unit one what is a business Flashcards
what are goods
physical products
what is a service
intangible products
what is B2C
when a business sells directly to a customer/ consumer
what is B2B
when a business sells to another business
what is an index number
a figure reflecting change with a base value, base values are always 100 e.g last year 100
this year 105
5% increase
what is added value
adding value to a product
its the difference between the price and the price of producing it
ways to add value to a product
-adding features that make it better than competition
-improving quality of product
- building a desirable brand
why is adding value important
added value attracts customers and determines the price a business can charge, strong added value= premium price.
what are sectors of industry
-primary = exploits natural resources
- secondary= manufacturers
- tertiary= provides a service
whats a swot analysis
strengths weaknesses oportunities and threats
what is a mission statement
it is a qualitative statement of a business stating its purpose e.g the ultimate aim
whats an objective
things that help achive aims and missions
what rae all the functional areas of a business
hr
finance
sales
operation
marketing
logistics
what is logistics
the movement of goods from Point A to Point B, which entails two functions: transportation and warehousing.
what is the acronym SMART
the objective has to be Specific
Measurable
Agreed
Realistic
Time bound
what is an effective mission statement
differentiates the business from competition
it is relevant to all stakeholders
it excites, inspires, motivates and guides
how are objectives often set out
in financial terms
desired sales or profit levels
rate of growth
value of business
what is profit maximisation
trying to make the most profit possible to reward owners investors or shareholders
what is short termism
when businesses only think abiut maximising profit in the short term
what is profit satisficing
trying to make enough profit so that the owner is comfortable this usually happenes with smaller businesses
what is slaes growth
when the business tries to grow in size to make as many sales as possible
the objective is to become big enough to benefit from economies of scale
what is cash flow
the amount of money available in the business bank account
what is ethics
ensuring the environment and stakeholders are not harmed
what is social business
when a business provides a service to the public
key inputs needed by a business
land
labour
capital
enterprise
That is meant by the term: ‘Transformation process’?
the transformation process is the process in which you make the product you start with the input put it through the transformation process and then get the output and then get some feedback which you can use when transforming the next input.
What is ‘added value’? How is it calculated?
Added value is when you add value to the inputs in your product, it is calculated by the difference between its price and the cost of the inputs involved in making it.
What is a ‘corporate objective’?
A corporate objective is targets and goals for the whole organisation. It is wide spread throughout the whole company
What is a ‘functional objective’?
Functional objectives are targets and goals that are aimed at the different functional areas of a business for example in sales their goal is one thing and in marketing it is another. These functional objectives all add up to achieve the mission statement.
What are the 6 common corporate objectives?
survival
Profit satisficing
Sales growth
Cashflow
profit maximisation
growth
advantages of sole trader
They are the easiest type of business to set up.
The sole trader gets to be their own boss.
The sole trader decides what to do with the profit.
It is easy to change the legal structure if circumstances change.
disadvantages of sole trader
Unlimited Liability means that there is no legal distinction between the sole trader’s assets and the business’ assets.
It can be hard to raise finance. Banks often see sole traders as riskier.
All the responsibility for making business decisions is yours. Having someone to share decision making with, can improve performance.
It can be harder to retain (keep) good employees as they aren’t necessarily given a share of the profits.
ltd definition
private limated company
advantages of ltd
shareholders have limited liability.
The fact that ownership is restricted means that all shareholders must agree to sell shares. This means that the owners retain (keep) a lot of control over how the business is managed.
It is normally easier for a limited company to get a loan than it is for partnerships, as a company is normally seen as less risky. This should increase a company’s access to finance.
disadvantages of ltd
Finance is needed to incorporate a business. There is an upfront fee as well as costs associated with paperwork. This means that it may not be possible for smaller firms (or brand new firms).
Unlike sole traders and partnerships, the company is legally obliged to publish their accounts each year and competitors may use these to become more competitive.
plc definition
Public limited companies sell shares on the stock exchange. This means that anybody over 18 can buy shares (often through brokers). Firms often become public companies when they want to expand because selling shares on the stock exchange allows them to raise finance for investment.
plc advantages
Selling shares on a stock exchange allows companies to raise money for investment, which enables the company to grow faster or bigger.
It is much easier for companies to raise capital (money) from banks if they are public limited companies because they present less of a risk (given the number and size of investors).
Shareholders have limited liability because the company is incorporated.
plc disadvantages
Owners often have very little say over how the business is run. This means that it can be hard to agree on how the business is run.
Anyone can take over the company if they are able to buy enough shares. When shareholders own more than half the shares, then they will have control over the company.
The company’s accounts must be made public. This means that competitors can see how well the company is doing.
not for profit definition
Any profit made by not-for-profit organisations is reinvested (put back) in the business. Any profit cannot be kept by the owners
3 types of not for profit organisations
charity
social enterprise
unincorporated companies
charity legal structure
Getting charitable status lets a business get tax relief and lets it apply for certain grants. For a business to get charitable status, they must follow rules and regulations.
franchising definition
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.
franchising advantages
The business can expand without needing large amounts of investment. The firm does not incur the costs involved with opening new stores.
The business also does not have to be concerned about some of the risks of becoming a larger corporation, for example, diseconomies of scale (which may be caused by the growth from opening and operating new stores themselves).
Franchising increases brand awareness of the firm’s products or services.
franchising disadvantages
A disadvantage of franchising is that the franchiser does not have complete control over how they operate.
If a franchise is run badly, then a single franchise or store can negatively affect the brand image.
what do franchisees pay franchisors
upfront fee and royalties
ordinary share capital definition
rdinary share capital refers to the amount of finance raised through selling shares to shareholders. Businesses usually use ordinary share capital as a source of long-term finance.
market captialisation
Market capitalisation is one way of valuing a business and can be calculated by multiplying the number of shares issued by the current market price of one share.
agm
annual general meeting
Factors influencing the value of shares
Business performance affects demand for its shares and greater performance will increase demand, which increases the share price.
Economic performance affects demand for shares as economic growth gives individuals confidence in the market which may increase the demand for shares which increases the share price.
News articles may affect demand for shares as businesses accused of being involved in scandals may receive a bad reputation which decreases demand for shares, therefore, decreasing share price.
What information does an Ltd need to file with (send to) Companies House every year?
Accounts and changes to company, this is what shows how your business is doing so that external people can decide if they want to invest in their business or not it also shows how their are improving or nto throughout the years which will show how reliable the business is if someone wants to invest.
What is ‘venture capital’?
Private equity and finance that investors provide. For example your investors can give you loans if you need one,
What is an advantage & a disadvantage of having to fill this document with Companies House each year?
Key advantage
It shows places like banks and investors that your business is less risky so they are more likely to invest into it, and they can see if your business is doing good and this makes it more likely for them to invest
Key disadvantage
Everyone will be able to see how your business is doing. So if the business isnt doing aswell as it was the year before then people may not want to invest so this means the value of the shares will go down
How can a private limited company become a public limited company?
floatation , you can register with the company house and they will confirm you to be a plc and then you can sell shares of the stock market to get easier capital.
What does ‘privatisation’ mean?
Going from public sector to the private sector, so not being owned by the government anymore, this may happen because the government no longer see use in the company so they sell it off.
What does ‘nationalisation’ mean?
The process of taking private businesses owned by individuals and turning them into public businesses so owned by the government. This may be because the government are in need of capital.
On the London Stock Exchange in which unit are the shares quoted?
In pence
What is the name given to the breakdown in relationship between the owners of a plc (shareholders) & the Chief Executive or Managing Director running the business?
Divorce of ownership and control.
What is the ‘PESTLE’ analysis?
A pestle analysis is a management framework and diagnostic tool. The outcome of the analysis will help you to understand factors external to the organisation which can impact upon strategy and influences the businesses decision.
P
Political , you will need to take into account the country’s government policies and political stability. Other factors will include tax implications, industry regulations and global trade agreements and restrictions
Ec
Economic, this includes exchange rated, economic growth, or decline, globalisation, inflation, interest rates and the cost of living, labour costs and consumer spending.
S
Social, social factors look at trends such as lifestyle factors, cultural norms, and expectations such as career attitudes and work- life balance. It also concerns itself with consumer tastes and buying habits as well as population demographics
T
Technology, tech has grown a lot. Tech advancements will impact on data storage, social networking, and automation robotics and a shift towards ai
L
Legal, shifts in laws are constantly changing, employment labour laws and health and safety laws are important to keep up with
En
Environment, does the business have a direct impact on the environment? Political sanctions now govern carbon emissions and move towards sustainable resources such as wind turbines and recycling
What is the usefulness of using the PESTLE analysis? 4
-Strategic business planning, it provides information on the businesses direction, its growth targets, and risks to productivity.
- workforce planning, an analysis can help to identify disruptive changes to business models that may affect the business. It can identify skill gaps, new job roles, job reductions and displacement.
- Marketing planning, it can help prioritise business activities to accomplish specific marketing objectives within a set timeframe
-Product development, these analysis help inform whether a business should leave or enter a route to a market, and determine whether a product or service still fulfils a need in the marketplace or when to launch a new product.
What is a ‘substitute’? Give an example
A substitute is a product or service that can be easily replaced with another by consumers. products are often substitutes if the demand for one product increases when the price of the other goes up.
What is a ‘complementary good’? Give one example
Complementary goods are products which are bought and used together. A fall in the price of Good X will lead to an expansion in quantity demand for X. And this might then lead to higher demand for the complement Good Y. Complements are said to be in joint demand. The cross-price elasticity of demand for two complements is negative. Eg fish and chip
three reasons for chosing between incorporated or unincorporated company
formalities and expences- sole traders and partenerships and easy and cheap to set up
size and risk- if business is small and plans on staying small, sole traders and partnerships are better
objectives of the owners- if objectives are growth them incorporated company may be better.
three reasons for changing a business form.
circumstances- changes in circumstances eg growth of business
capital- owners may find easier to raise capital by becoming incorporated
takeover- private limited company may be taken over by a public limited company.
why do shareholders invest
income- theyre entitles to dividends
capital growth- they hop the value of the share will increase
why might share prices fluctuate 4 reasons
business performance-
expectation of better or worse performance
changes within market
world uncertainty
what are examples of the external environment
competition
market conditions economic factors demographic factors
what shoudl a business do if there is lodes of competition
make a usp and have innovative products
have lower prices
what happenes if interest rates increase
the demand dropps
what businesses arent effected by rising interest rates
discount sellers eg lidl
what dont businesses do when there is high interest rates
expand and have high capital projects
what happenes if income increases
demand increases
what does demographic change
nature of goods and services being purchased
