What is business? - 1.1 Flashcards
What is a business objective?
A clearly defined target for a business to achieve over a certain period of time. Objectives should be SMART
SMART
Specific, Measurable, Agreed, Realistic, Time specific
Specific
Clearly defined or identified
Measurable
Quantifiable target (10% increase)
Agreed
Targets have to be discussed and mutually agreed - people are more likely to be committed to them
Realistic
People will loose motivation to achieve objectives if they are unrealistic
Time specific
By what time should the objective be met
What is a mission statement?
A statement of the organization’s purpose - the reason the business exists
Why is profit important to a business?
-To attract shareholders
-Its a source of finance
-Motivation
-For Survival
-As a Measure of Success
What are fixed costs?
Costs that do not change as output changes (e.g. rent will not change with levels of production)
What are variable costs?
Costs that change as output changes (e.g. raw materials, wages)
What is semi-variable costs?
Costs that have fixed and variable elements (e.g. transport - fixed charge for renting vehicles but costs such as driver’s wages and fuel will change
What is total costs?
fixed costs + variable costs
What is revenue?
Money obtained from goods or services
Revenue formula
quantity sold x average selling price
What is a company?
A business organization which sells a product or service in exchange for revenue and profit and is owned by shareholders and has limited liability
What is demand?
Amount of goods or services that consumers or organisations want and can afford
What is an Aim?
Long term plans for the business from which its corporate objectives are derived and relate to the whole business.
What is a gross domestic product?
Measures total value of the production of an economy (all a country’s businesses) over a period of time which is usually a year.
What is profit?
Extent to which revenues from a product exceeds the cost of producing the product over a period of time.
What is unlimited liability?
Individual/group is personally responsible for actions of the business so you could loose personal assets if there are financial problems within the business.
Why do businesses exist?
- Create employment
- Enhance country’s reputation
- Creating new products (medicine)
What are examples of business objectives?
-Growth to exploit market position and earn high profits
-Survival to continue trade
- Cash flow to pay debts on time
-Diversification to spread risks by selling a range of products
Why do businesses set objectives?
To make sure everyone is working towards the same overall goal and coordinate employees. Also to review success of the businesses plans, managers can see how much has been achieved compared to set targets.
Why is profit important?
So it can be used as a measure of success. Profitable businesses are attractive to customers as products are seen as desirable. They also are more likely to have the confidence of its suppliers allowing businesses to have more time between delivery’s and payments.
Profit formula:
Profit= total revenue - total costs
