What is business?

Question 1

What is the difference between customer needs and wants?

Answer 1

Customer needs are essential goods/services required by the customer as a necessity while customer wants are goods/services that an individual would like to purchase.

Question 1

Why do customer wants change?

Answer 1

Changes in consumer taste
Social media influence
Trends
Changes in household/personal income

Question 2

What is the definition of business?

Answer 2

An organisation that exists to provide goods and services on a commercial basis to customers.

Question 3

What are the benefits of businesses?

Answer 3

1) Creates employment and develops human capital
2)Drive innovation through R&D and new products
3)Pay taxes on profits earned and collect taxes for the Government
4)Create wealth by providing returns on investment

Question 4

what is a start-up?

Answer 4

A new business enterprise, formed by one or more entrepreneurs.

Question 5

What are the roles of the entrepreneur?

Answer 5

Spot business opportunities
Takes (calculated) risks in order to gain possible future returns
Acts as a catalyst for the creation and growth of new business enterprises

Question 6

What are the 4 main business sectors (outputs)?

Answer 6

Primary- extraction of natural resources
Secondary- production of finished good & components
Tertiary- providing services to consumers and businesses
Quaternary- providing information and ICT

Question 7

What are the small business aims?

Answer 7

To survive
Market share
Increase profit
To be more ethical and sustainable
To grow or expand
Customer satisfaction

Question 8

What are business objectives?

Answer 8

Specific intended outcomes of business strategy
The anticipated end results of a program of activities
Targets which the business adapts in order to achieve its primary aims

Question 9

How can objectives be used?

Answer 9

Implement the mission
Provide a clear focus for decision-making
motivate employees

Question 10

What are corporate objectives often stated in terms of?

Answer 10

Profit (value, margin)
Return on investment (ROCE)
Growth (profit, earnings per share)
market share
cash flow
sales revenue

Question 11

what are some factors influencing business objectives?

Answer 11

Age of the business
Size and legal status
Ownership
Views of owners and managers
Market conditions
Competition
Legislation

Question 12

How is profit calculated?

Answer 12

Total sales revenue - Total costs

Question 13

How is total sales revenue calculated?

Answer 13

Price per unit x output (number of units sold)

Question 14

How is total costs calculated?

Answer 14

Total fixed costs + Total variable costs

Question 15

What is total sales revenue?

Answer 15

Revenue is money made directly from sales and so the total amount of money made from sales depends on the demand for the product.

Question 16

How can a business influence its sales revenue?

Answer 16

Quality of products and services
Promote products and services
Offer fair prices (prices should reflect the perceived value of the product/service)
Increase output

Question 17

What are fixed costs?

Answer 17

Costs that do not change according to the level of output therefore meaning that costs remain the same, regardless of how many products are sold/made.
This is also known as overheads which are payments that will be made, regardless of business activity. e.g. rent, tax

Question 18

What are variable costs?

Answer 18

Costs that change according to the level of output.
Variable costs often have a direct link to products/services e.g. raw materials, fuel costs, and components required for products/services.

Question 19

What are examples of fixed and variable costs?

Answer 19

Wages are variable while salaries are fixed costs.

Question 20

What is average cost?

Answer 20

Total costs of production / Level of production or output = costs of producing a single unit of output

Question 21

How can average cost of production be reduced?

Answer 21

Change suppliers ( cheaper raw materials)
Buy in bulk
Pricing strategies

Question 22

Which stakeholder groups will be interested in profit?

Answer 22

Directors- group of level (board of directors)
CEO
Customers- it would affect the price of the product
Rivals
Government- taxes
Employees- how much they are going to get paid, job security.

Question 23

Why are profits so important?

Answer 23

Measures success
Encourages people to invest
Larger return for investors
Attract customers- desirable products

Question 24

What are the different forms of business?

Answer 24

Sole traders (owns all the business assets personally)
Partnerships (partners between them own all the business assets and liabilities)
Ltd (companies are owned by the shareholders and run by the directors)
Plc (specialist type of limited company)

Question 25

What are benefits and drawbacks of sole traders?

Answer 25

Benefits: Quick and easy to set up, simple to run (owners have complete control on decision-making), minimal paperwork, easy to shut down.
Drawbacks: full personal liability, harder to finance, the business is the owner, pay a higher tax rate.

Question 26

What are the benefits and drawbacks of partnerships?

Answer 26

Benefits: simple, minimal paperwork once partnership agreement is set up, greater potential to raise finance.
Drawbacks: full personal liability, harder to raise finance than a company, complicated to sell or close.

Question 27

What are the benefits and drawbacks of Ltd?

Answer 27

Benefits: limited liability (protects the shareholders), easier to raise finance, stable form of structure.
Drawbacks: greater admin costs, public disclosure of company information, directors’ legal duties.

Question 28

What is a share?

Answer 28

Individual part of the total issued share capital of a company.

Question 29

What is the shareholding %?

Answer 29

Number of shares held compared with total number of shares issues

Question 30

What is unlimited liability?

Answer 30

Owners of the business are personally liable for all the debts which the business may have.

Question 31

What is market capitalisation?

Answer 31

Total value of a company
share price (per share) x number of shares in issue
represents the total market value of the issued share capital of the company.

Question 32

How is share price determined?

Answer 32

Determined by the interaction of supply and demand, if demand for a share is greater than supply then the share price should rise.
A falling share indicates excess supply.

Question 33

What are the factors within the company’s control?

Answer 33

Financial performance e.g. profit, growth
Dividend policy (how profits are distributed to shareholders)
Relationship with key investors
Management reputation

Question 34

What are the factors outside the company’s control?

Answer 34

State of the economy
General market sentiment
whether the company is a takeover target
alternative investment in the company’s sector

Question 35

What is an unincorporated company?

Answer 35

Owner is the business
Owner has unlimited liability for business actions (including debts)
Most operate as a sole trader

Question 36

What is an incorporated company?

Answer 36

legal difference between the business and the owners, owners (shareholders) have limited liability
Most operate as private limited companies

Question 37

What are shareholders?

Answer 37

Shareholders own a share of the company, but do not own the assets of the company and are not liable for any debts.

Question 38

What are the factors influencing costs and demand?

Answer 38

Competition
Household income
Interest rates
Demographic factors e.g. age, family size
Environmental issues
Market conditions

Question 39

What is the effect of a significant fall in a share price on a company?

Answer 39

The company may become vulnerable to takeover.
The company may be less able to raise capital successfully through share issues.
Effects may be limited if the fall is thought to be short-term response to a poor set of trading figures.