Business in the Real World (1) Flashcards
(83 cards)
1
Q
Define Goods and Services
A
Goods are physical items like books and furniture whereas Services are actions performed by other people for the customer eg. barbers and plumbers
2
Q
Define Needs and Wants
A
Needs are things you can’t live without like water and food whereas Wants are things you would like to have but can survive without like holidays or jewellery
3
Q
What are the main reasons that a business is set up?
4 reasons
A
- Making a good or providing a service that they think
customers would pay for - To distribute goods
- To benefit other people. They could make goods or provide a service
- Fufil a business opportunity
4
Q
What are the 3 sectors of the economy?
A
The Primary Sector, The Secondary Sector and The Tertiary Sector
5
Q
What happens in the Primary Sector?
A
The Primary Sector produces raw materials- any natural resources that are used to make goods or services
6
Q
Where can the raw materials in the Primary Sector be found?
A
They can be extracted from the ground by the mining industry, grown by the farming industry, or collected by the fishing industry
7
Q
What happens in the Secondary Sector?
A
The Secondary Sector manufactures goods. They turn raw materials into finished goods
8
Q
What happens in the Tertiary Sector?
A
The Tertiary Sector provides services
9
Q
Who can the services be provided for?
A
Some firms provide services for other businesses like warehousing and advertising. Some firms provide services for consumers like hairdressers, shops and restaurants
10
Q
What is an entrepreneur?
A
An entrepreneur is somebody who comes up with a business idea. This can be by themselves or with a partner
11
Q
What qualities make a successful entrepreneur?
4 qualities
A
Hardworking, organised, innovative and a risk taker
12
Q
What are the Four Factors of Production?
A
Land, Labour, Capital and Enterprise
13
Q
Define Land
A
Land includes all the Earth’s natural resources such as natural gas, oil and coal, materials extracted by mining like diamond and gold, water and animals found in an area
14
Q
What is the problem with using natural resources?
A
They’re all scarce, there aren’t enough resources to satisfy the demands of everyone
15
Q
Define Labour
A
Labour is the work done by the people who contribute to the production process
16
Q
What factors can affect how ‘valuable’ a person is in a workplace?
A
Their level of education, experience or training
17
Q
Define Capital
A
Capital is the equipment, factories and schools that help to produce goods or services
18
Q
How is Capital different to Land?
A
Capital has to be made first
19
Q
Define enterprise
A
Enterprise refers to the entrepreneurs who take risks and create things from the other 3 factors of production
20
Q
What is opportunity cost?
A
Opportunity cost is the value of the next best alternative that’s been given up
21
Q
Describe a business owned by a sole trader
A
Sole trader businesses have one owner but that owner can employ people to work for them. Most small businesses are sole traders. Businesses like plumbers, hairdressers, newsagents and fishmongers are all examples of sole traders
22
Q
What are the advantages of being a sole trader?
3 advantages
A
- They’re easy to set up
- You get to be your own boss
- You can decide what happens to any profit
23
Q
What are the disadvantages of being a sole trader?
4 disadvantages
A
- You may have to work long hours with little holidays
- You have unlimited liability meaning that if the business
goes into debt, you are liable for paying back and may
have to sell personal possessions - You’re unincorporated which means the business doesn’t
have its own legal identity so if anyone sues the
business, they’ll sue you personally - It can be hard to raise money or get a bank loan
24
Q
Describe a business owned by a partnership
A
Business like accountancy firms, solicitors and doctors’ surgeries. Partnerships generally have two or more partners. Each partner has an equal say in making decisions and an equal share of the profits- unless they have an agreement in the deed of partnership that says different
25
What are the advantages of being in a partnership?
| 3 advantages
- More owners means more ideas and a greater range of
skills and expertise
- More people to share the work
- More owners means more capital (money) can be put
into the business, so it can grow faster
26
What are the disadvantages of being in a partnership?
| 4 disadvantages
- Each partner is legally responsible for what all other
partners do
- Most partnerships have unlimited liability
- Potential disagreements by including more partners
- The profits are shared between the partners resulting in
less money than a sole trader could earn
27
Who are Limited Companies owned by?
Shareholders
28
What are 2 types of Limited companies?
Private (ltd) Public (plc)
29
What are the differences between these ownerships and sole traders and partnerships?
(3 differences)
- A limited company is incorporated (it has a separate
legal identity from the owners) so any money, property,
tax bills etc. in the company's name belong to the
company , not the owners
- Being incorporated means the owners have limited
liability. If anything goes wrong, its the company thats
liable not the owners, they can only lose money that they
invested in the business
- Because its owned by shareholders, the more shares
you own, the more control you get
30
Describe a Private Limited Company (ltd)
Private means that shares can only be sold if all the shareholders agree. The shareholders are often all members of the same family.
31
What are the advantages of a Private Limited Company?
| 4 advantages
- They have limited liability- you can't lose more than you
have invested
- Being incorporated, the company can continue trading
after a shareholder dies- unlike a partnership
- Its easier for a ltd company to get a loan or mortgage
than it is for a sole trader or partnership
- For someone to buy shares, all the other shareholders
have to agree so the owners get a lot of control on how
the business is managed
32
What are the disadvantages of a Private Limited Company?
| 2 disadvantages
- They're more expensive to set up than partnerships
because of all the legal paperwork needed
- Unlike sole traders or partnerships, the company is
legally obliged to publish its accounts every year
33
Describe a Public Limited Company (plc)
The companies shares are traded on a stock exchange, and can be bought and sold by anyone. Firms often become Public Limited Companies when they want to expand
34
What are the advantages of being a Public Limited Company?
| 3 advantages
- More capital can be raised by a PLC than any other type
of business
- More capital helps the company to expand and diversofy
- They have limited liability and being incorporated
35
What are the disadvantages of being a Public Limited Company?
(4 disadvantages)
- It can be hard to get lots of shareholders to agree on
how the business is run. Each shareholder has very little
say unless they own a lot of shares
- It's easy for someone to buy enough shares to take over
the company
- The accounts have to be made public so it is made
public if a business is struggling
- More shareholders means there's more people wanting
a share of the profits
36
What is the difference between a business aim and objective?
A business aim is something you want to do as a business and a business objective is what your business is going to do
37
What are some examples of business aims?
| 7 examples
- Survival
- Maximise Profit
- Growth
- Increase Shareholder Value
- Increase Market Share
- Do What's Right Socially and Ethically
- Achieve Customer Satisfaction
38
How can objectives help businesses to achieve their aims?
Once objectives have been set they act as clear targets for firms to work towards. They can then be used to measure whether a firm has been successful or not
39
What different factors affect what objectives a business chooses?
(3 factors)
- The size of a business
- The level of competition
- The type of business (e.g not-for-profit businesses would
are more likely to set social or ethical objectives
40
What factors can create a dynamic business environment?
| 4 factors
- The Law
- The Economy
- Technology
- Expectations of customers may change
41
How can a business use objectives to monitor success?
| 3 reasons
- Profit e.g If the firm met a yearly profit target it can show
signs of success
- Number of employees can show if it's met its growth
objectives
- The value of shares can see if its met its shareholder
value objectives
42
What is a Stakeholder?
A Stakeholder is anyone who is affected by a business
43
What are examples of Stakeholders?
| 6 examples
- Owners
- Employees
- Suppliers
- Customers
- Government
- Local Community
44
What is revenue?
Revenue is the income earned by the business before the costs are paid out
45
How do you calculate revenue?
Revenue= sales x price
46
What are costs?
Costs are the expenses paid out to run the business e.g materials
47
How do you calculate costs?
Total costs= variable costs + fixed costs
48
What are fixed costs?
Fixed costs don't vary with output (the amount a business produces). They have to paid even if the firm produces nothing. For example, the rent, insurance, and fixed salaries for employees
49
What are variable costs?
Variable costs are costs that will increase as the firm expands output. For example, the costs of factory labour, raw materials and running machinery
50
What is average unit cost?
Average unit cost is how much each product costs to make
51
How can you calculate the average unit cost?
Average unit cost= total cost / output
52
What is profit/loss?
Profit is any money the business still has after their costs have been paid from the revenue. Loss is when the costs are higher than the revenue and no money is left over
53
How do you calculate profit/loss?
Profit/loss= revenue - costs
54
Why is it important for a business to make a business plan?
| 4 reasons
- Identify costs
- Organise resources
- Anticipate risk
- Calculate turnover
55
What are the 7 sections most business plans include?
- Personal Details
- Mission Statement
- Objectives
- Production Description
- Production Details
- Staffing Requirements
- Finance
56
What potential problems occur in business plans?
| 3 reasons
- They take a lot of time and money to write
- Some people will be too optimistic when writing a
business plan leading to problems later on
- Some managers stick too tightly to the plan so if
something unexpected happens they may struggle
57
What are the 5 factors that can influence where a business chooses to locate?
- Location of Raw Materials
- Labour Supply
- Competition
- Location of the Market
- Cost
58
What is economies of scale?
When the level of production is increased, the unit cost decreases therefore saving in costs
59
What are the 2 reasons that economies of scale can happen?
1. Purchasing economies of scale - These happen when a
large firm buys its supplies in bulk and so gets them at a
cheaper unit price than a small firm
2. Technical economies of scale - These occur because a large firm can afford to buy and operate more advanced machinery than smaller firms
60
How can larger firms benefit from economies of scale?
| 3 benefits
- As the average unit cost of making each product is
lower, firms can make more profit on each item they sell
- Lower average unit costs means larger firms can charge
their customers less for products than smaller firms can,
making potential customers more likely to buy their
products
- More profit can be made which can be reinvested into
the business so it can expand even further
61
What is diseconomies of scale?
When expanding leads to an increase in average unit cost
62
What are the risks of diseconomies of scale?
| 4 risks
- The bigger the firm, the harder and more expensive it is
to manage properly
- More people makes communication difficult to each
layer of the hierarchy
- Members at the bottom can feel insignificant and
become demotivated causing productivity to go down
- The production process may become more complex and
more difficult to coordinate
63
What are the 2 main types of expansion?
Internal and External
64
What is internal expansion or organic growth?
When a business expands using its own internal resources without having to borrow from or merge with other firms
65
Why can internal expansion be good?
| 3 benefits
- It's relatively inexpensive
- It's less likely to go wrong because the firm is expanding
by doing what it's already good at
- The firm grows slowly, so it's easier to make sure quality
doesn't suffer and new staff are trained well
66
Why could it be bad?
Because it grows slowly, it takes a long time to achieve growth- some owners don't want to wait a long time to start making money
67
What are the 3 methods of organic growth?
- E-commerce
- Opening new stores
- Outsourcing
68
What is E-commerce?
This is where a firm sells products via the internet
69
Why can E-commerce be good?
It's cheaper than opening up a new store because the firm doesn't have to pay rent and won't have to hire as many staff
70
What is a disadvantage to E-commerce?
The technology e.g websites or apps has to be regularly updated and any technical problems can cause customers to become unsatisfied
71
What is the advantage to opening new stores?
It's fairly low risk. If it operates the same way the existing stores do, it should be a success so the business can increase sales
72
What is a disadvantage to opening new stores?
Opening new stores means lots of extra costs e.g rent and staff pay. The company needs to make sure it can afford these new costs
73
What is outsourcing?
This is when a business could pay another firm to carry out tasks it could to itself
74
Why would a firm use outsourcing?
The outsourcing firm might be able to do these tasks more quickly, cheaply or to a higher standard than the business can do itself
75
What are the disadvantages of outsourcing?
| 3 disadvantages
- The business loses some control over parts of its
operations
- The firm they've outsourced might not prioritise their
work if they've also got other customers
- The business could also get a bad reputation if the firm it
outsources to has poor standards
76
What is Franchising?
A franchise works when a company has one original owner/founder. A person/franchisee who wants to run one of the firms has to ask the franchiser for permission to run one of them. Ex. fast food chains
77
What are the advantages of franchising?
| 3 advantages
- It increases the franchisors income as they get money
from the franchisee
- It increases market share
- The firm doesn't have the usual risks and costs of
running a new outlet- the franchisee is responsible for
them
78
What is the disadvantage of a franchise?
If a franchisee has poor standards the franchisors brand could get a bad reputation
79
What is external expansion?
External expansion means expanding by working with other businesses
80
What is a merger?
A merger is when two firms join together to form a new but larger firm
81
What is a takeover?
A takeover is when an existing firm expands by buying more than half the shares in another firm
82
What are the 4 basic ways a firm can merge with or takeover other firms and what are the advantages of each?
- Supplier: A firm joins with a supplier. This allows the firm
to control the supply, cost and quality of its raw materials
- Competitor: A firm joins with one of its competitors. This
creates a firm with more economies of scale and a
bigger market share. It will be more able to compete than
before
- Customer: A firm takes over a customer. This gives the
firm greater access to customers. Owning all its retail
outlets will make it easier to sell its products
- Unrelated firm: Two unrelated firms join together. This
means the firm will expand by diversifying into new
markets. This reduces the risks that come from relying on
just a few products
83
Why don't all mergers and takeovers work?
- It's very hard to make 2 different businesses work as one
- Employees can be used to one firms management style
that they can become demotivated in a different one
- Mergers and takeovers lead to cost-cutting. This could
mean making people redundant causing tension and
uncertainty in the workplace
