Business in the real world

Question 1

What are the 6 reasons for starting a business?

Answer 1

• To produce a good
• To provide a service
• To distribute products
• To benefit society
• To fill a gap in the market
• To fulfil a business opportunity

Question 2

What is a ‘good’?

Answer 2

Goods are tangible items that can be used and stored. Businesses make goods and sell them to customers, who then own them. This includes computers, food and clothes.

Question 3

What is a ‘service’?

Answer 3

Services are intangible actions that cannot be stored. Businesses provide services to customers, who have access to them for a period of time. Examples include hairdressing, train journeys and internet access.

Question 4

What is the difference between a want and a need?

Answer 4

Wants are things that people would like to have but can survive without.

Needs are things required in order to survive.

Question 5

What four factors of production does a business need?

Answer 5

Land - This includes the physical land where the business is located and also the natural resources that a business might need.

Labour - This includes the staff needed by the business and the skills and qualifications they have.

Capital - This is the machinery and equipment needed by the business.

Enterprise - This is the entrepreneur who takes a risk and creates the business.

Question 6

What is opportunity cost?

Answer 6

An opportunity cost is something that is given up in order to do something else.

Question 7

What is the primary sector?

Answer 7

The primary sector is made up of businesses that produce or extract raw materials.

Question 8

What is the secondary sector?

Answer 8

Makes or manufactures goods.

Question 9

What is the tertiary sector?

Answer 9

This sector provides services.

Question 10

What are the four Business Functions?

Answer 10

• Marketing
• Operations
• Human Resources
• Finance

Question 11

What four characteristics do entrepreneurs need?

Answer 11

• Hardworking
• Organised
• Innovative
• Willing to take a risk

Question 12

Why may an entrepreneur want to run their own business?

Answer 12

• To be their own boss and have the independence and freedom to make their own decisions
• To have more flexibility with their working hours
• To follow an interest or hobby such as opening a book shop or a football memorabilia website
• To increase their income and improve their quality of life
• To fill a gap in the market
• To escape a job they are unhappy with
• To fulfil an ethical or social goal

Question 13

What are financial objectives?

Answer 13

Financial objectives link to money, such as making profit, a certain amount of sales or business survival.

Question 14

What are non-financial objectives?

Answer 14

Non-financial objectives link to things other than money, such as personal satisfaction, challenge or independence.

Question 15

What changes could occur in the business enviroment?

Answer 15

• Technological change
• Economic change
• Legal change
• Environmental expectations

Question 16

What is a sole trader?

Answer 16

A sole trader is a business that is owned and run by one person. There is only one owner, but they may have employees who work for them.

Question 17

What are features of a sole trader?

Answer 17

Sole traders have unlimited liability and the owner is personally responsible for the debts of the business. A sole trader pays income tax on their earnings.

Question 18

What are advantages of a sole trader?

Answer 18

• Quick and easy to set up
• Make own decisions
• Keep the profits for yourself

Question 19

What are disadvantages of a sole trader?

Answer 19

• Risk of unlimited liability
• Works for long hours
• High levels of responsibility

Question 20

What is a partnership?

Answer 20

A partnership is a type of business that has between 2 and 20 owners. They decide to set up and run a business between them.

Question 21

What is a ‘deed of partnership’?

Answer 21

In a partnership, the owners agree a set of rules. These are outlined in a document called a deed of partnership.
e.g. What percentage of profits are allocated to each person / role.

Question 22

What are some advantages of a partnership?

Answer 22

• It is usually quick and easy to set up.
• There is shared decision-making by the owners.
• There is shared responsibility for debt by the owners.
• Partners bring more skills and ideas.
• There is more capital available to invest.

Question 23

What are some disadvantages of a partnership?

Answer 23

• It can involve long work hours
• Profits have to be shared between the partners
• Conflict amongst owners can occur
• There is the risk of unlimited liability
• One partner may let the others down by not upholding their responsibilities in the business

Question 24

What is a private limited company?

Answer 24

A private limited company has limited liability.

Question 25

What is a shareholder?

Answer 25

The owners of a private limited company are known as shareholders. Shareholders have to be invited by the business before they can purchase a share of the business.

Question 26

What is corporation tax?

Answer 26

Private limited companies pay corporation tax. Corporation tax is a tax on the profits of a business.

Question 27

What are advantages of a private limited company?

Answer 27

* The owners have limited liability * It gives individuals the opportunity to be their own boss * Any new shareholders need to be invited * Shares in the business can be sold to raise money

Question 28

What are disadvantages of a private limited company?

Answer 28

* In some instances, other people are able to view the business’ financial information * It can be very time consuming to set up * The business may require outside professional help to manage its finances * Shareholders will expect to receive a percentage of the profits as dividends

Question 29

What is the stock market?

Answer 29

A centralised market where business shares are traded.

Question 30

What is a public limited company?

Answer 30

A private limited company that has decided to sell shares to the public on the stock market.

Question 31

What are advantages of a Public Limited Company?

Answer 31

* The business has the ability to raise additional finance through share capital * The shareholders have limited liability * Increased negotiation opportunities with suppliers in terms of prices (because the business is larger)

Question 32

What are disadvantages of a Public Limited Company?

Answer 32

* It is expensive to set up, requiring a minimum set up cost of £50,000 * There is a greater risk of a hostile takeover by a rival company * Shareholders will expect to receive dividends * Shareholders may clash when making decisions

Question 33

What is a not-for-profit organisation?

Answer 33

A not-for-profit organisation is a business that aims to do something other than to make profit for the owners, such as providing a public service or helping people.

Question 34

What are 6 financial aims and objectives?

Answer 34

* Business Survival * Profit maximisation * Growth * Market share * Increasing shareholder value

Question 35

What are examples of non-financial aims and objectives?

Answer 35

* Social and ethical concerns * Customer satisfaction

Question 36

What rule do businesses use to set objectives?

Answer 36

S – Specific M – Measurable A – Agreed R – Realistic T – Time-bound

Question 37

What are examples of ways a business could judge their success?

Answer 37

* Number of employees * Customer satisfaction / reviews * Market share * Social media followers or engagement * Revenue * Cost savings * Profit * Number of new stores opened * Share value * Environmental impact

Question 38

What is a stakeholder?

Answer 38

A stakeholder is any person, group of people or other organisation that has an interest in the activities of a business.

Question 39

What is an internal stakeholder?

Answer 39

Internal stakeholders work within a business, either making decisions or carrying them out.

Question 40

What is an external stakeholder?

Answer 40

External stakeholders do not work within a business but are affected by its activities.

Question 41

What are Shareholders / Owners

Answer 41

These are people who influence the business’ aims, objectives and strategic activities.

Question 42

What are managers?

Answer 42

Staff who are responsible for implementing the decisions made by the owners and overseeing the work that is required.

Question 43

Who are employees?

Answer 43

Staff who carry out the day-to-day work of the business.

Question 44

Who are Customers?

Answer 44

People who buy products or services from the business.

Question 45

Who are Suppliers?

Answer 45

Other businesses and organisations that provide products or services to the business.