What is business? Flashcards
What is the definition of business?
- Any organisation that is involved in any organised form of trade, industrial or professional activities
What are the 6 main business objectives?
- Cash flow
- Social
-Ethical - Profit
- Growth
- Survival
What are SMART objectives?
- Specific
- Measurable
- Achievable/agreed
- Realistic
- Timed
What is a mission statement?
- A brief written statement of the purpose of a company or organisation
- It guides the actions of the organisation
- Spells out the overall goal
- Provides a sense of direction
- Guides decision making for all levels of management
- The reason for a businesses existance
What are corporate aims?
- The long-term and plans to fulfil the mission statement
What are corporate aims?
- The medium-long term quantifiable targets to fulfil the mission statement
What is a corporate strategy?
- The actions to be taken by the business to achieve the corporate objectives
What are business tactics?
- The actions to be taken on a day to day basis to support the strategy
Why do businesses set objectives?
- For a common sense of purpose
- To motivate employees
- It creates a rewards system
- Helps measure and review performance
- Inform decisions to improve performance
What is revenue?
- The money coming in from the sale of goods and services
How do you calculate revenue?
Revenue = price x quantity
What are fixed costs?
- Costs that stay the same regardless of the output
Give some examples of fixed costs
- Rent
- Manager’s salaries
- Insurance
- Loan repayments
What are variable costs?
- The costs that change in relation to the level of output
Give some examples of variable costs
- Raw materials
- Delivery costs
- Peice-rate labour
- Commission
What are the 9 business forms?
- Partnership
- Sole trader
- Social enterprise
- Public limited company
- Private limited company
- Private sector
- Public sector
- Unincorporated
- Incorporated
What is a public sector organisation?
- A business that is owned or run on behalf of the public, either by the government or by organisations funded by the government who are funded by and report to the government
- They are generally not run for profit
What is a private sector organisations?
- A business that is operated and owned by private individuals and companies
- Generally run for profit to earn returns for the business owners
What is an unincorporated business?
- A business where the owner and business have no legal difference
- The owner has unlimited liability for business actions (including debts)
- Most operate as a sole trader and some as a partnerships
What is an incorporated business?
- A business where the owner and business have a legal difference
- The owner has limited liability for business actions
- Most operate as private limited companies and a small amount as public limited companies
What is limited liability?
- When the owner cannot be personally held responsible for business debts (they belong to the business)
What is unlimited liability?
- When the owner is responsible for business debts (they will be held accountable)
What is a dividend?
- A distribution of profits by a company to its shareholders
What is a sole trader?
- An individual owning his/her own business
- The most common unincorporated business
- They can employ people but they don’t share ownership
- They have unlimited liability
What are the advantages of being a sole trader?
- Easy to set up
- Sole trader retains all profits
- Sole trader makes all decisions
What are the disadvantages of being a sole trader?
- Can be difficult to raise finance
- Unlimited liability
- Heavy workload
What is a partnership?
- When two or more people share ownership of a business
What must be agreed in a partnership?
- Profit sharing
- Entitlement to recieve salaries or other benefits
- Arrangements for the introduction of new partners
- Arrangements for retirring partners
- Arrangements for what happens when the partnership is dissolved
What are the advantages of being in a partnership?
- More equity available to finance the business compared to a sole trader
- Different partners can bring different skills
- Workload is shared
What are the disadvantages of being in a partnership?
- Unlimited liability
- Profit is shared between the partners
- Partners may not always agree on what is best for the business
What is a private limited company?
- A business whose shares are owned by private individuals (not just anyone can buy them, the ownership of shares is limited)
What are the advantages of being a private limited company?
- Owner retains control
- You can raise more money through shares
- Limited liability
What are the disadvantages of being a private limited company?
- The business must be registered with the Registrar of Companies
- High set-up costs (legal and administrative)
- Harder to motivate and control workers
What is a public limited company?
- A business that can legally sell its shares to the public
what are the advantages of being a public limited company?
- They can raise additional finance through share capital
- Shareholders have limited liability
- More negotiation opportunities with suppliers and may be able to achieve economies of scale
What are the disadvantages of being a public limited company?
- It is expensive to set up (minimum set up cost is £50,000)
- Complex accounting and reporting requirements
- Greater risk of a hostile takeover (as the company cannot control who buys shares)
- Shareholders will expect to receive dividends
- Shareholders opinions may clash when making decisions
How is the ownership of an unincorporated business determined?
- By who owns the shares
What does it mean to have ordinary shares?
- Equal voting rights based on the number of shares held
- Shareholding % = the number of shares held by a particular person as a percentage of the total shares issued
- Shares qualify for a dividend (only if one is paid)
How do you calculate market capitalisation?
- Market capitalisation = share price (per share) X number of shares issued
What is market capitalisation?
- The total value of a company in terms of its shares (determined by the price at which shares are bought and sold at)
- The total market value of the issued share capital of a company
Why do shareholders invest in businesses?
- Dividends
- Capital growth/gain
When does capital growth/gain arise?
- When the value of the business increases (it is shown by an increase in share price)
What internal factors could impact on the share price of a business?
- Financial performance
- Dividend
- Relationship with key investors
- Management reputation
What external factors could impact on the share price of a business?
- State of the economy
- General market sentiment
- Whether the company is a potential takeover target
What is a profit warning?
- When management of a company inform the stock market that upcoming profits are likely to be significantly lower than current market expectation
What factors may influence the form or legal structure a business decides to take?
- Need for finance to expand
- Size of the business
- Type of investment required
- Do they need limited liability?
- Nature of the business
- Potential risks involved
- The degree of control desired
What is a non-profit organisation?
- A business that have a non-financial purpose for their existence (they don’t exist to make profit)
What are the key characteristics for a non-profit organisation?
- They are non-government organisations
- They have a governing body responsible for their affairs
- They are driven by social, environmental, community , welfare or cultural aims and objectives
- They make profit but don’t aim to maximise profit, so any profits generated will be used for their objectives
What political factors could impact a business?
- Government economic policies
- Government social policies
- Extent of government intervention
What economic factors could impact a business?
- The business cycle
- Income levels
- Interest rates
- Exchange rates
- Levels of unemployment
- Inflation
- Whether we are a member of the EU or not
What social factors could impact a business?
- Demographic factors
- Ethical issues
- Impact of pressure groups
- The influence of different stakeholders
- Changing lifestyles
What technological factors could impact a business?
- New products
- New processes
- The impact of change
- Costs of change
What environmental factors could impact a business?
- Environmental isses
- Fair trade
What legal factor could impact a business?
- Changes in laws and legislations
- Restrictions on business actions
What factors impact on demand?
- Government action
- Price
- Tastes and fashions
- Price of other goods (complementary and substitutes)
- Marketing and advertising
- Seasonal factors
