest level of management in a listen company and are appointed to get the best return on investment for the shareholders.
EXECUTIVE BOARD MEMBERS
regularly working in and/or running the business
NON-EXECUTIVE BOARD MEMBERS
not regularly working but appointed to ensure the company is run in the shareholder’s interest and ethically
WHY SHAREHOLDERS INVEST
Shareholders purchase shares so they may receive dividends and to potentially sell the shares at a profit later on, if the company is successful and the shares increase in value.
Some investors will buy the shares to gain overall control of a business, which occurs when 51% of the available shares of the company are owned by one individual or organisation.
WHAT INFLUENCES SHARE PRICES
1.The company must make regulatory announcements about any events which may influence their share price, such a the launch of a new product or takeover bids
2.Share prices will raise and fall depending on the company’s performance
3.Share prices are also affected by the wider economic environment.
4.Share prices reflect expected future company performance.
5.External forces such as the press, specialist magazine, stockbroker reports and websites can all influence share price based on what they write about firms.
PESTEL
Political, Economic, Social, Technological, Environmental and Legal
POLITICAL (PESTEL)
These include factors that affect the extent and the impact of the government on the economy of a country. For example, the laws, taxation policies, monetary policies, etc are all a part of the political environment. Additionally, some political factors to consider are as follows:
- The political stability of the country
- Political ideologies of the government
- Taxation policies
- Regulatory practices and governing bodies
- Term of the government and any expected changes in the future
- Influential political leaders and their ideas
ECONOMIC (PESTEL)
Economic factors have a huge effect on the firm and its success. Some of the factors to consider when monitoring the economic environment are as follows:
- Economic growth
- The current phase of the Trade Cycle (Expansion, Depression, etc)
- Inflation rates
- Unemployment Rates
- Current Interest Rates prevailing in the economy
- Important factors of the specific industry
- Consumer Spending potential
- EXCHANGE RATES
SOCIAL (PESTEL)
Everything that goes on in a society greatly affects the organisation. Therefore, it is important to analyse social factors while studying the social environment. For example,
- Demographics of the market
- Consumer Buying Patterns
- Religious and Cultural factors
- State and influence of the media
- Lifestyle trends in place at the time
- INCOME LEVELS
- ATTITUDES TOWARDS CAREERS
- CULTURAL BARRIERS
TECHNOLOGICAL (PESTEL)
The changes in the technological environment can be either an opportunity or a threat to the firm. Hence, some technological factors to look for are:
- New production technology
- Manufacturing technology (increase in output, lowering of production cost, etc.)
- New innovations
- Intellectual Property, Patents, etc.
- Maturity of technology
- TECHNOLOGY INCENTIVES
- TECHNOLOGICAL AWARENESS
LEGAL (PESTEL)
This refers to the laws made by the government that the company has to follow in order to continue its operations. For example,
- Business Laws
- Environment Laws and guides
- Health and safety guidelines
- International Trade Agreements and Treaties
- Regional/Local Laws and Circulars
- DISCRIMINATION LAWS
- ANTITRUST LAWS
- EMPLOYMENT LAWS
- CONSUMER PROTECTION LAWS
- Copyright /PATENT LAWS
ENVIRONMENTAL
These factors affect industries and their ability to function smoothly. For example, such factors are:
- Environmental Issues
- Energy/Power Consumption
- Insurance Policies
- Safe Waste Disposal
- Dealing with hazardous material
- WEATHER
- CLIMATE
- ENVIRONMENTAL OFFSETS
- CLIMATE CHANGE
Factors Influencing Demand for a Product
- PRICE
- PRICE OF OTHER GOODS
- TASTES AND FASHION
- MARKETING AND ADVERTISING
- SEASONAL FACTORS
Complementary products
are products that are used alongside another such as salt and vinegar or bread and butter. Should the demand of one of the complementary products increase, then this will increase the demand for the other product and vice-versa.
Substitutes
goods and services that are alternative to a particular product. Should the price reduce for one product, then the alternative will appear too expensive to consumers; therefore, the demand will increase as consumers want the best quality products/services with the best possible price.
Costs and Demand
Should a business have a reduction in costs, they will generally reduce the price of their goods and services, which will stimulate more demand from consumers. This will, in turn, lead to a rise in revenue for the business. The opposite will apply if the costs of a business increase.
Competition
The demand for goods and services of a business will depend on what their competitor actions are. Should Apple introduce a new product to the market and reduce the price of their current iPhones, this would affect the demand for their competitor products such as Samsung.
Determinants of Competitiveness and Their Impact on Costs and Demand
- INVESTMENT IN NEW EQUIPMENT AND TECHNOLOGY
- IMPROVEMENTS IN OPERATIONAL PROCEDURES
- EFFECTIVENESS OF THE MARKETING MIX
- INNOVATION THROUGH INVESTMENT IN RESEARCH AND DEVELOPMENT
- FINANCIAL PLANNING AND CONTROL
- QUALITY PROCEDURES
- STAFF SKILLS, EDUCATION AND TRAINING
- INCENTIVE SCHEMES FOR STAFF
Demand
The amounts of a product or service that consumers are willing to buy at a given price
GDP
Gross Domestic Product
Income
The amounts of money a consumer has coming into their household
Interest rates
The cost of borrowing money and the reward for saving money
Disposable incomes
The amounts of money left over for consumers after all necessity bills have been paid.
Demographics
How the human population is characterised (scharakteryzowany)in terms of age, gender, income, culture, marital status, geographical location, and ethnicity.
