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Business > Unit 1 - What Is Business? > Flashcards

Unit 1 - What Is Business? Flashcards

1
Q

What is a good?

A

A physical product

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2
Q

What is a service?

A

An intangible item

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3
Q

What is a product?

A

The general term including goods and services

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4
Q

What are the benefits of business?

A
  • creates employment
    • employed workers pay income tax, claim less benefits, are able to purchase more goods and services to stimulate economic growth
  • creates wealth
    • pay workers, pay corporation tax which is used by government to pay for public services)
  • creates new products and services
    • e.g. pharmaceuticals
  • can enhance a country’s reputation
    • e.g. UK’s music and film industry
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5
Q

How many people do large businesses employ?

A

More than 250 people

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6
Q

How many people do small businesses employ?

A

Less than 50 people

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7
Q

What sort of businesses is the UK mainly made up of?

A

Small businesses

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8
Q

What do businesses do?

A

Production (resources converted into a product)
Transformation (conversion of inputs into outputs) - adds value

Inputs > Transformation Process (adds value) > Outputs (may be a service or good)

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9
Q

What is adding value?

A

Process of increasing the worth of resources by modifying them

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10
Q

What is the formula for adding value?

A

Adding value = selling price - cost of bought in materials, components and services

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11
Q

How is value added?

A

Through
- manufacturing the goods
- providing the service
- customer service
- branding
- after sale service
- USP

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12
Q

What is USP?

A
  • Unique selling point
  • feature of a product or service that allows it to be differentiated from other products
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13
Q

What are the Four Factors of Production?

A

The resources needed to turn inputs into outputs and adding value
CELL
- capital
- goods made in order to produce other goods and services e.g. machinery
- enterprise
- act of bringing all other factors of production together to create goods and services e.g. making decisions and providing finance
- land
- all the natural resources that can be used for production e.g. coal, oil, livestock
- labour
- physical and mental effort involved in production e.g. manual effort producing finished goods, individuals providing a service

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14
Q

What are the two types of business?

A
  • Business to consumer (B2C)
    • sell directly to the consumer
  • Business to business (B2B)
    • sell to other businesses
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15
Q

What are the three business sectors?

A
  • Primary
    • extraction of raw materials from the earth
  • Secondary
    • transforming/refining raw materials
  • Tertiary
    • the service industry
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16
Q

What is an entrepreneur?

A
  • Takes initiative
  • Takes time to understand and calculate risks involved
  • Make an investment to set up the business (often their own money)
  • Persevere despite risks of failure
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17
Q

What is a mission statement?

A
  • A qualitative statement of an organisations’ aims, describing the general purpose of the organisation
  • A means of communication to key stakeholders
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18
Q

What is a stakeholder?

A
  • An individual or group with a direct interest in the activities of the organisation
    • Shareholders
    • Employees
    • Suppliers
    • Customers
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19
Q

What is a corporate vision?

A

What the company aspires to be

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20
Q

What are aims?

A
  • Long term plans from which a business’ objectives are derived
  • Often referred to as corporate aims
  • Relate to the whole business
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21
Q

What are objectives?

A
  • Medium to long term goals established to coordinate the business
  • Turns the mission statement into something that is more quantifiable
  • Goals set to achieve overall mission
  • Should be SMART
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22
Q

What are SMART objectives?

A
  • Specific
    • clear and easily defined
  • Measurable
    • quantifiable (able to know when completed)
  • Achievable
    • must be within capabilities of business
  • Realistic
    • must not conflict with other objectives
    • must be achievable
  • Time bound
    • based on an explicit timescale
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23
Q

What are the consequences of not having SMART objectives?

A
  • May stop achieving aims, making the mission unachievable
  • May demotivate workforce
  • May upset stakeholders, especially shareholders
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24
Q

What is the relationship between mission and objectives?

A
  1. Mission statement
  2. Corporate aims
  3. Corporate objectives
  4. Functional objectives
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25
Q

What are common business objectives?

A
  1. Profit maximisation
    • profits are maximised when the difference between sales revenue and total costs is greatest
  2. Growth
    • increasing market share, sales turnover, number of outlets/business areas
  3. Survival
    • especially in times of uncertainty
  4. Cash flow
    • must ensure there is sufficient cash flowing in the business in order to cover expenses at any time
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26
Q

What are some other business objectives?

A
  1. Social and ethical objectives
    • clearly evident in non-profit organisations
    • often enhance reputation of the business, therefore helping to increase sales and profits
  2. Diversification
    • spread risk by reducing dependence on a single market
  3. Market standing
    • e.g. being seen as a leader in technology
  4. Meeting needs of other stakeholders
    • such as customers, employees, local community
    • will in turn enhance the reputation of the business
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27
Q

Why should businesses set objectives?

A
  • Can be used to evaluate performance (as they are measurable and time bound)
  • Provide motivation for workers
  • Emphasise business priorities (what money should be spent on)
  • Coordinates business activity
  • Ensures the business remains focused on its mission
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28
Q

What is profit?

A

The amount of money remaining once all costs have been deducted from total revenue

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29
Q

What is revenue?

A
  • The money received from sales
  • Total revenue, income, sales turnover, sales revenue, turnover
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30
Q

What is the formula for sales revenue?

A

Sales revenue = selling price x output

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31
Q

What is the formula for total revenue?

A

Total revenue = price x quantity sold

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32
Q

What are fixed costs?

A
  • Costs that do not change directly with output
  • Will increase as the firm grows
  • Examples
    • rent
    • loan repayment
    • insurance
    • salaries
    • utilities
    • advertising
    • business rates
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33
Q

What are variable costs?

A
  • Costs that change directly with output
  • Examples
    • raw materials
    • components
    • wages
    • packaging
    • stock
    • power for production
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34
Q

What is the formula for variable costs?

A

Variable costs = cost of 1 unit x output

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35
Q

What are total costs?
What is the formula for total costs?

A
  • The fixed costs and variable costs added
  • Represent the total costs of production

Total costs = total fixed costs + total variable costs

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36
Q

What is the formula for average costs?

A

Average costs = total costs / output

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37
Q

What is the formula for profit?

A

Profit = total revenue - total costs

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38
Q

How to increase profit?

A
  • Increase sales revenue
  • Decrease costs
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39
Q

What is the formula for unit costs?

A

Unit costs = total costs / output

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40
Q

What is the break even point?

A

When ‘profit or loss’ = 0

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41
Q

What is the importance of profit?

A
  • Reward
  • Motivator
  • Measure of success
  • Guide for future investment
  • Source of finance
  • Attractive to all stakeholders
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42
Q

A business sells 1230 units for £37 each. It costs them £12 to make each unit and they have fixed costs of £990. What is the profit or loss?
Draw the table

A

Table:
Output: 1230
FC: 990
VC: 14,760
TC: 15,750
TR: 45,510
PorL: 29,760

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43
Q

What are the 3 sectors?

A
  • Private sector
  • Public sector
  • Non-profit organisations
44
Q

What are the 2 types of liability?

A
  • Unlimited liability
  • Limited liability
45
Q

What is unlimited liability?

A
  • Unincorporated businesses
    • no distinction in law between individual owner and business itself
  • Owner responsible for all debts
  • Must pay off debts using their own money if the business cannot afford them
    • may have to sell their house/car to do so
46
Q

What is limited liability?

A
  • Incorporated businesses
    • legal identity is separate from owners
  • Restricts financial responsibility of shareholders
    • aren’t responsible for company debts
    • may only lose the money they invested as it is used to pay off debts/liabilities
47
Q

What is the private sector?

A
  • Any business owned and run by private individuals
    Includes:
  • Sole traders
  • Partnerships
  • Private limited companies (LTD)
  • Public limited companies (PLC)
48
Q

What is a sole trader?

A
  • Business owned by a single individual
  • Unincorporated
  • Unlimited liability
  • May have employees
  • Common in retailing and services
49
Q

What are the advantages of being a sole trader?

A
  • Simple and cheap to establish
    • few legal formalities
  • Owner receives all profits
  • Quick response to changes
  • Confidentiality maintained
50
Q

What are the disadvantages of being a sole trader?

A
  • Owner is likely short of capital for investment
  • Have few assets to act as collateral
  • Difficult for owner to take holidays
51
Q

What is a partnership?

A
  • 2 to 20 people operating a firm as joint owners
  • Unincorporated
  • Unlimited liability
  • Common in the professions
  • ‘Sleeping partners’
    • contribute capital but take no active part in the business
52
Q

What are the advantages of being a partnership?

A
  • Wide range of skills and knowledge
  • Able to raise greater capital
  • Pressure on owners is reduced due to more support
53
Q

What are the disadvantages of being a partnership?

A
  • Control is shared
  • Arguments are common
  • Still a shortage of capital
54
Q

What is a private limited company (LTD)?

A
  • Normally relatively small
  • Incorporated
  • Limited liability
  • Often a family business
  • Share capital must not exceed £50,000
  • Shares cannot be bought and sold without the agreement of other shareholders
  • Shares cannot be sold on the Stock Exchange
55
Q

What are the advantages of being an LTD?

A
  • Access to greater capital
  • Have a separate legal identity
  • Only required to divulge some financial information
56
Q

What are the disadvantages of being an LTD?

A
  • Have to conform to expensive admin formalities
  • Limited potential for flexibility and growth due to needing agreement of shareholders
57
Q

What is a public limited company (PLC)?

A
  • Incorporated
  • Limited liability
  • Must have a minimum capital of £50,000
    • this is usually much higher in reality
  • Shares can be traded on the Stock Exchange
58
Q

What are the advantages of being a PLC?

A
  • Can gain positive publicity as a result of trading on the Stock Exchange
  • Access to lots of capital
  • Suppliers are more willing to offer credit to PLCs
59
Q

What are the disadvantages of being a PLC?

A
  • Required to share lots of financial information
  • Significant admin expenses
  • Vulnerable to takeover
  • Focus is on the short term growth not long term
60
Q

How does a business become incorporated (become an LTD or PLC)?

A
  • Memorandum of Association
    • sets out company details and trading objectives
  • Articles of Association
    • details internal arrangements of the business
  • Once these documents have been approved the company receives a Certificate of Incorporation
61
Q

What is the public sector?

A
  • Any business owned and run by the government
  • Central government
    • navy
    • army
    • NHS
    • Bank of England
  • Local government
    • schools
    • police
    • fire service
    • housing
    • refuse collection
    • libraries
    • public parks
    • leisure and recreation facilities
62
Q

What are non-profit organisations?

A
  • Established for a particular social, welfare, cultural, community or environmental aim
  • Not for financial gain
  • Also known as the ‘third sector’
63
Q

Give examples of non-profit organisations

A
  • Voluntary/Community organisations
    • primary purpose to create social impact
  • Charities
    • not-for-profit organisation
    • main aim to raise money for a specific purpose
  • Social enterprises
    • not-for-profit organisation
    • business objectives other than making profit
    • reinvest the majority of their profits
    • autonomous of the state
    • controlled in the interests of social mission
    • accountable and transparent
  • Pressure groups (‘lobby groups’)
    • organised group
    • doesn’t hold candidates for election but seeks to influence/change government policy or legislation
  • Trade unions
    • organised association of workers to protect and further their rights
  • Trusts
    • structure where a trustee carries out the business on behalf of trust members
    • not a separate legal entity
    • trustee is legally liable for debts of the trust
64
Q

What are the reasons for choosing different forms of business?

A
  • Difference between unincorporated and incorporated
  • Formalities and expenses
    • sole traders and partnerships
      • easy to set up and have few formalities
        • deal for small businesses (e.g. joiner, electrician, corner shop)
  • Size and risk
  • Objectives of owners
    • if involve growth, then form incorporated
      • as limited liability limits risk
65
Q

What are the reasons for changing business form?

A
  • Circumstances
    • such as growth
      • therefore become incorporated
  • Capital
    • may be easier to raise capital by becoming incorporated or a PLC
  • Acquisition or takeover
    • may cause a change in structure
      • e.g LTD taken over by PLC
66
Q

What is a shareholder?

A
  • Owner of a limited company (LTD or PLC)
  • Any person/company/institution that owns at least one share in a company
67
Q

Why do shareholders invest?

A
  • To provide financial support
  • To be involved in running of the business
  • To gain control of the business
    • by buying 51% of shares
  • To receive dividends
    • from annual retained profit
  • To make capital gain
    • profit from price at which they bought the share and the price at which they sell it later
68
Q

What is ordinary share capital?

A
  • Money given to a company by shareholders in return for a share certificate, giving them part ownership
    • there is no guaranteed level of dividend
  • If 100,000 ordinary shares are issued at £2 each, the company’s ordinary share capital will be £200,000
    • the value of shares issued at the start
69
Q

What is the formula for market capitalisation?

A

Market capitalisation = current share price x number of shares issued

70
Q

What is market capitalisation?

A

The total value of the issued ordinary shares of a PLC currently

71
Q

What factors influence share price?

A
  • State of the economy
  • Performance of the company
  • Competition in the market
  • Proposed takeover
  • Investors’ expectations and response to rumours
72
Q

What is the significance of share price changes?

A
  • demand greater than supply, price increase
  • demand lower than supply, price decrease
  • Shareholders want to buy shares at lowest, and sell when are high, in order to profit
73
Q

What is the effect of a sole trader on mission?

A

unlikely to have one, but owner provides a sense of direction

74
Q

What is the effect of a sole trader on objectives?

A

may centre around meeting personal goals

75
Q

What is the effect of a sole trader on decisions?

A

potentially rapid and responsive, but lack support and possibly info

76
Q

What is the effect of a sole trader on performance?

A

ownership allows business to be responsive to customer needs, but may not be price competitive

77
Q

What is the effect of an LTD on mission?

A

may centre on maintaining family run business or on reputation

78
Q

What is the effect of an LTD on objectives?

A

could relate to satisfactory profits or financial stability to ensure survival

79
Q

What is the effect of an LTD on decisions?

A
  • more complex as more people involved
  • may have more info available and some specialist input
80
Q

What is the effect of an LTD on performance?

A
  • scale varies hugely
  • could be based on meeting personal needs
  • could be benefits of being large scale
81
Q

What is the effect of a PLC on mission?

A
  • important in projecting company’s image
  • provide focus for consistent decision making
82
Q

What is the effect of a PLC on objectives?

A
  • likely to relate to costs, prices, business image and market share
  • link to financial performance in the long term
83
Q

What is the effect of a PLC on decisions?

A
  • can be very complex
  • can have long term implications
  • some require specialist input and need to be based on extensive info
  • many routine decisions need to be made
84
Q

What is the effect of a PLC on performance?

A

access to capital and pressure from shareholders is likely to place emphasis on being competitive in terms of price, customer service or desirable products

85
Q

What is the effect of a not-for-profit on mission?

A

can be important in establishing the ethos of the business and underpinning all decision making

86
Q

What is the effect of a not-for-profit on objectives?

A
  • likely to be non-financial
  • can be harder to measure
87
Q

What is the effect of a not-for-profit on decisions?

A
  • may lack specialist input
  • desire to meet social or other objectives may cloud judgements
88
Q

What is the effect of a not-for-profit on performance?

A
  • possibly measured in non-financial terms
  • need to perform well enough to financially meet other goals
89
Q

What are the external factors that affect cost and demand?
(PESTLE or PESTLE C)

A
  • Political factors
  • Economic factors
  • Social factors
  • Technological factors
  • Legal factors
  • Environmental factors
  • Competition
90
Q

What are the political factors?

A
  • government economic and social policy
  • extent of government intervention
91
Q

What are the economic factors?

A
  • income levels
  • interest rates
  • exchange rates
  • level of inflation
  • level of unemployment
  • EU membership
92
Q

What are the social factors?

A
  • demographic factors
  • ethical issues
  • impact of pressure groups
  • influence of different stakeholders
  • changing lifestyles
93
Q

What are the technological factors?

A
  • new products
  • new processes
  • impact and cost of change
94
Q

What are the legal factors?

A
  • legislation
95
Q

What are the environmental factors?

A
  • environmental issues
  • fair trade
96
Q

What are the factors that influence costs and demand?

A
  • Competition
  • Market conditions
  • Incomes
  • Interest rates
  • Demographic factors
  • Environmental issues and fair trade
97
Q

How does competition impact costs and demand?

A

Costs
- businesses often compete on price
- leads to pressure on costs
Demand
- discount retailers may result in reduced demand for other businesses

98
Q

What are the advantages of competition?

A
  • Prices will be kept low
  • Quality is high
99
Q

What are the disadvantages of competition?

A
  • Pursuit of low prices may have ethical implications
  • Resources may be used on marketing rather than improving the product
  • Intense competition can lead to businesses being forced out of the market
    • human and economic consequences
  • A successful business may takeover an unsuccessful business
100
Q

How do market conditions impact costs and demand?

A

Market conditions include its size, growth rate, barriers to entry, seasonal factors and amount and intensity of competition

Costs
- if there are barriers to enter the market, it is beneficial to those already in the market
- don’t have to compete as much on costs
Demand
- if there is high market growth and low intensity of competitiveness, there is more likely to be higher demand

101
Q

How do interest rates impact costs and demand?

A

Costs
- if has a high level of borrowing, will be faced with higher costs
Demand
- an increase in interest rates can result in lower demand
- less disposable income available

(disposable income = wage - tax)

102
Q

How do incomes impact demand?

A

Demand
- if there is a fall in income, there will be a fall in demand
- the demand for necessities will be less affected than the demand for luxuries

103
Q

How do demographics impact costs and demand?

A

Demographic factors include birth rates, death rates, trends in migration, trends in age, ethnicity, gender, education level, marital status, size of family

Costs
- determine what can be afforded and therefore what a product can be sold for and the profit made
Demand
- aging population = increased demand for healthcare/end of life care
- size of household = increase demand for food, utilities, necessities, etc
- geographical shifts
- increased demand for housing in SE England

104
Q

How do environmental factors impact costs and demand?

A

Costs
- increased costs due to using more environmentally friendly resources which are more expensive
- low cost production vs environmentally responsible production
Demand
- can impact a business’ reputation and therefore demand for their product
- can increase brand loyalty
- can charge a higher price

105
Q

How does fair trade impact costs and demand?

A

Fair trade is about better prices, decent working conditions and fair terms of trade for farmers and workers.
- ethical and helps firms be socially responsible
Costs
- can help add value to products, increasing costs, meaning higher prices must be charged
Demand
- higher prices may be difficult for some consumers to afford, therefore reducing demand

Business (16 decks)

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