What is Business ? Flashcards
Why Business exist
Making profit
provide goods and services including public services such as the NHS
develop good idea
provide help and support for others , most notably charities that raise funds
What is a mission statement
Defines an organization and why it exists
Purpose of a mission statement
bring focus and meaning to a business and act as a guide when making critical decisions that affect the direction of a business
Why Business set Objectives
Motivating to have a clear goal to aim towards for managers and for staff
Objectives are basis for devising strategy : medium to long plan for meeting the objectives
what depends on setting objectives
costed both in manpower and money to know what resources are going to be needed to achieve the objectives
6 key Business objectives
Profit Optimisation
profit maximisation
growth
cashflow
survival
social and ethical
Profit Optimisation
Profit provides capital to fund business growth
Optimisation - getting the right balance between profit and risk. too much profit exploit the consumer and too less would threaten firms image
Profit Max
Getting as much profit as possible. Big companies follow this suspecting a rival would buy them off
Growth
focus on rising customers instead of profit. getting growth today and profit will come tomorrow
Survival , social and ethical
survival relies on keeping cash flow high enough . priority for new , start up business .
social and ethical only mean something if business willing to take sacrifice
SMART Objectives
Specific:
Mesurable
Acheivable
Realistic
TIme based
Specific
Clear and Precise
Measurable
Must be possible know when an objectives has been completed
Achievable
objectives must be within capabilities and have sufficient
resources.
Realistic
Challenging but possible to achieve given capabilities and resources
TIme-Based
Deadline to work on
Which objective is better in difficult economic times
survival is likely
to be more important than profit or environmental targets, whereas in a
booming economy, profit, growth and social issues
Objectives and Corporate Objectives
Objectives are targets precise enough
Corporate objectives : target for whole business (profit to raise by 20% a yr for next 2 yrs)
Why do firms struggle with cashflow
retail consumers expect generous credit terms while supplied demand cash on delivery
Evaluation
Company bosses yearn for stability and predictability. Set clear objectives and hold managers to account.
Business with Unliablityl limited
Soletraders and Patnerships
Unlimited liability
Owners property isnt seperable from business finances and at risk in event of failure
Sole traders
A business owned by one single person although it may have some employees and be a public service business
Advantages of Sole trader
Simple and cheap to establish with few legal work
Owner receives all profits
respond quickly to changes in market
Confidentiality is maintained as financial details don’t have to be published
Disadvantages of Sole trader
Owner is likely to be short of capital for investment and expansion
Few assets for collateral to support application for loans
Unlimited liability
difficult for sole trader to take holidays
Partnerships
Comprise between more than 2 ppl who contribute to capital in a business. based on how much capital each partner has contributed
Advantages
partners may have a wide range of sills between them
raise greater amounts of capital
pressure on owner is reduced as cover is available for holidays and there is support in making decision
Disadvantages
Control shared between partners
arguments are common
unlimited liability
Limited liability
restricts financial responsibility of shareholders for a companies debts to amount they invested in
Process of Incorporation
Creates seperate legal entity for the organisation and you get through registrar of companies
Private Limited Company
smaller than Plc.
Share capital must not exceed £50000
LTD be included after the company name. Shares cant be bought or sold without the agreement of other directors
often family businesses
Public Limited company
Their shares can be traded onto stock exchange and bought by any business / individual
must have the term Plc after their name
min of 50 ,000 share capital
publish more details of their financial affairs than Ltd companies
Forming a company must send 2 documents to the Registrar of companies
Memorandum of Association
Article of Association
Not for profit Businesses
Organisation that has business objectives other than making a profit
whats their objectives
Provide service to local communities
give people job related skills
fair trading activities
Mutuals and charities
Mutuals - private businesses who run for the benefit of their members and their base is made up of their clients and policy holders. Not pressured by shareholders for profit
Charities - ensures those who fund the charity isn’t liable for any benefits.provides tax benefits
Public sector
Owned by the state , national and local govt
Privatization
converting govt owned businesses to private sector
Diff between private and public sector
Private sector much more likely to be profit maximisers whereas public org are set up for benefit of society as whole
Reasons for changing different forms of Business
Expenses - relatively easy to set up as a sole trader
Size and risk - if to remain little and have low risk then sole trader is the right option
Objectives of the owners - if involve growth , then incorporated business will likely to give greater access to capital
Reasons for Changing business forms
Circumstances - such as growth of business , owners wish to be incorporated in order to benefit from ltd liability
Capital - raise capital by being incorporated is easier
takeover - change in structure when taken over
Pros of LTd company
benefit from Ltd liability
great amounts of capital
required to send a ltd amount of financial info
Cons of Ltd company
cannot sell shares on stock exchange
requires permission to sell shares
some admin costs
pros of PLC
gain positive publicly from trading on stock exchange
access to large capitals
cons of plc
stock exchange lisitng means emphasis is placed on short term financial results
required to publish great deal of financial info
trading can result in admin costs
Evaluation on diff business forms
Ltd liability helps firms take reasonalble risks but gives scope to some shady practices as the business can be ran into ground and then can start again leaving customers out of pocket
No proof that a stock exchange listing leads to short termism , directors could do this due to their bonuses .
Ordinary share capital
Money invested in a company by shareholders entitling them to part ownership . if the owner wishes to get money back , sell shares on stock market
role of shareholders
attend AGM and discuss whatever is on agenda
major decisions will impact shareholders and required to be approved by shareholder
2 main financial rewards for company shareholders
Annual dividend payments
rise in value of shares
Effects of ownership and mission objectives on performance
PLc often dirven by profit by shareholders which lead to short term approach . decision are made based on this whereas sole trader and ltd companies can focus on mission statement and objectives
how are shareholders issued dividends
Dividends recieved in proportion to shareholdings ( numbers of shares each individual own)
To make a successful takeover bid
higher than the market cap , falling share prices provide opportunity for investment / takeover
Market Cap
value that stock market places on whole business by ( share price * number of issues issued)
When does share price increase
when investor confidence increases and demand is more than supply
Reasons why shares and dividends fluctuate
Performance : profits are higher then share value will increase
Expectation: result of a new product due to be launched on market
Changes within market or consumer taste
RIghts Issue
gives existing shareholders the right to buy more shares at discount to market value
Market conditions
Characteristics of a particular market
Factors of market conditions
Economy changes
consumer taste and fashion
disruptive change - resulting from radical innovation /new tech
Competitive structure - market with high barriers to entry protect operators in the market
Competition
In Competitive environment, strategies adopted by rivals will have an impact on a business.
Business must try to differentiate its own products and services in order to encourage consumers to purchase them
relation of competition with demand and cost
in competitive environment , firms likely to compete with price , leads to pressure on cost - looking to reduce cost
Demand in relation to income
demand for necessities will be less affected by changes in income than demand for luxuries
why do rising interest rates result in lower demand
consumers are likely to have less disposable income due to higher borrowing costs for loans and mortgages. encouraged to save more
why do rising interest benfit discounters
consumers switching for a cheap price grocery and gain consumers due to cut in spending
interest rates in relation to cost
high levels of borrowing be faced with higher costs when interest rates rise.
how does interest rates affect business in terms of decision making
high-interest rates lead to businesses postponing on new capital investments due to costs involved
Demographic factors
Growing or declining population - project oppurtuinites look exciting in India >japan
Age : proportion of older people forecast to grow , opprtuinites for relevant products
Gender - male focused items like consoles and cosmetics for females
Ethnicity
what does it lead to when Govt introduces legislation to help protect the environment from pollution?
Businesses have to spend large amounts on measures that nature is free from pollution
located overseas where legislation is less restricted
Factors of environmental issues and fair trade
Global warming - business make considerable effot to minimise co2 emissions
Sustainability - certain resources are running out and need to be conserved
Fair trade- achieving better prices , decent working conditions and fair terms for farmers and workers in less developed countries . Mean higher cost to business but could lead to greater demand and better reputation due to USP
Evaluation to external factors
subject to change in customer tase
