What Is A Business? Flashcards
What are the three types of ownership in the private sector
-sole trader
-private limited company (ltd)
-public limited company (plc)
What are the advantages and disadvantages of being a sole trader?
Advantages
-own boss
-flexible hours
-control prices
-keep all profit
Disadvantages
-unlimited liability
-can’t sell shares
-a lot of pressure
-no holiday pay
What are the advantages and disadvantages of a ltd?
Advantages
-limited liability
-easier to raise finance- sale of shares
-stable form of structure
-no chance of hostile takeover
Disadvantages
-greater admin cost
-public disclosure of company information
What are the advantages and disadvantages of a plc?
Advantages
-limited liability
-easier to raise finance
-can sell shares on stock market
Disadvantages
-chance of hostile takeover
-public disclosure of company information
What reasons might someone have for starting up a business?
-make profit
-flexibility
-be their own boss
-ethical reasons
What is a business objective?
An aim or something to achieve
What are example of some business objectives?
-profit
-growth
-survival
-cash flow
-social
-ethical
What should business objectives be ideally? (SMART)
Specific
Measurable
Achievable
Relevant
Time bound
What is a mission statement?
The overriding goal of the business and the reason for its existence. It is a vision for the future.
What makes a good mission statement?
-differentiates a business from its competitors
-relevant to all major stakeholders
-excites, inspires, motivates and guides
What are some criticisms for mission statements?
-often vague or unclear
-companies don’t always act on what they are saying
-not a true reflection of reality
-often a PR exercise to appear better to the public
What examples of corporate objectives?
-increasing sales (marketing)
-reducing cost (operations)
-increasing cash flow (finance)
-improve customer satisfaction (people)
Why do businesses set objectives?
-To keep employees motivated
-to provide targets
-to reduce uncertainty
Why do businesses set objectives?
-To keep employees motivated
-to provide targets
-to reduce uncertainty
What is the difference between a mission statement and objectives?
A mission statement is a clear vision for the future whereas business objectives and more specific and achievable goals for the company.
Why is profit so important to a business?
-ensures businesses can cover its costs
-can reinvest money in research, expansion and development
-attracts investors
-profitability allows businesses to offer better salaries (employee incentives)
What is an unincorporated business? (Sole trader/ partnership)
-the owner is the business
-owner has unlimited liability for business actions (including debt)
What is an incorporated business?
(PLC/Ltd)
-legal difference between the business and the owner
What is limited liability?
-where you are protected from debts of a business
-personal assets are protected
What are public sector companies?
Companies owned or controlled by the government e.g. RBS or network rail
What are public sector organisations?
Organisations that provide goods and services which are owned and operated by public bodies. These are funded by central & local government. Eg. NHS, highways agency, Teachfirst
What are non profit organisations?
Businesses that trade in order to benefit the community. Often have social or ethical aims.
What are social enterprises?
Businesses that put the interest of people and the planet ahead of shareholder gain. Eg community development trusts and housing associations
What is ordinary share capital?
The money raised by a business through the sale of new shares to shareholders
What is market capitalisation
It is a measure of the size and value of a company and can be used to compare companies within the same industry.
What is the equation for market capitalisation?
Number of issues shared x share price
What are dividends?
The payments made to shareholders from the profits made by the company. They are part of the return on the investments received by shareholders
What are the role of shareholders in Ltds?
Shareholders are responsible for appointing the board of directors (the people who are in charge of the day-to-day running of the business)
How does demand affect share price?
-if the demand for a share is greater
-(more buyers than sellers)
-the share price should rise
What does a falling share price indicate?
An excess supply (more sellers than buyers)
Or less demand
What internal factors influence share price?
-businesses financial performance
-dividend policy
-relationship with key investors
-management reputation
What external factors influence share price?
-state of the economy
-general market sentiment (attitude of investors)
-whether the company is a takeover target
-alternative investments in the company’s secotor
How does being a sole trader affect mission and objectives?
-objectives are more likely to be based on survival (most start ups fail)
-can make all of their decisions as they don’t have to consider shareholders
-can set their mission and objectives
How does being a Ltd affect mission and objectives?
-shareholders in a Ltd are likely to be involved with the running of a business
-allow for a more long-term view
-objectives likely to be about market share, customer satisfaction or revenue growth rather than profit maximisation
How does being a plc affect the companies mission and objectives?
-plc shareholders are interested in higher dividends
-so objectives are often based around profit maximisation
What are 6 main categories of the external environment? (PESTLE)
Political
Economic
Social
Technological
Legal
Ethical/environmental
What is the external environment?
-Consists of elements outside the control of the business
-they can affect both cost and demand often by impacting on customers and their ability to purchase the product of service
Who sets interest rates?
The bank of england
What are interest rates?
The reward for saving and the cost for borrowing expressed as a percentage of the money saved or borrowed.
What happens to cost and demand when interest rates increase?
-cost of borrowing is higher
-for businesses that have bank loans the cost will be higher
-cost of borrowing is more
-customers less likely to borrow & spend
-lower demand for business
What happens to cost and demand when interest rates decrease?
-cost of borrowing is lower
-for businesses with bank loans costs will be lower
-cost of borrowing is less
-consumers more likely to borrow and spend more
-higher demand for business
What is the equation for interest rates?
Repayment- money borrowed
—————————————— x100%
Money borrowed
What happens if interest rates fall?
-cost of loans/debt is reduced
-more spending
-disposable income increases
-business investment should be boosted
(Rising demand)
-more demand and higher property prices
-cheaper currency will increase exports
What happens when interest rates rise?
-cost of borrowing rises
-higher Mortgage payments
-repayments of debts increase
-possible slowdown in housing market
-contraction in retail credit
-currency (pound) may get stronger
-exports more expensive
What are market condition?
Refers to a number of features of a market such as the level of sales, the rate at which they are changing and the number and strength of competitors
What are market condition?
Refers to a number of features of a market such as the level of sales, the rate at which they are changing and the number and strength of competitors
What is demand?
A term used to indicate the amount of particular good or service that consumers or organisations want, and can afford. It shows the level of sales that businesses can expect
What is economic growth?
It is the increase in the production of goods and services in an economy over time. Normally measured by the rise in GDP.
What is gross domestic product? (GDP)
The value of a countries economy based on levels of business activity.
What is a fast growing market?
One that encourages new entrants (firms or businesses) as well as benefiting existing competitors
What is a slow growing market?
Where market conditions are much tougher, competitors fighting for their share of weak demand.
What is real income?
The amount of disposable income available to consumers.
What are factors that affect real income?
-price inflation
-wage growth
-employment levels
-interest rates
-government tax policy
What are elastics? give examples
(Luxuries)
Products for which demand is strongly influenced by income levels:
-luxury electrical items
-restaurant meals
-jewellery
-long haul holidays
-household furniture
What are inelastics? Give examples
(Essentials)
products for which income has little influence on demand:
-bread, milk and other basic foods
-water
-petrol
-cigarets and tobacco
-lottery tickets
What is a demographic?
Refers to statistical characteristics of a population (age/gender/income).
Changes in population dynamics occur slowly but can be significant for a business
How can an aging population affect businesses?
-greater demand for services to support population (eg healthcare)
-increasing disposable income of older people reflected in higher demands for elastics (eg holidays)
How does a continued high net immigration affect businesses?
-higher costs of but greater demands for public services (eg. Education, heath, housing)
-incurred in size of labour force - potentially keeping wage rates low
What are some key environmental issues for a business?
-sustainability
-minimising packaging
-carbon emissions
-complying with environmental laws
-transportation/ shipping
How can being environmentally friendly be an advantage for a business?
-can make them stand out
-can lead to brand recognition
-gives opportunity to charge higher prices
-Can allow smaller businesses to compete with larger ones
-may lower costs if the business looks to cut energy usage
How can being environmentally friendly be negative for a business?
-often have to increase costs
-invest in a new production process
-may have to use sustainable recourses which are more expensive
What is fair trade?
A social movement that exists to promote improved trading terms and living conditions for producers of products in less developed countries.
How does fair trade help farmers and workers?
-better prices
-safer working conditions
-local sustainability
-fair terms of trade
