3.1.1 What is business Flashcards
Understanding the nature and purpose of business (18 cards)
Why do businesses exist?
Businesses exist to provide goods and services to satisfy customer needs and wants. They aim to create value by transforming inputs (resources) into outputs (products/services) that can be sold for a profit.
What are the main business objectives?
Profit, growth, survival, improving cash flow, and meeting social and ethical goals.
What is a profit objective?
To maximise the financial surplus after total costs are subtracted from total revenue. Profit enables reinvestment, survival, and rewards for owners.
What is a growth objective?
To expand the business through increased revenue, market share, or number of employees. Growth can create economies of scale and boost competitiveness.
What is a survival objective?
To continue trading during difficult periods (e.g. economic downturns or early start-up stages). This is often the short-term goal for new or struggling businesses.
What is a cash flow objective?
To ensure sufficient inflows of cash to meet outflows and avoid insolvency. Managing liquidity is critical for daily operations.
What are social and ethical objectives?
Goals related to acting responsibly, sustainably, and fairly. Examples include reducing environmental impact, fair trade practices, and charitable contributions.
What is a business mission?
A broad, qualitative statement that defines a business’s overall purpose or values, often found in a mission statement.
What are business objectives?
Specific, measurable targets set to help achieve the mission. They guide decision-making and performance assessment.
What is the relationship between mission and objectives?
The mission provides a direction or purpose, while objectives break that down into actionable, measurable goals that support the mission.
Why do businesses set objectives?
• Provide direction and focus
• Motivate staff
• Measure performance
• Aid in decision-making
• Communicate priorities to stakeholders
Why do businesses set objectives?
• Provide direction and focus
• Motivate staff
• Measure performance
• Aid in decision-making
• Communicate priorities to stakeholders
What is profit and how is it calculated?
Profit is the surplus after all costs are deducted from revenue.
Formula: Profit = Total Revenue – Total Costs
The total income generated from selling goods or services.
Formula: Revenue = Price × Quantity Sold
What are fixed costs?
Costs that do not change with output, e.g. rent, salaries. These must be paid regardless of how much a business produces or sells.
What are variable costs?
Costs that vary directly with output, e.g. raw materials, packaging. As production increases, variable costs increase.
What are total costs?
The sum of all fixed and variable costs.
Formula: Total Costs = Fixed Costs + Variable Costs
Why is profit important to a business?
Profit:
• Rewards risk-taking
• Enables reinvestment and growth
• Improves financial health
• Enhances attractiveness to investors
• Contributes to survival
