Lesson 4 Flashcards
(18 cards)
What are the three main ways businesses can make money?
- Sales – trading products and services
- Investments – using money to generate profit
- Donations – gifted money for a specific cause
What are the main types of business costs?
- Start-up costs – registration, premises, equipment
- Running costs – rent, energy, administration
- Production costs – raw materials, marketing, machinery
- People costs – salaries, pensions, National Insurance
What are the legal financial reporting requirements for some businesses?
- Understanding financial terminology
- Evaluating financial decisions
- Creating and reviewing budgets and forecasts
- Analysing financial statements (profit/loss, balance sheets, cash flow forecasts)
Why is financial expertise necessary in a business?
- Ensures correct financial reporting
- Helps with budgeting and investment decisions
- Can be in-house or outsourced to an accountant
What are the two major types of business entities?
- Unincorporated – no separate legal identity from owners
- Incorporated – recognised as a legal entity separate from owners
What are the five main forms of unincorporated businesses?
- Sole trader
- Ordinary partnership
- Limited partnership
- Unincorporated association
- Trust
What are the financial risks of an unincorporated business?
- Owners are personally liable for debts
- Personal assets can be seized to pay business debts
What are the seven main forms of incorporated businesses?
- Limited company (PLC or LTD)
- Limited liability partnership (LLP)
- Community interest company (CIC)
- Charitable incorporated organisation
- Community benefit society
- Cooperative society
- Financial mutuals
What is the main legal difference between incorporated and unincorporated businesses?
Incorporated businesses are recognised as separate legal entities, meaning personal assets are protected from business debts.
What is a social enterprise?
A business with social objectives that reinvests profits into its purpose rather than maximising profits for owners/shareholders.
What legal structures can be used for social enterprises?
- Community Interest Companies (CICs)
- Community Benefit Societies
- Charitable Organisations
What is the difference between a social enterprise and a charity?
- Social enterprise: Can trade and reinvest profits into its purpose
- Charity: Must operate exclusively for public benefit and cannot trade for profit
How do charities generate income if they cannot trade?
- Through donations and fundraising
- By setting up a charitable trading company to conduct sales and donate profits to the charity
How does business structure impact trading activities?
It determines what entrepreneurial activities a business can legally carry out, such as:
- Selling products, services, food, or materials
- Engaging in wholesale, retail, or manufacturing
- Conducting marketing, promotions, and events
What are some common investment activities for businesses?
- Buying stocks and shares in other companies
- Investing in start-ups (angel investing)
- Foreign exchange (Forex) or cryptocurrency trading
- Buying commodity futures (e.g., coffee, sugar, wheat)
What restrictions exist for business investments?
Charities and some social enterprises have limits on investment activities based on how they are funded.
What are the risks of business investment?
- High-risk strategies require expertise
- Businesses and individuals should never invest money they cannot afford to lose
How can businesses raise funds for charities?
- Sponsored events (e.g., fun runs, marathons)
- Opt-in levies (e.g., “plant a tree” schemes)
- Adopting a charity for a year
