Introduction To Business Flashcards
(25 cards)
What is an entrepreneur?
A risk taker that sets up a business.
What are the factors of production?
Inputs that produce outputs.
They are:
-Land; the actual land.
-Labour; the work that goes into producing outputs.
-Capital; the equipment used to produce these outputs.
-Enterprise; the entrepreneur that organises the other factors of production to make a profit.
What is adding value?
When something undergoes a process that means it can be sold for a greater profit.
What are the constraints on a business?
Limiting factors on a business.
They are:
-Competition
-Environment
-Legislation
-The economy
What are the functions in a business?
Accounting and finance: payroll, day to day running costs,bills, tax etc..
Operations management: transforming inputs into outputs and managing production.
Marketing: anything to do with market research, marketing a product or customer services.
HR: wellbeing of employees, training, hiring, and firing.
What are the classifications of business activity? Sector wise.
Primary: extractive industries.
Secondary: manufactures raw materials into products.
Tertiary: output of product or service.
Quaternary: research (note: not on spec)
What are the types of business?
Sole trader
Partnership
Public limited company
Private limited company
Central government owned
Local government owned
What is a sole trader?
-Inseparable from the business as an entity, unincorporated.
Pros:
-Keeps all profit after tax.
-All info of business can be kept private.
Cons:
-Sole trader is fully responsible for business’ debts.
-No business continuity.
-Can overwork the sole trader and require too many skills of them.
What is a partnership?
When a business is run by 2-20 people. Doesn’t require documentation but good practice to draw up a Deed of Partnership. In most ways, it is similar to a sole trader.
Pros:
-more capital available.
-workload shared.
-shared losses.
-private financial position.
Cons:
-unlimited liability.
-slower decision making.
-profits shared.
-can be potentially ended with the loss of just one partner.
What is a limited liability partnership?
-Separate legal entity to its owners.
-Must file annual accounts.
-Like a partnership in all other ways.
What is a limited company?
-Business exists in its own right from owners.
-Companies can issue shares.
-Shareholders only liability is their shares.
What are private and public limited companies?
-A public limited company (PLC) can sell shares on the stock market, whereas a private limited company (Ltd or Limited) can only be sold through private negotiation.
-A PLC is open to takeover as all shares can be bought publicly.
-A PLC is required to have 50,000 share capital but an Ltd has no requirement.
-A PLC must have more detailed reports.
-A PLC has its leaders elected by shareholders.
-Shareholders must receive a copy of the Report and Accounts, and are also entitled to attend the AGM.
-Voting at an AGM is done as one vote per share.
What is a multinational company?
A company that produces products for a foreign market in that market, rather than just exporting.
What are the pros and cons of companies?
Pros:
-easy to access capital.
-limited shareholder liability encourages investment.
-more continuity.
Cons:
-can be expensive.
-documents such as the Memorandum of Association (deals with relations to outside world like PLC or Ltd) and the Articles of Association (internal running of the business such as appointment of directors) must be completed.
-more complicated than a sole trader or partnership.
-accounts aren’t private.
-More complicated management structures.
-PLC open to hostile takeover.
What are public, private and third sectors?
Public: government services.
Private: sole traders, partnerships, LLPs, PLCs and Ltds.
Third: Charities, community groups, faith groups,social enterprises, cooperatives. Profit reinvested.
What is a franchise?
When a larger business lets a person use their brand in exchange for an initial fee and continued royalty payments.
What are the pros and cons of franchising to the franchiser?
Pros:
-Firm doesn’t have to spend lots of money to expand.
-Products sold are under their direct control.
-Cold be seen as an income stream.
Cons:
-Loses some control.
-Must check up on franchisee.
-Potential for conflict.
-Cost of supporting the franchisee.
What are the pros and cons of franchising to the franchisee?
Pros:
-Less risk as it is a tried and tested brand.
-Specialist advice and training.
-Can be easier to get a bank loan.
Cons:
-Supplies may have to be purchased from franchiser.
-Must pay royalties.
-Less control over what is being sold.
What is a cooperative?
-A business owned and run by its members that reinvests profits. Profits also shared among members.
-Not a separate legal structure, just a way of running the business.
Pros:
-Legally straightforward.
-All involved have a common goal.
-Usually limited liability.
-Many stakeholders benefit from e.g. better service.
Cons:
-Can have limited capital.
-Potentially weak management.
-Employees could get greedy.
-Slower decision making.
-More benefits not guaranteed.
How do you measure the size of a business?
-Number of employees. In the UK, <50 is small, >250 is large.
-Number of different buildings e.g. factories, cafes or shops.
-Turnover and profit levels.
-Stock market value.
-Capital employed.
EU definitions of business size:
Employees: Turnover: Balance sheet total:
-Medium sized < 250 < 50m < 43m
-Small < 50 < 10m < 10m
Micro < 10 < 2m < 2m
What are factors affecting the size of a business? Note, these are also limiting factors.
-Market size.
-Nature of product, e.g. very complicated needs a big business.
-Personal preference.
-Ability to access resources for expansion.
What is organic growth?
Increasing the firms sales.
What are mergers and acquisitions?
Merger: two companies join to form a larger separate company.
Acquisition: when another company is bought by a different company.
What is a joint venture?
When 2+ businesses work together for a limited amount of time towards a common goal. This can often result in the creation of a new business owned by the two larger companies. It is undertaken so that risk is reduced, there is more capital available, strengths are shared and foreign markets are more accessible.
