unit 3.1 - what is business

Question 1

what is a business

Answer 1

an organisation that exists to provide goods x services to satisfy the needs + wants of in order to make a profit

Question 2

goods

Answer 2

physical/ tangible products e.g. cars, electronics

Question 3

services

Answer 3

intangible products e.g. insurance, hair dressers, taxi, cleaning

Question 4

corporate objectives

Answer 4

objectives set for the whole business e.g. increasing profit

Question 5

functional objectives

Answer 5

functional areas are departments within a business :
- marketing, HR, finance, operations, legal, IT, sales
these objectives must fit with the corporate objectives

Question 6

mission statement

Answer 6

a statement of an organisations general purpose or reason for existence
- identifies a company’s aims x visions x what it wants to achieve in the long term etc but tends to be more general and qualitative

Question 7

why businesses set objectives

Answer 7

• gives clear sense of direction x purpose (motivation)
• a focus for decision making
• targets for individual + group achievement (motivation)
• a means of measuring performance

Question 8

SMART

Answer 8

specific
measurable
achievable/ agreed
realistic
time bound

Question 9

why might a start up prioritise survival rather than growth

Answer 9

• focus on survival = generating sales x revenue in order to cover costs which may be difficult as a new business
• may struggle with cashflow after launching their new product
• threat of rivals

Question 10

why might a large PLC need to generate high profits

Answer 10

= need to pay dividends when the business makes a profit as they may sell shares on the stock market
- maximise profit to maximise shareholder value + keep share price high in order to reduce risk of hostile takeover

Question 11

why is profit important

Answer 11

= reward for taking risk
- motivator
- measure of success
- guide for future investments
- source of finance
- attractive to stakeholders e.g. shareholders

Question 12

why does achieving revenue not instantly bring cash into the business

Answer 12

= trade credit
- may not receive cash straight away based on credit terms e.g. buy now pay later where suppliers may give longer time for a business to pay

Question 13

sole trader

Answer 13

= business owned by one individual
- no legal start up processes
- complete control over the business
- unlimited liability
- may be difficult to finance due to high risk of failure

Question 14

public sector & private sector & voluntary sector

Answer 14

public = anything owned by the government
private = owned and run by any private individual/organisation & generally have main objective of maximising sales x profit
voluntary = charities

Question 15

private limited companies ltd

Answer 15

• shares not advertised or traded with the public on stock exchange
• shares only sold to people owners approach
• final accounts are public information + must be filed at companies house every year which are available to the public

Question 16

benefits x drawbacks of private limited company

Answer 16

pros:
- limited liability (private wealth of shareholders protected)
- easier to raise finance thru sale of shares
- business continues to exist even with change of shareholders
cons:
~ less attractive as shares not sold to public
~ may struggle to sell shares
~ more legal formalities than sole traders etc

Question 17

plc public limited company

Answer 17

• limited liability
• largest private sector business form
• shares advertised to public on stock exchange
• separation of ownership from control e.g. shareholders do not run day 2 day operations

Question 18

benefits x drawbacks of plc

Answer 18

pros:
- limited liability
- easier to raise finance thru share capital
cons:
- shareholders who purchase over 50% of shares can take over a plc
- most shareholders lack interest in business, only there for the profit + share price rise
- much wider public scrutiny e.g. media since they have much larger influence on ppls lives

Question 19

partnership

Answer 19

• two or more ppl running a business
• split decisions + profit
• new skills brought into business and shared workload
• may be conflict due to conflicting beliefs or lack of effort

Question 20

dividends
ordinary shares
preference share

Answer 20

• dividends payment made to share holders from attained profits
• O shares = dividend only paid if business makes a profit
• preference shares = dividends paid regardless of whether the business makes a profit

Question 21

factors affecting share price within company’s control

Question 22

factors affecting share price outside of company’s control