Unit 1 (What is business?) Flashcards
What’s the role of an entrepreneur?
- Spot business opportunities
- Calculated risks (weigh pros and cons)
- Acts as a catalyst for the creation & growth of new business enterprises
What is an aim?
A long term goal
-> shows direction of business
eg. low costs, premium brand, market leader
What is an objective?
A short term goal (usually a year)
-> eg to increase sales by 10% by 2024
What does SMART stand for?
Specific
Measurable
Achievable
Realistic
Time bound
What is the formula for profit?
Profit = Total Revenue - Total Costs
What is shrinkflation?
Manufacturers keep price the same but the product smaller
What is the formula for break-even?
Revenue = Total Costs
What are Social Objectives or CSR?
CSR ‘Corporate Social Responsibility’
-> Objectives to help others
What are some examples of social objectives?
-> Reducing impact on environment
-> Fair wages in developing countries
-> Helping society
-> Compliance with laws eg. pub operating hours so no noise pollution for local community
What are business ethics?
Moral principles, idea that businesses know right from wrong
What is a mission statement?
A qualitative statement of the business’ aim.
What is the public sector?
Part of the economy that is owned and controlled by the government.
What are some examples of organisations in the public sector?
-> Schools
-> NHS/healthcare
-> Military
-> Law Enforcement
What is privatization?
Turning a public business into a private business.
What is a flotation?
Process of converting a private company to a public company through issuing shares to public investors.
Why privatize businesses?
- To improve government finances
- It would improve efficiency of these firms as a result of more competition in the private sector.
- Hopefully encourage people to buy shares
What is nationalisation?
Taking privately controlled companies and putting them under the control of the government.
Why do businesses set objectives?
Business objectives are set in order to co-ordinate business
activity and give a sense of direction to, and guide the
actions of, the organisation as a whole
They act as a focus for decision making and effort, and as a
yardstick against which success or failure can be measured.
Appropriate business objectives encourage a sense of
common purpose among the workforce
This makes it much easier to co-ordinate actions and to
create a team spirit, which in turn is likely to lead to
improvements in efficiency and a more productive and
motivated staff
Why do businesses have a mission statement?
a mission statement is useful for defining
what the business is trying to do in a way that all staff can
understand and identify with.
Formally stating the business mission or main aims of the
business provides a common purpose for everyone to identify
with and work towards, and a collective view that helps to build
team spirit and encourage commitment.
What is market capitalisation?
The total market value of the issued share capital of a company. A measure of size and value of a company.
Formula for market capitalisation
Number of shares sold X share prices TODAY
What is ordinary share capital?
Money raised by a business through new shares.
What is a profit warning?
Warning to investors that profit may be lower or even make a loss
What is the Monetary Policy Committee?
Committee of Bank of England which decides the official interest rate in the UK 8 times a year.
What is a venture?
A new business that is formed with a plan and expectation that financial gain will follow
What is a cost leader?
Business in an industry with the lowest costs.
What is focused scope?
A decision to focus on 1 particular type of customer or market segment. Eg. Ryanair focused on the price-sensitive market segment. To win this audience, Ryanair had to build cost leadership.
What was Michael Porter’s argument on cost leaders?
He argued that a business cannot be a cost leader, whilst also having a differentiated product. He argued that ‘sustainable competitive advantage’ over other people in the industry came from focusing on 1 thing.
What is franchising?
Franchising is where a business gives someone the right to sell its products and use its trademarks. The ‘franchisee’ usually pays the business an upfront fee and a percentage of the profits.
What’s an example of a franchised business that went wrong?
Gina Keating’s book Netflixed explains that Blockbuster struggled to move into DVD by mail and online streaming because of its franchisees.
The business model of consumers going into stores was dying. Blockbuster needed to centralise the technology to ship DVDs in the post, but this would compete with the franchisees’ businesses, so many resisted the change. This
What are mutuals?
Private businesses whose ownership base is made of their clients and policy holders.
How is exchange rate determined?
Determined by the interaction of supply and demand.
What affects DEMAND for pounds?
- Foreign investment int he UK
- Desire of foreign customers to buy UK exports
- ‘Hot money’ (money that goes from country to country in search of highest possible rate of interest)
What determines the SUPPLY for pounds? (UK businesses have to supply lots of pounds to buy things in other countries)
- UK investment abroad
-Desire of UK residents and businesses to buy imports - ‘Hot money’ flows going abroad
External environment factors?
P - Political
E - Economic
S - Social
T - Technological
L - Legal
E - Ethics
C - Competition
Demographic factors
Ageing population
Ethnically diverse population
Size of household
Geographical shifts
External political factors?
Competition policy
Tax
External economic factors?
Interest
Consumer spending + income
Exchange rates
Economic growth
External social factors?
Demographic change
Impact of pressure groups (eg Just Stop Oil)
Consumer tastes and fashions
Changing lifestyles
External technological factors?
Disruptive technology
Adoption of mobile tech
New production processes
Big data + dynamic pricing (price change based on demand)
External legal factors?
Employment law
Minimum/living wage
Health and safety laws
Environmental legislation
What does CSR stand for?
Corporate Social Responsibility
What is CSR?
Refers to commitment of business to behave ethically towards their workforce, local community and society at large. eg. Body shop, Lush, Ben & Jerrys
What are barriers to entry?
How hard it is to go into that market
