3.1 What Is Business?

Question 1

What are the 4 main functional areas of a business?

Answer 1

Finance
Operations
Marketing
Human Resources

Question 2

What is the role of Finance?

Answer 2

Manages a businesses’ finances (money, sales, budget and they help aid financial decision making)

Funding money for projects and commercial purposes

Question 3

What is the role of Operations?

Answer 3

Find way to refine day-to-day workflows so teams can save time and cut down on costs

Question 4

What is the role of Marketing?

Answer 4

integrates with various business functions to ensure cohesive operations

Product development - offers insights into products on the market and customer preferences and effectively converts marketing leads into sales.

Question 5

What is the role of Human Resources?

Answer 5

Manages employee/recruitment processess and legaliyies. Also manages employee training and extermination.

Question 6

/What are the external factors of a business

Answer 6

Tech
Competition
Economy
Govt
Society
Environment
Legislation

Question 7

Why does a business exist?

Answer 7

To provide goods and services

To make profit

To help the community

To help the environment

Question 8

What is a mission?

Answer 8

A vision for the business

Question 9

What are the key aims / missions of a business?

Answer 9

Profit
Increase market share
Growth
Survival
Social/ethical
Cash flow

Question 10

What does SMART stand for?

Answer 10

Specific
Measurable
Achievable
Realistic
Timely

Question 11

What is the public sector of business?

Answer 11

Government run businesses on behalf of public

Question 12

What is the private sector of business?

Answer 12

Businesses ran by private individuals, for their own personal means or for the shareholders

Question 13

What are the types of ownership in a private sector business?

Answer 13

Sole Trader
Partnership
LTD
PLC

Non profit organisations:
Social enterprise

Question 14

What types of businesses are usually unincorporated?

Answer 14

Sole Trader
Partnership

Question 15

What types of businesses are usually incorporated?

Answer 15

PLC
LTD

Question 16

What are the features of Sole Trader?

Answer 16

A business owned by 1 person but can employ workers
(small/local)

It is set up by by registering yourself as employed then pay income tax

The profits either go back to the owner or back into the business (the owner chooses what to do with it)

They have unlimited liability and therefore are and unincorporated business.

The common objectives are profit and survivial

Its cheap and easy to set up however you dont get holiday pay

Question 17

What is a Partnership and list some key features?

Answer 17

A business set up by 2 or more people
It is owned by partners and is set up by a Deed of Partnership

The profits are divided amongst partners or put back into business
The partners run it and they make collective decisions for the business

They have unlimited liability (but sometimes can be limited) so they are usually unincorporated

Their common objectives are profit and survival

The pros are that it’s easy to set up but the cons are that there may be disputes over joint decisions

Common example would be a law firm

Question 18

What is an LTD and list some key features ?

Answer 18

A company that operates privately, only people that are invited to the business can join

The shareholders own the company and it’s set up either by a
Memorandum of association
Articles of association
Register of members

What direction the profits go in depends on the directors or it can be put back into the business or given out as dividends

The directors run it and manage day to day decisions

An LTD usually has limited liability so it’s incorporated

Their common objectives are generating profit and ensuring long term sustainability

The pros are that it has limited liability and additional legal protection as it is a separate legal entity but the cons are that you have less total control over ownership as it’s shared between directors

Question 19

What is a PLC and what are the key features of it?

Answer 19

A business ran by directors with shareholders in the business (anyone can be shareholders as long as u buy a share off public stock market)

The shareholders and directors own it and it needs atleast 2 directors to be set up and minimum of 50k capital and atleast 25% of shares have to be sold to the public , then they can register

The directors run it and they run it day it day to day and hold AGMs (anual meetings between shareholders to decide potential decisions)

They are incorporated so they have limited liability

The pros are it has limited liability and can get loans quite easily however the cons are it’s time consuming and there’s risk of hostile takeover and shares need to be bought

Common examples would be Rolls Royce and Sainsbury’s

Question 20

What are the 3 other types of business forms?

Answer 20

Co-operative
Not-for-profit=
(Mutual/charity)
Social enterprise

Question 21

What is a non profit organisation?

Answer 21

A business that trade in order to benefit the community

Question 22

Why do these organisations exist (non profit or social enterprises )?

Answer 22

For social and ethical and as well as trying to make financial return. Examples of social and ethical aims include creating employment opportunities and providing community services.

There are many different type of social enterprises such as community development trusts and housing associations or cooperatives

Question 23

What is a Mutual?

Answer 23

Mutual business have no shareholders and no owners. They exist solely for the best interest of its members - its customers.

Building societies and life assurance businesses are common examples

Question 24

What is a charity?

Answer 24

Having a status that means you find the businesses that aren’t liable for any debts

There are significant tax benefits

For example:
Greenpeace, friends of earth

Question 25

What is flotation ?

Answer 25

Converting ur structure to a PLC and floating on the market (selling your shares publicly)

Question 26

What is an ordinary share?

Answer 26

Dividends are not guaranteed and are only paid after preference shareholders receive their fixed dividends

Question 27

What are preference shares?

Answer 27

Shareholders are entitled to fixed dividends, they are typically paid before ordinary shareholders Fixed dividends may not be a good decision tho as if the business starts making more profit ordinary shareholders may receive more dividends than preference shareholders

Question 28

What is an institutional shareholder?

Answer 28

An organisation that invests a large amount of capital into a company by purchasing its shares

Question 29

Why do shareholders invest/exist?

Answer 29

Provide capital to survive and grow Influence (vote at AGM) Rewards (dividends, increase in share prices)

Question 30

How much influence do shareholders have?

Answer 30

Depends on % ownership In theory- raise issues with board of directors So they even attend AGM or vote by proxy? They don’t really have much control if shares are divided between so many ppl in Ltd or rly popular PLC

Question 31

What influences share price?

Answer 31

Profit/loss Launch of a new product Confidence in a business Takeover Economic conditions Current market share

Question 32

Significance of share price changes?

Answer 32

Short term - little impact, shareholders buy and sell through stock market, company not involved as they already have their money from flotation Long term - high prices, rights issue, shareholders able to buy more shares at discounted sale (easier for company to obtain more share capital) Long term - low prices, unlikely to raise more share capital, possible takeover in extreme cases, as shareholders start to sell

Question 33

What are the issues in understanding business forms?

Answer 33

Limited liability: The company is now a separate legal entity and can be sued in its own right Shareholders are not protected and can only lose the value of what they have invested, not their personal possessions As a supplier you may not receive payment if supplying on credit and the business fails

Question 34

Issues in understanding business forms: Ordinary share capital

Answer 34

Businesses issue shares in exchange for investors’ capital Annual dividend is expected but dividend may not be paid if performance isn’t good or if the business wishes to retain profits for future investment This may be a better source of finance than a bank loan where repayments and interest would have to be paid regardless of performance. Shareholders capital is never paid back, as shares are sold on to another member of the public However it does dilute control of owner

Question 35

Issues in understanding business forms: Market capitalisation

Answer 35

Is the market value of a company’s issued share capital - in other words, the number of shares multiplied by the current share of price of those shares on the stock market. Number of shares X market value per share = market cap

Question 36

Issues in understanding business forms: Dividends

Answer 36

Annual rewards to shareholders from profits. As most companies grow over time, dividends also tend to grow, so can be a valuable return for shareholders who hold on to shares for a number of years. Issues - the higher the dividend agreed by the directors, the lower the amount of profit retained for reinvestment into the business

Question 37

Issues in understanding business forms: Dividend cover

Answer 37

If cover is 1: all profits have been paid out to shareholders If cover is 2: half the profits have been paid out to shareholders (dividends can be covered twice by profits) If cover is 3: one third of profits have been paid out (dividends can be covered 3 times by profits) It is reccomended that companies should pay out no more then half of their profits Low dividend cover could indicate short terminism. Paying high dividends now at the cost of future growth prospects (or even survival)

Question 38

What is privatisation?

Answer 38

Selling state owned assets to the private sector. This is often achieved through listing the new private company on the stock exchange. Examples of companies who went thru privatisation are BP BT BRITISH AIRWAYS ROYAL MAIL ELECTRICITY COMPANIES GAS COMPANIES

Question 39

Pros of privatisation?

Answer 39

Improved efficiency: Allows company to cut costs and be more effective. This has been shown in companies such as British airways and BT Lack of political interference: Instead of political decisions influencing the business, it’s now instead business influential decisions for the business, meaning more chance of survival and growth Allows you to make long term decisions: Short term decisions r usually made in state owned businesses as they usually make political decisions such as who’s in party ect

Question 40

What are the cons of privatisation?

Answer 40

Exploits consumers as a private firm, they may have less competition so they set higher prices Less value for public interest: Less ethics and values for doing everything for interest for consumers and now its heavily profit driven = maybe worse service / quality Govt loses out on dividends as privatised organisations are quite profitable and now there’s gaps or fragments in the public sector industry

Question 41

What is demand?

Answer 41

Amount of goods/services consumers are **willing and able** to buy at a **given price** This translates into revenue for businesses

Question 42

Market and Market conditions

Answer 42

All businesses operate within a market The conditions of the market are very much connected to the state of the economy - the economic climate The economic conditions are measured by Gross domestic product (GDP) GDP- the value of all services and goods sold in an economy in a given period of time (quarterly/annually)

Question 43

What is a recession?

Answer 43

Two consecutive declines in GDP

Question 44

What happens when GDP rises or falls?

Answer 44

When GDP rises, employment rises and income rises, therefore so does spending. When GDP falls, employment falls and income falls too, therefore so does spending.

Question 45

Economic growth?

Answer 45

If economic growth is positive, the general expectation that underlying market conditions will he positive, with the size of the markets expanding. Why? Consumer confidence or job security Higher employment Real incomes rise These all mean they go spend more, which leads to higher GDP Not all markets may see an increase tho (inferior/normal goods)

Question 46

What is a Normal good?

Answer 46

A normal good is one who’s demand increases as people’s incomes or economy rise Eg Branded items TV’s Holidays

Question 47

What is an Inferior good?

Answer 47

A type of food for which demand declines as the level of income or real GDP in the economy increases. This occurs when a food has more costly substitutes that see an increase in demand as the society’s economy improves. Eg Less branded items Cheaper quality cosmetics Cheaper quality food

Question 48

What is real income?

Answer 48

Your salary/wage/pay rise compared to inflation percentage People may save money if their real income doesn’t match inflation (is lower than it) in fear or redundancy, therefore GDP falls

Question 49

3 other factors affecting the market conditions?

Answer 49

Consumer tastes and fashions - free from food? Carried bag manufacturing? Disruptive change - radical innovation or technological change can mean old established producers struggle to remain competitive in very different market conditions ( whole market moves on without you) Competitive structure - market share of firms, barriers to entry (things that make it harder to join) Eg, if track bought out Aldi, the structure changes, market conditions change - perhaps even making it harder for a new small firm to enter the market

Question 50

In competitive markets, what can businesses do to stay ahead?

Answer 50

Price cutting Uniqueness/ differentiation R & D : Drive the business forward

Question 51

How could/did supermarkets respond to the economic downturn?

Answer 51

Promotions Loyalty schemes Differentiation Value goods Advertising Cost cutting Diversification Expansion

Question 52

What is disposable income?

Answer 52

Income after taxes have been deducted

Question 53

What is discretionary income?

Answer 53

Income after taxes and necessities have been paid

Question 54

What is real income?

Answer 54

Income compared to inflation, if your % increase of wages is higher than inflation, your real income HAS increased, if your % increase of wages is lower than inflation, your real income HAS decreased

Question 55

What is Fair trade and why is it important ?

Answer 55

Selling goods at a higher prices to donate some profits to developing countries. It’s important as it’s sustainable/eco friendly, reduces global warming and it’s fair and equal with its pay (pays suppliers on credit fair and equally = less chance of legal misconduct)

Question 56

What does demographics of a population look at?

Answer 56

Size Age Gender Ethnicity

Question 57

What is happening to demographics in the UK and why is it a problem?

Answer 57

It’s rapidly changing, more immigration means wider ranges or heavier percentages of certain ethnicities, due to more migration too there’s less birth rates, this means there’s an unproportional amount of older people to younger people.

Question 58

How does change in demographics affect /influence costs and demands?

Answer 58

More population may mean more people are buying your goods and services which means your costs increase as your selling to a bigger audience hence you need to make more products, more so, if there’s a disproportionate ratio of adults to younger children, products for adults might sell more therefore demands will increase rapidly for some businesses and therefore costs will too.