3.1.1 Flashcards
Understanding the nature and purpose of businesses (26 cards)
Why do businesses exist?
- Help the community
- Create job opportunities
- Fulfill a demand
What is the Primary Sector?
Businesses that extract raw materials (eg. farmers)
What is the Secondary Sector?
Businesses that manufacture products from these raw materials, adding value to them (eg. Nissan)
What is the Tertiary Sector?
Businesses that provide a service by selling the goods (eg. Tesco)
What is the Quaternary Sector?
Businesses that partake in research and development
Why is starting a business risky?
- Big start up costs
- Success is uncertain
- Hard to keep up with demand without experience
What is the hierarchy of objectives? (Top to bottom)
Aim, mission, corporate objectives, functional objectives, business unit/individual targets
What is a mission?
The overriding goal of the business and the reason for its existence
What is the purpose of a mission statement?
- Help bring focus and meaning to a business and its employees
- Acts as a guide when making critical decisions
What are objectives?
A target/goal which you want to achieve in a given period of time
What are the 6 typical business objectives?
- Profit maximisation
- Survival
- Cash flow targets
- Ethics/social targets
- Diversification
- Growth
What is the value of setting objectives?
- Motivate employees
- Ensure everyone is working towards the same goal
- Success can be reviewed and evaluated
What are SMART Objectives?
Specific
Measurable
Achievable
Realistic
Timely
What is a vision?
The overall aspiration of a business
What is an aim?
A general statement of what the business intends to achieve
What is profit?
The surplus money a business has left after costs have been covered
What is the formula for profit?
Total revenue - total costs
Why is profit important?
- Reward for taking risks
- Measure of success
- Reassurance of payments for suppliers
- Source of finance for growth
What is revenue?
The total money coming into the business from sales
What is the formula for total revenue?
Quantity sold x selling price
How can businesses increase their revenue?
- Diversification
- Expanding their customer base
- Growth into different areas
- Increase prices
What will businesses need to consider when choosing their strategy for increasing revenue?
- Whether it affects costs (if expanding)
- The demand of their products
- If they can stay competitive (if increasing prices)
What are costs?
The amounts that a business incurs in order to make goods and/or provide services
What are fixed costs?
Costs that do not vary with output (eg. rent)
