1. Business In The Real World Flashcards
(80 cards)
1
Q
What is a business?
A
A business is an organisation which trades to make money.
2
Q
Product
A
A product is a physical/tangible item which can be produced by a business. E.g perfume, clothes, toys
3
Q
Service
A
A service is something that someone else does for for you, e.g haircut, massage
4
Q
Factors of production
A
Land
Labour
Capital
Enterprise
5
Q
Land
A
Somewhere to produce the goods e.g. a farm
6
Q
Labour
A
People to work in the business e.g. farm workers
7
Q
Capital
A
Anything man-made that can be put into the business
8
Q
Enterprise
A
This is the drive or motivation from the owners to start a business
9
Q
Oppoutunity cost
A
Opportunity cost is the potential benefits an individual or business misses out on when choosing one alternative over another.
10
Q
Primary sector
A
The primary sector extracts raw materials.
Harvesting, mining and chopping down trees for wood.
In the primary sector goods such as; wheat and barley are grown on farms.
11
Q
Secondary sector
A
manufacturing. The goods are manufactured from raw materials into finished goods. E.g plastic, metal and other parts are made into cars.
12
Q
Tertiary sector
A
Selling the products. The tertiary sector is all the support services for business. It includes shops, retail, banking and insurance.
13
Q
Entrepeneur
A
A person who starts a business and takes on financial risk in the hope of making it.
14
Q
Entrepeneur objectives
A
- Be your own boss
- Flexible hours
- To pursue an interest
- To earn more money
- To identify a gap in the market
- Dissatisfaction with current job
15
Q
Calculating profit
A
Revenue - Total costs = profit or loss
Revenue > costs = profit
Revenue < costs = loss
Revenue = costs = breakeven
16
Q
Inflation rates
A
Inflation is the rate of increase in prices for goods and services. If these go up in the UK then raw materials required to make goods may increase.
17
Q
Interest rates
A
Interest rates are the cost of borrowing. UK interest rate: This is set by the bank of England. When this rises the cost of borrowing increases.
18
Q
Exchange rates
A
Exchange rates change when the demand for a currency goes up or down. Demand could change for many reasons, such as increased business activity or rising interest rates in a country.
19
Q
The £
A
Stronger £ = cheaper import but more expensive exports
Weaker £ = Expensive imports but cheaper exports
20
Q
Sole trader
A
A sole trader is a business which has only one owner. Sole traders must pay tax on their profits. Has UNLIMITED LIABILITY. E.g. plumber, electrician
21
Q
Advantages of a sole trader
A
- Easy to set up
- You are your own boss
- You control where the finances go
- Unlimited liability
- Make decisions on on your own and quickly.
- The profits are yours
22
Q
Disadvantages of a sole trader
A
If the business goes bust it is all on you. A lot of pressure A lot of responsibility Can feel isolated No holidays No one to share ideas with
23
Q
Unlimited liability
A
This means that the business and the owner are ONE legal entity. If the business is in debt the owner is in debt. The owner could lose their house, car and Personal possessions if they fail to pay debts.
24
Q
Partnerships
A
Partners are all joint owners of the business. The partners of the business may do decision making themselves e.g. doctors, dentists
25
Advantages of a partnership
- Easy to set up
- Capital need is small
- Easier to raise extra capital than a sole trader as there are more partners to invest.
- Profits go to partners so more motivated workers.
- Knowledge and experience of others
- Can share problems or debts
- Smaller which means good working relation ships
26
Disadvantages of partnership
- Partnerships have unlimited liability
- Trust and reliability can be an issue
- Partners can have disagreements
- Control of business
- Sharing profits
- Withdrawal from the new partnership
- Inviting new partners
27
Deed of partnership
Legal contract to stop disputes
28
Limited liability
Limited liability protects a business owner's personal funds from being used to pay off debt.
29
Private Limited company (ltd)
- A private limited company means that shares cannot be bought by the public, the share issue is limited (hence the ltd) to friends and family who can buy shares in the business.
- Owners control who buys the shares.
- Expand by selling more shares, giving the business more capital.
- Limited Liability, those that own or buy shares in the business can only lose their original investment, their private assets remain safe.
e. g. Eddie Stobart ltd
30
Advantages of ltd
- Owners can control who buys the shares
- Owners don't have to pay income tax
- Limited Liability
- Easy to raise capital - issue more shares to friends and family.
- Easier to grow and expand as there is more capital to complete the process.
31
Disadvantages of ltd
- All information is available to the public
- Have to make annual accounts available for shareholders to see.
- It can be expensive to produce this information.
32
Public limited company (plc)
- Shares can be bought and sold by anyone on the stock exchange.
- Can expand by selling more shares
- Limited Liability
- Company has its own legal status
- Normally start as LTD then become PLC - (stock market flotation).
- Normally very large businesses
33
Disadvantages of plc
- Expensive to produce accounts every year
- Has to publish annual accounts which means the public and competitors can see all their financial information
- Expensive process to become a plc
- Original owners can lose control of the business if some shareholders get a majority share 51%.
34
Non-for-profit organisation
They are set up to achieve objectives other than profit. For example, a charity may be set up to help the homeless
35
SMART - business objectives
```
Specific
Measurable
Agreed/Acheivable
Realistic
Timed
```
36
Profit maximation
A business will aim to maximise a profit, they must do this therefore in only two ways:
- Increase revenue into the business
- Reduce costs out of the business
37
Growth
- As businesses trade and develop over time, the objectives may change and the owners may wish to grow the business.
- This may mean the business will need;
- To sell more goods or services
- To produce more goods
- To provide more services
38
Market share
This is the percentage of sales held by a business in the market
39
Customer satisfaction
- Some businesses will need to set customer service objectives to meet a quality standard
- They will aim for;
- No returns
- No complaints
40
Social objectives
Many commercial businesses would consider themselves to have objectives, but social enterprises are distinctive because their social and/or environmental purpose is absolutely central
41
Ethical objectives
- Ethics is the principal of knowing right decisions from ones in business.
- Having ethical objectives is expensive and will not cost the business money.
42
What is a stakeholder
A stakeholder is defined as anyone who has an interest in a business and is affected by the actions of the business.
43
Owners
* Role; to start and run a business to make a profit
| * Objectives; to get a good return on any money they have invested in the business
44
Employees
* Role; to work in a business in return for wages
| * Objectives; To have job satisfaction, to have job security so they can pay their bills, to get promoted
45
Customers
* Role; to buy goods or services from the business
* Objectives; to get a good choice of goods or services, to get value for money, to get quality products at low prices, to have the opportunity to buy innovative products
46
The local community
* Role; For those who live near a business who may be affected by its operations
* Objectives; They want the business to provide jobs, they want the business to operate in an ethical way, they may also want them to buy from local suppliers and to not pollute the local atmosphere
47
Suppliers
* Role; to provide the business with goods or services that they might need
* Objectives; they want to charge high prices to make a profit, they want customer loyalty with repeat orders, they also want payment on time, they may also want larger orders
48
Employees want ...
higher wages but owners and shareholders don’t want to pay higher wages, as this will raise costs and therefore impact profit
49
Managers want ...
big bonuses but owners and shareholders don’t want to pay them as this will impact costs and lower profits
50
Customers want ...
low prices and high quality, but owners and shareholders want high profit so want to charge high prices and quality costs so may also have an impact on profit
51
Local communities want...
want lower pollution levels, but owners and shareholders want high profits and reducing pollution will raises costs and so may lower profit
52
Suppliers want ...
to get good prices for their goods and services, owners and shareholders want high profits and want to keep their costs low
53
What influences choice of location
- Cost
- Population
- Crime rates
- Demand in area
- Number of tourists
54
Influences on business location - RECIPIE
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Raw materials
Employment
Competitors
Infrastructure
Proximity
- online
- offline
Finance (E)
```
55
Factors of location - costs of premesis
- Cost of rent for shops in town centres and shopping centres will be higher than elsewhere
- Premises are often the second largest costs after wages
56
Factors of location - costs grants
Some businesses may decide to open in a certain location because they have been given by the government grant
- Government grants do not need to be paid back, they are given to businesses to encourage them to set up in areas which have high unemployment
57
Factors of location - Proximity to market
- The location will depend on the type of goods:
- bulky or perishable goods manufactures need to be close to their customers as the goods cannot be transported long distances
58
Factors of location - proximity to competitors
- Some businesses choose to locate in a certain area which is well known for their products
- This will draw in customers and they can look around all of the shops
59
What is a business plan?
- A document which sets out the future plans for a business
| - It is how an entrepreneur will explain how they will, turn their idea into a successful business
60
The purposes of business planning
1. To help set up a new business
2. To help the business raise finance
3. To help the business to set objectives
4. To outline how functions of the business will be organised
61
The main sections of a business plan
1. Goals
2. Pricing
3. Knowing your market
4. Customers
5. Competitors
6. Location
7. Promotion
8. Finance'
62
Fixed costs
* Fixed costs are costs that do NOT vary with the level of business.
* For example - rent, salaries, insurance, and loan interest
63
Variable costs
* Variable costs are costs that DO vary with the level of trade
* For example, the more hats you sell the more you have to buy to replace them, this is a variable cost that depends on how many hats you sell.
64
Sales revenue
* Money into your business through sales is called sales revenue
* This will be cash paid by customers for your goods
65
Profit/loss
Gross profit is a good benchmark between products so a business can calculate which products make the better profit.
66
Calculating gross profit
Gross profit = Sales Revenue - Variable costs
67
Calculating net profit
Net profit = Sales Revenue - (fixed costs + variable costs)
68
Organic growth
• The business has grown by itself without needing a merger or takeover with another business
• This may be through;
– Franchising
– Opening more stores
– Expanding through e-commerce – Outsourcing
69
Franchising
An established business, the franchisor, offers for sale to other businesses or individuals, the franchisee, the rights to use its products, services or logos e.g. Subway, KFC and Dominos Pizza
• Usually there is:
– An initial set up fee
– A % of sales turnover is paid annually to the franchisor - this is called royalty
70
Opening new stores
This is a low risk strategy as the business model is known to work
• It is slow and steady and carries little risk of failure
• If one branch is not successful it can be closed and the entire business will still continue
71
E - commerce
• A business may decide to grow through e- commerce;
– By adding a website
– By adding an online shop
– By selling on online auction sites
– By adding an online booking feature to the website
72
Outsourcing
This is where a business function, such as payroll, is contracted out to a third party business
• This third party business may or may not be located abroad
• May be marketing research, legal work, accountancy or even human resources functions can be carried out by outsourced companies
• The most common example is a call centre in India
73
Organic growth advantages
a) A business that grows from within can retain their own company culture
b) Higher production means the business can benefit from economies of scale and lower average costs
c) Much cheaper than a merger
d) Less risk, slower growth, known business model
74
Organic growth disadvantages
a) This is a very high risk strategy, opening lots of stores or taking on new staff is very risky
b) Long period between investment and return on investment
c) Growth may be limited and is dependent on reliability of sales forecasts
75
Inorganic growth
• A business may decide to grow quicker and so it will decide to merge or takeover another business
76
Merger
two businesses merge to become one new one
77
Takeover
– One business will takeover a another business (by buying more than 50% of the shares), sometimes this can be hostile if the shareholders don’t agree
78
Economies of Scale
• Economies of scale occur when unit costs or average costs fall as a result as an increase in the level of output of the business
79
Diseconomies of scale
• As the level of output of a business increases, eventually the average costs increase
80
EOS and DEOS calculation
Total costs
------------
output
