1 What is business Flashcards
(124 cards)
1
Q
What are the 4 reasons businesses exist
A
- Make a profit
- Provide goods and services
- Develop a good idea
- Provide help and support for others e.g. charities
2
Q
Define a mission statement
A
A written declaration of a company’s core purpose and focus and defines the reason for it’s existence
3
Q
What is the purpose of a mission statement
A
to help bring focus and meaning to a business and act as a guide when making critical decisions that may affect the direction of the business.
4
Q
Define an objective
A
A goal to help a business achieve its mission
5
Q
What are 3 key objectives of business
A
- Survival
- Profit
- Growth
6
Q
What are the 2 additional important objectives of business
A
- Customer service
- Corporate social responsibility (CSR)
7
Q
Define what CSR is
A
The commitment of a business to behave ethically towards its workforce, local community and society at large
8
Q
Why does each functional area set objectives in a business
A
In order to contribute to the business achieving its overall objectives
9
Q
What are objectives, that the mission is not
A
Actionable and measurable
10
Q
Put these in order of achievement:
- Corporate aims
- Functional/department objectives Mission statement
- Corporate objectives
- Mission statement
A
Functional/department objectives ]
Corporate objectives
Corporate aims
Mission statement
11
Q
What characteristics should objectives follow
A
SMART characteristics
12
Q
What does the S in SMART characteristics mean
A
Specific: objectives must be clear, precise and well-defined
13
Q
What does the M in SMART characteristics mean
A
Measurable: must be possible to know when an objective has been completed
14
Q
What does the A in SMART characteristics mean
A
Achievable: objectives must be within capabilities and have sufficient resources
15
Q
What does the R in SMART characteristics mean
A
Realistic: an objective must be challenging but possible to achieve given the capabilities and resources
16
Q
What does the T in SMART characteristics mean
A
Time-based: there must be a deadline to work towards
17
Q
List the 3 reasons businesses set objectives
A
- Performance can be evaluated as objectives are measurable and time-based
- Provide motivation for those who are responsible as they are realistic and achievable
- They give meaning to planning and ensures a business remains focused on its mission as they are specific
18
Q
Define profit
A
The amount of money remaining once all costs have been deducted from the revenue
19
Q
What a reward to owners/shareholders of a business for taking a risk of investing in the business
A
Profit
20
Q
What is an incentive for setting up in business
A
Profit
21
Q
Define revenue
A
Money receives from sales
22
Q
How is revenue calculated
A
Units x price per unit
23
Q
Define variable costs
A
Costs that vary as a direct result of changes in the level of output
24
Q
Examples of variable costs
A
direct labour and raw materials
25
Define fixed costs
Costs that do not change as a result of changes in the level of output
- Doesn't change in the short term
26
Examples of fixed costs
Rent, rates and director salaries
27
How is total costs calculated
Fixed costs + Variable costs
28
How is profit calculated
Total revenue - total costs
29
What is the private sector
The part of the economy that is made up by private enterprises
- businesses owned and controlled by individuals/groups of individuals
30
What are the 2 categories that the private sector falls under
- Corporate businesses
- Non-corporate businesses
31
Corporate businesses consist of
- Private limited companies
- Pubic limited companies
32
Non-corporate businesses consist of
- Sole traders/ sale proprietors
- Partnerships
33
What are corporate businesses
Businesses which have a legal identity that is separate from that of their owners
34
What do corporate businesses owner's benefit from
Limited liability
35
Define limited liability
the restriction of financial responsibility of shareholders for a company's debts to the amount they have individually invested
36
Limited liability means company can
- Sue
- Be sued
- Enter into contracts
37
In the event of a corporate business failing, what does this entail for shareholders
Their private possessions are safe
38
By what 2 methods can liability of shareholders be limited
- Shares
- Guarantee
39
Limited liability by shares
A shareholders liability is limited to the value of the shares that have been purchased
- no further call on the shareholder's wealth
40
Limited liability by guarantee
Each member's liability is restricted to the amount they have agreed to pay in the event of the business being wound up
- Most common with not-for profit businesses
41
Features of a private limited company
- Smaller than public limited companies
- Share capital must not exceed £50 000
- "Ltd" must be included after the company's name
- Shares cannot be bought/sold without agreement of other shareholders
- Shares can't be sold on the Stock Exchange
- Relatively small and family businesses
42
Features of a public limited company
- Share can be sold on the Stock Exchange and can be bought by any business/individual
- "plc" must be included after the company's name
- Must have a minimum capital of £500 000 by law
- Publish more details of financial affairs than private limited companies
43
What 2 documents are given to the Registrar of companies when forming a company
- Memorandum of Association
- Articles of Association
44
Who receives the Memorandum of Association and Articles of Association
The Registrar of companies
45
What does the Memorandum of Association include
sets out the details of the company's name, address and it's objectives of trading
46
What does the Articles of Association include
details the internal arrangements of the company, including the frequency of shareholders' meetings
47
Once the Registrar of companies approves documents, what does this mean for the business
- They receive a Certificate of Incorporation
- Can commence trading
48
What are non-corporate businesses
Businesses where their owners are not treated like separate elements
49
What is the risk of owners in non-corporate businesses
They can lose their private possessions in the event of failure of the business so they are known to have unlimited liability
50
Features of a sole trader business
- Owned by a single person
- May have multiple employees
51
Features of Partnerships
- Between 2-20 people who contribute capital and expertise to a business
- Usually based on a Deed of Partnership
52
What does the Deed of Partnership state
How much each partner has contributed, the share of profits each shall receive and the rules of electing new partners
53
Examples of sole traders
Plumbing and hairdressing
54
Examples of partnerships
Dentists and accountants
55
Define " sleeping partners"
a partner that contributes capital but takes no active part in the business
56
What are the advantages of being a sole trader
- simple and cheap to establish with few legal formalities
- Owner receives all the profits
- Able to respond quickly to changes in market
- Confidentiality maintained as financial details aren't published
57
What are the advantages of a Partnership
- Partners may have a wide range of skills and knowledge
- Great amounts of capital raised than sole traders
- Pressure reduced on owners as cover available for holidays
58
What are the advantages of private limited companies (Ltd)
- Limited liability
- Access to greater amounts of capital
- Limited financial information shared
- Companies have separate legal identity
59
What are the advantages of public limited companies (plc)
- Can gain positive publicity by trading on the Stock Exchange
- Stock exchange quotation offers access to large amounts of capital
- Suppliers more likely to offer credit
- Stock exchange has strict rules so encourages investors to part with their money
60
What are the disadvantages for sole traders
- Owner likely to be short of capital for investment and expansion
- Few assets for collateral to support applications for loans
- Unlimited liability
- Difficult to take holidays
61
What are the disadvantages of Partnerships
- Control shared
- Arguments common
- Shortage of capital
- Unlimited liability
62
What are the disadvantages of private limited companies (Ltd)
- Can't sell stocks on the Stock Exchange
- Permission required to sell shares limits potential for flexibility and growth
- Have to conform to a number of expensive administrative formalities
63
What are the disadvantages of public limited companies(plc)
- Stock Exchange listing means short-term financial results not long-term performance
- Have to public a lot of financial information
- Significant administrative expenses
64
What is a not-for profit business
an organisation that has business objectives other than making a profit e.g. charities
65
What are objectives for not-for profit businesses
- Provide services to local communities
- Give people job-related skills
- Fair-trading activities
66
Example of how not-for profit businesses can provide services to local communities
Removing graffiti or clean up beaches
67
Example of how not-for profit businesses can give people job-related skills
Chef running chain of restaurants in order to provide training in a variety of catering skills for young people from disadvantaged backgrounds
68
Example of how not-for profit businesses can complete fair-trading activities
Importing products from less developed countries but pay above the market price for the products or may invest in facilities like education and healthcare
69
Define Mutuals
Private business whose ownership base is made up of their clients and policy holders which are run for the benefit of their members e.g. cooperatives, insurance companies and building societies
70
What is the public sector
The part of the economy that is owned and controlled by the government/local authorities
e.g. police, fire service, BBC, NHS , rubbish collection
71
What is privatisation
The process of converting government owned and government-controlled industries/businesses to the private sector
e.g. coal, steel, water, telecommunications
72
What are the factors that are considered when choosing a business form
- Formalities and expenses: sole traders and partnerships relatively easy to set up with a few formalities which is ideal for small businesses
- Size and risk: if business intend to stay small and carries little in the way of risk becoming a sole trader/partnership is the most appropriate
- Objectives of the owner: if the objectives involve growth, then forming an incorporated business is more appropriate as it gives more accessibility to capital and limited liability which reduces risks
73
What are the possible reasons of a business changing its business form
- Circumstances: growth of business
- Capital: easier to raise capital by becoming incorporated or Ltd becoming an plc
- Acquisition/takeover: may cause change of structure e.g. Ltd taken over by plc
74
Why might a plc change to a Ltd
- Escape scrutiny of the city
- Escape pressure from short-term shareholder objectives
75
Define share capital
money invested in a company by shareholders giving them part-ownership of the company
76
What are shareholders
owners of a limited company and include any person, company or other institutions that owns at least one share
77
What are the rights and roles of shareholders
- Take part in decision making at general meetings held by directors
- Attend meetings
78
What is something only shareholders can action
The removal of directors or changing the company name
79
Define dividends
- A share after-tax profit of a company distributed to its shareholders according to the number of shares held
shareholders entitled to it
80
What is capital growth
The value of shares increasing over time
81
What causes share prices to increase
Demand of shares > supply
82
What causes share prices to decrease
Sellers > Buyers
83
What does the prices of a share depend on
The market
84
What are the 4 reasons shares and dividends may fluctuate in value
- Performance
- Changes within market/competitive environment
- World uncertainty
85
How does changes within market/competitive environment affect the fluctuation in value of shares and dividend
e.g. customers move from mainstream supermarket (Tesco) to discounters (Lidl and Aldi)
- Tesco's shares adversely affected
86
How does performance affect the fluctuation in value of shares and dividends
- Profits worse than expected = value of shares fall
- Profits higher than expected = share value rises
87
How does world uncertainty affect the fluctuation in value of shares and dividends
e.g. conflict in the Middle East, a pandemic (COVID-19) or an economic downturn will cause share prices to full
88
What is market capitalisation
A valuation of a company
89
How is market capitalisation calculated
share price x number of shares issued
90
Changes in 1.............. affect the 2............... of a company
1. share price
2. valuation
91
A 1....... share price may provide 2.............. for investment/takeover or indicate that a business is in 3..............
1. fall
2. opportunity
3. decline
92
Define external environment
Things that are out of the business's control
93
What are the 5 types of external environment factors
- Competition
- Market conditions
- Economic factors
- Social and environmental issues
- Demographic factors
94
What do the external environment affect
- Demand of goods/services
- Cost of operating a business
- Impacts ability to achieve strategic goals and objectives
95
Competition: a business must try to 1............... its own producrs/services in order to 2............. consumers to purchase them
Costs impacted
96
Define Market conditions
the characteristics of a particular market
e.g. size, growth rate, any barriers to entry, seasonal factors, amount and intensity of competition
Impacts demand and costs
97
What do economic factors consist of
- Interest rates
- Inflation
- Exchange rates
98
What do interest rates have a huge impact on
Demand and costs
99
High interest equals
Explain why
Lower demand
consumers have less disposable income due to higher borrowing costs for loans and mortgages which may encourage them o save more
100
Give an example of a business that aren't negatively impacted by the raise in interest rates
Discount retailers
101
Business with a high 1............... have ............. costs when 3................ increase
1. borrowing
2. higher
3. interest rates
102
Low interest equals
High demand and costs
103
1.......... interests lead to new capital investments being 2.............
1. High
2. postponed
104
1............ interests more 2.............. capital investment
1. Low
2. conductive
105
If a business has large 1................, they will benefit to 2................., as higher interest rates 3................
1. cash reserves
2. rise in interest rates
3. received
106
Falling income equals
lower demand
107
Rise in income equals
higher demand
108
Demand for 1............ will be 2.......... affected by the changes in 3............ than the demand for luxuries
1. necessities
2. less
3. income
109
Define demography
The study of human populations based on factors such as:
-age
- gender
- income
- occupation
- birth rates
- death rates
- level of public health
-immigration
110
Demographic factors that are important in the UK
What do these factors affect
- population growth which immigration is the most common contributor
- ageing population
They affect the demand and the nature of goods and services purchased
They also affect the structure of the working population e.g. workers working longer before they receive their state pension
111
Environmental issues and fair trade:
1................ and 2................. quickly brings to light any 3................ in terms of 4................. and exploitation of people in 5.....................
What may this impact
1. Media
2. social media
- Impacts the business's reputation, sales and costs
112
Why have successive governments in the UK introduced legislation
To help protect the environment from pollution
113
Business need to spend large amounts of measure to ensure 1..........., 2............. and the surrounding 3................. are clear from 4....................
- Due to legislation put in place
1. water
2. air
3. countryside
4. pollution
114
What are businesses that have located themselves where legislation is less stringent not always free from
The public gaze
115
Concern of the environment driven by factors such as
Global warming - Businesses need to cut emissions
116
What is fair trade about and what does it lead to
achieving better prices, decent working conditions and fair terms of trade for farmers and workers in less developed countries
- Higher costs for businesses but can lead to greater demand and better reputation and could act as a selling point
117
Businesses should 1.........and 2........... for some changes in 3..............
1. anticipate
2. plan
3. external factors
118
What is a way to remember external factors which affect business
PESTLE
119
What does the P in PESTLE stand for
Political
- government type and policy
- Funding, grants and initiatives
120
What does the E in PESTLE stand for
Economic
- Inflation and interest rates
- Labour and energy costs
121
What does the S in PESTLE stand for
Social
- Population, education, media
- Lifestyle, fashion, culture
122
What does the T in PESTLE stand for
Technological
- Emerging technologies, web
- Information and communications
123
What does the L in PESTLE stand for
Legal
- Regulations and standards
- Employment law
124
What does the E in PESTLE stand for
Environmental
- Weather, green and ethical issues
- Pollution, waste, recycling
