What Is Business Flashcards
What is a business
An organisation that exists to provide goods and services on a commercial basis to customers
Definition : mission statement
- overriding goal in a business
- reason for its existence
- vision for the future
Definition : objective
Something the business wants to achieve in a given time period
Examples of objectives in a business
- profit
- survival
- growth
- cash flow
- social and ethical
What are SMART goals
S - specific
M - measurable
A - achievable
R - relevant
T - time bound
What is the difference between a mission statement and an objective
Mission statements are the main vision in the business whereas objectives are long term goals to help achieve the mission statement
Why do businesses set objectives
- provide a direction
- motivate staff
- helps with decision making
Definition : revenue
Amount of money that is earned through the selling of goods and services
Calculation : revenue
Number of goods sold x selling price
Calculation : profit
Sales revenue - total costs
How is profit useful
- helps a business to grow
- serves as motivation to owners
- used as a measure of success
Definition : fixed costs
Don’t change in the short term, do not vary with output
Definition : variable costs
Vary with output
Calculation : total costs
Fixed costs + variable costs
What is the private sector
- organisations that are owned and operated by individuals or shareholders
Definition : sole trader
- owned by 1 owner
- can employ staff but remain in control of business
Advantages of being a sole trader
+ easy to set up
+ start up costs are low
+ do not have to publish financial reports
+ not accountable to shareholders
+ have full control
+ keep all profits
Disadvantages of being a sole trader
- often fail as debts become so high they struggle to establish in the market
- market research is often not good enough to promote their products enough
- owners may lack the relevant skills
- unlimited liability
What are limited companies
when a business becomes incorporated through registering with companies house they gain limited liability
Definition : private limited company
The shares are not publicly sold on the stock exchange, shareholders are usually chosen (friends or family)
Advantages of a private limited company
+ limited liability
+ new shares must be invited which protects the business from outside influence
+ shares can be sold to raise capital
Disadvantages of a private limited company
- more paperwork
- public can view financial information
- can be time consuming to set up
- business may require help to manage finances which can increase costs
Definition : public limited company
Can sell shares to the general public
Advantages of a public limited company
+ large amounts of capital can be raised
+ limited liability
+ increased negotiation opportunities with suppliers in terms of prices because larger businesses can achieve economies of scale
Disadvantages of a public limited company
- costs are high
- all accounts are publicly available
- shares can be bought by competitors which increases risk of takeover
- shareholders expect ownership
- corporation taxes
- dividends
Definition : not for profit organisations
- primary aim is not profit, profits they do make are reinvested or shared to staff, they focus on providing quality goods and services for a good value
Advantages for not for profit organisations
+ limited liability
+ tax exemption
+ employee benefit
Disadvantages for not for profit organisations
- public scrutiny
- social pressure
Definition : social enterprise
- help to solve social problems and improve the community and environment
- reinvest profits into the achievement of the social aims
Advantages of social enterprise
+ tax deductions
+ make a social impact
+ chances of receiving grants
Disadvantages for social enterprise
- strict rules and regulations
- constant monitoring
- limit on revenue generation
Definition : public sector
- organisations that are owned or ran by the government e.g. NHS
- they provide services to the community
Advantages of the public sector
+ help the community
+ job security as they have the backing of the government
+ variety of working hours for staff
+ not affected by the economy
+ easier to raise capital
Disadvantages of the public sector
- slow decision making
- can be a high degree of corruption
- a lot of investment is needed
- less financial freedom to borrow money
Definition : dividends
Pay out of profits for shareholders
Definition : share capital
Money raised by the sale of shares
Definition : shareholder
An owner of shares in a company
Definition : stock market
Where shares are sold
Definition : share price
Amount it would cost to buy 1 share
Definition : market capitalisation
Value of company that is traded on the stock exchange
Definition : equity
Value of shares issued by a company
Definition : investment
Putting money into a business
Definition : ordinary shares capital
Money raised by the sale of shares by public and private companies
Calculation : market capitalisation
Market price of shares x number of common shares outstanding
Definition : capital growth
Arises form an increase in the value of a business
Influences on share price
- sales
- demand
- investment
- changes in operations
- size of business
- reputation
- economic growth
How do market conditions impact a business
- Economic decline means the demand for products will decrease as consumer spending is likely to decrease
- Economic growth will increase demand and increase costs as they will have to produce more products to keep up with the growing demand
How does the environment impact a business
- They need to be aware of the impact that their manufacturing have on the environment, they can attract unwanted attention from pressure groups and damage their reputation
Definition : Fair trade
Ensures that farmers and producers of products are paid a fair wage by larger companies that buy the products off them
How does fair trade impact a business
- If they support their trade, then it will give them a good reputation, and people want to support the business, which will increase demand
- They can gain a bad reputation if they do not support, it there is a risk to be publicly exposed
How does consumer income impact a business
- An increase will result in more demand and more costs
How does competition impact a business
- If there are more competitors in the market, it will decrease demand for the businesses
- If there is less competition, other businesses can gain more market share and increase their customers and sales
How do interest rates impact a business
- Impacts disposable income
- A decrease in interest rates will mean more investment and more consumer spending
How do demographic factors impact a business
- A business will need to constantly monitor trends which will increase marketing costs
- If they don’t keep up-to-date with these trends, demand will fall
