Section 1 - What is Business?

Question 1

Define mission

Answer 1

• purpose a business exists for
• generalised statement with overall aim
• clear goal, sense of direction, communicates to stakeholders

Question 2

Define objectives

Answer 2

• more specifc goals

Question 3

State 4 reasons why businesses exist

Answer 3

• there is a gap in the market
• create a living for an entrepeneur
• a passion of the entrepeneur (must be a need)
• social/ethical aim – 1 item sold = 1 item donated to those in need

Question 4

State 6 aims of businesses

Answer 4

• profit maximisation – allows expansion, growth, machines replacement, shareholder payment
• survival – get through first year, build customer base, reliable re-achievable goal
• cash flow
• to make profit (total revenue > total costs)
• social and ethical objectives
• growth – expanding to new markets, new geographical markets

Question 5

Describe the 2 types of growth

Answer 5

• organic = more staff, more stores, more goods
• inorganic = merging or taking over another company

Question 6

Define profit

Answer 6

a financial gain
- total revenue - total costs

Question 7

Define total costs

Answer 7

all the costs incurred in producing something
- variable costs + fixed costs

Question 8

Define fixed costs

Answer 8

costs that do not change with output
- rent, mortgage, loans, insurance, lease of machinery, salaries

Question 9

Define variable costs

Answer 9

costs that vary with output
- raw materials, fuel, packaging, wages, cost of stock

Question 10

Define revenue

Answer 10

the amount of money coming into a business
- quantity x price

Question 11

Define gross profit

Answer 11

amount that business has made from sales (normal trade) minus cost of goods sold
- sales revenue - cost of sales

Question 12

Define LTD and PLC

Answer 12

LTD = private limited company
PLC = public limited company

Question 13

Give 4 examples of a public sector company (gov owned)

Answer 13

• NHS
• fire services
• schools
• charities

Question 14

Give 4 examples of private-sector companies (private owned)

Answer 14

• sole trader
• PLC
• LTD
• partnerships

Question 15

Define limited liability

Answer 15

• owner has no personal liability for debt
• separate legal identity
• not liable for debt payment from personal accounts

Question 16

Define unlimited liability

Answer 16

• if business goes bust – owner must pay
• only in sole trader/partnership
• eg. re-mortgage, sell cars, use own savings to pay

Question 17

Describe sole trader

Answer 17

• owned by one person (unless you become a partnership
• full control of business – own boss
• profit is own

Question 18

Describe advantages of being a sole trader

Answer 18

• easy to set up
• quick decisions
• less finance
• personal customer attention

Question 19

Describe disadvantages of being a sole trader

Answer 19

• unlimited liability
• risk – hard to expand financially
• no economies of scale
• no one to take over if ill (unless staff employed)

Question 20

Describe advantages of being a private limited company

Answer 20

• limited Liability
• can raise sell shares (fam + friends)
• employ a manager
• separate legal status

Question 21

Describe disadvantages of being a private limited company

Answer 21

• accounts not private
• harder to set up – expensive, requires admin
• cannot sell shares on the stock market

Question 22

Describe advantages of being a public limited company

Answer 22

• limited liability
• shares can be sold to the public
• shares can be traded on stock market
• banks + investors more likely to invest

Question 23

Describe disadvantages of being a public limited company

Answer 23

• lawyers needed
• expenses must be published
• advertising and admin
• must have $50,000 in share capital

Question 24

Describe a non-profit organisation (charity)

Answer 24

• has a social objective
• all profits go to helping cause (doesn’t distribute dividends)
• run by volunteers, community and donors
• not driven by profit

Question 25

Describe a non-profit organisation (mutual)

Answer 25

- benefits a select group of people - aim is to help members - revenue comes from memberships - eg. unions, trade groups, property management, chambers of commerce

Question 26

What factors influence choice of business form

Answer 26

- objectives of the business - how the business is financed - what products and services are offered

Question 27

State 4 reasons a business may want to change business forms

Answer 27

- may need more finance as it grows and expands - sole trader may want to sell shares (+ limited liability benefit) - LTD may want to expand and float on stock market - become a PLC to attract public and governmental investment

Question 28

Define ordinary share capital

Answer 28

- allows investors to vote (one share = one vote) - represents proportionate ownership of company - ordinary shareholder receives fluctuating dividends (depending on company preference) - ordinary shareholders receive dividend payment after preferred shareholder

Question 29

Define market capitalisation

Answer 29

- total value of company or total shares value - current share prices x number of issued shares - can fluctuate depending on performance

Question 30

Define dividends

Answer 30

- if investors own a share – paid dividends (if company profits) - paid 3x a year (or once) - reward for continued investment - if shares sold – no longer eligible for payment

Question 31

Describe the role of shareholders

Answer 31

- owners of a company - provide financial backing (in returns for dividends) - make decisions – approve company accounts for publication - decisions made at AGM (annual general meeting)

Question 32

State 3 reasons why shareholders invest

Answer 32

- hope of return in capital investment (better than bank savings) - paid dividends - may benefit if share value rises (capital gain)

Question 33

What 4 factors affect share prices?

Answer 33

- supply and demand in market - interest rates - political climate - management of company

Question 34

Define external environment

Answer 34

anything outside business that could impact the way it operates - (eg. Customers, investors, politics)

Question 35

State the 6 PESTLE factors and an example for each

Answer 35

- political – protectionist policies - economic – interest rates - social – demographic change - technological – automated production - legal - environmental – pollution

Question 36

Describe political impacts on costs

Answer 36

- any governmental decisions that affect business - corporation tax raised or lowered - VAT can be raised or lowered - high taxation = more money for government, lower business profit

Question 37

Describe political impacts on demand

Answer 37

- inc. protectionist policies (protecting domestic industries for foreign competition) - impose tariffs (tax charged based on value) and quotas (restrict quantity of a good important) to deter company exports - less likely to demand foreign goods

Question 38

Describe economic impacts on costs

Answer 38

- if economic growth ↑, consumer growth ↑ = spending - business can employ more staff - in recession, staff made redundant (no longer needed) = save costs

Question 39

Describe economic impacts on demand

Answer 39

- GDP – gross domestic product - inflation - interest rates - exchange rates - income ↑, demand less inferior goods, more necessity Strong Pound Imports Cheaper, Exports Dearer Weak Imports Dearer, Exports Cheaper

Question 40

Describe social impacts on cost

Answer 40

- migrant worker ↑ - producers have staff willing to work on minimum wage (costs lower)