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Business Johni > Theme 2: Building a business > Flashcards

Theme 2: Building a business Flashcards

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1
Q

What is Economies of scale? how does it make businesses grow?

A

Economies of scale is when the cost per unit of a product is reduced, allowing a business to charge lower prices and increase market share by selling more

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2
Q

How does increased sales help businesses grow?

A

Increased sales brings in greater revenue, which will increase profits if cost stay the same

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3
Q

How does market share increase?

A

Market share increases if sales increase faster than competitors

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4
Q

What are the different ways businesses can grow?

A

Internal growth (organic)
External growth (Inorganic)

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5
Q

What is Internal / Organic growth

A

Businesses do this by selling more products (more revenue).

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6
Q

How can Internal growth be achieved?

A

Launching better products
Lowering prices
Advertising

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7
Q

What is external growth

A

External growth is done by either:
Having a merger with another business
or
Having a takeover of another business

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8
Q

Why would a business grow externally?

A

A business may externally grow because they:

lack expertise in an area
or
want to increase market share and eliminate competition.

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9
Q

Benefits of external growth (3)

A

Eliminate competition

Increased market share

Benefit from economies of scale

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10
Q

Risks of external growth (2)

A

If money is borrowed in order to buy another business and the business plan doesn’t work, the business could end up in debt

Workers may become redundant, affecting staff motivation and business reputation

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11
Q

Name 3 objectives a business might have

A

Growth

Diversification

Expansion abroad

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12
Q

What is Diversification?

A

Diversification is when a business moves into a new market.

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13
Q

What is expansion abroad?

A

Going international, which can help businesses target a larger customer base, will help increasing sales and reducing risk

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14
Q

What other objectives would a business have?

A

Ethical objectives

Environmental objectives

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15
Q

What is ethical objectives?

A

example:

Paying workers a fair wage

Paying suppliers a fair amount

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16
Q

What is environmental objectives?

A

Aiming to do minimum damage to the environment.

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17
Q

Why would a business change their objectives?

A

Market conditions
Technology
Legislation
Internal reasons

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18
Q

What is Internal reasons?

A

New shareholders believe they should reduce their environmental impact

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19
Q

Features of a LTD company?

A

Owned by shareholders
They have limited liability
The business is a separate entity from the shareholders and do not risk the shareholder’s assets

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20
Q

Different types of LTD companys?

A

Private Limited Company

Public Limited Company

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21
Q

What are the features of a Public Limited Company?

A

Shares are traded on the stock exchange

Shares can be offered to the general public, making it easier to raise money.

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22
Q

What are the features of a Private Limited Company?

A

Shares are not traded on the stock exchange

Shares not offered to general public, making it harder to raise money

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23
Q

Advantages of being a Public Limited company

A

Easier to raise finance by selling shares

More likely for a loan approval

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24
Q

Disadvantages of Public limited company

A

Annual reports are published which competitors get to see

Can be costly to set up

Shareholders must be paid dividens, meaning money is lost and focus is diverted from the business into focusing on shareholders

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25
Give 2 examples of external sources of finance
Loan capital Share capital - stock market floatation
26
Give 2 examples of internal sources of finance
Retained profits Selling assets
27
What is Share capital as a source of finance?
Selling parts of the business by floating shares on the stock market
28
Disadvantages of share capital as a source of finance
Must pay shareholders dividends Must publish accounts, meaning competitors may benefit Lose some control of the business
29
What is Loan capital as a source of finance?
An amount borrowed from the bank for a purpose
30
What are the disadvantages of using loan capital?
Loan must be repaid with interest Assets may be used as security, meaning the bank can take assets if the loan isn't paid back
31
What is using retained profits as a source of finance?
Profit kept in the company instead of paying it to shareholders
32
Disadvantages of using retained profits as a source of finance?
Profits are lost
33
What is selling assets as a source of finance?
Selling unwanted items to raise money
34
Disadvantages of selling assets?
Assets no longer owned by company
35
What are the problems with loans?
Banks will ask for security The company must be credible - small businesses may have issues when asking for large sums
36
When should a business use an overdraft?
If money is needed quickly or there are cash-flow problems within the business
37
Advantages of globalisation
fewer tariffs and taxes making it easier to trade internationally E-Commerce means companies can sell to all over the world Businesses can import materials for cheaper prices Businesses can expand internationally
38
Disadvantages of globalisation
Greater competition Greater environmental damage, drawing attention to pressure groups who want governments to act
39
What is free trade?
When countries reduce or eliminate taxes to encourage trade between each other
40
What are tariffs?
Taxes placed on imports to protect domestic jobs.
41
Advantage of tariffs?
Makes imports more expensive so people will switch to domestic jobs and create more jobs and money in the economy.
42
What are trade blocs?
When a group of countries work together to promote free trade
43
Advantages of trade blocs
Lower prices all around Businesses can expand into other countries
44
Disadvantages of trade blocs
Domestic businesses may go out of business Countries outside the trade bloc must pay more and it discourages trading outside of the bloc
45
How do businesses compete internationally?
Internet and e-commerce Changing the marketing mix to compete internationally
46
3 examples of unethical behaviour
Child labour, low paid, long hour shifts with bad working conditions and bad health and safety Misinforming customers Buying materials from unsustainable sources
47
What is a pressure group?
A group of people who join together to try to influence government policy or business policy
48
What methods may pressure groups use?
Boycotts Social media campaigns Protests Online petitions
49
What are the 5 stages of the product life cycle?
1. Development 2. Growth 3. Maturity 4. Saturation 5. Decline
50
What happens in the development stage of the product life cycle?
Product is being tested and advertised
51
What happens in the growth stage of the product life cycle?
Product sees growing sales, revenue grows
52
What happens in the maturity stage of the product life cycle?
Sales reach it's peak
53
What happens in the saturation stage of the product life cycle?
Prices start dropping, competition arises
54
What happens in the decline stage of the product life cycle?
Sales fall, profits fall
55
Give 4 examples of extension strategies
Cutting prices to increase sales Updated versions Spending more on advertising Introducing the product to another country
56
What are the different quarters of the marketing mix
Price Product Promotion Place
57
What is penetration pricing?
Setting a low price to boost sales and market share
58
What is price skimming?
Setting a high price to boost profits
59
What is competitive pricing?
When a business decides to set it's price based on that charged by rivals
60
What is cost-plus pricing?
Setting a price by adding a fixed amount to the cost of making a product.
61
What are the disadvantages of advertising?
Can be very expensive
62
Give 5 different ways a business could promote it's products
Advertising Sales promotion Sponsorships Use of technology for direct marketing Use of technology to deliver advertising using social media
63
What are the advantages of sales promotion?
Effective to achieve quick sales and get customers to switch products
64
What are the disadvantages of sales promotion?
Sales promotion is only short term
65
What are the advantages of sponsorships?
Improves brand image
66
What are the disadvantages of sponsorships?
can be expensive Hard to measure success rate
67
What is direct marketing?
Promotional material directed through email or telephone
68
What are the advantages of direct marketing? (4)
Allows business to targeted groups of customers. Allows business to increase brand loyalty Easy to measure success Cheap form of promotion
68
What are the advantages of direct marketing? (4)
Allows business to targeted groups of customers. Allows business to increase brand loyalty Easy to measure success Cheap form of promotion
69
What are the disadvantages of direct marketing?
Some customers consider it to be junk mail
70
What are the advantages of using social media?
Only selected customers are targeted using cookies, creating a bigger chance that they will buy the product Cheap
71
What are the disadvantages of social media
Some customers don't purchase online
72
How does technology affect the marketing mix?
Business can promote their products online Businesses can reduce costs due to more efficient technology Customers can compare prices online, leading to lower prices
73
What are the 3 methods of production
Job production Flow production Batch production
74
What are the advantages of job production?
Manufactured to meet customer needs Charge higher prices for higher quality products
75
What are the disadvantages of job production?
Very labour intensive so higher wages must be paid
76
What is batch production
Making products in groups
77
Advantages of batch production
Faster than job production effective for small businesses
78
Disadvantages of batch production
Stock may run out, causing customers to go to other brands Higher costs
79
What are the advantages of flow production?
High levels of quality Business can benefit from economies of scale, producing goods which will lower cost per unit.
80
What are the disadvantages of flow production?
Start-up costs of machinery is expensive Flow production capital is expensive If there any problems with the machinery then the whole cycle must stop
81
Span of control meaning
the number of employees each manager is responsible for
82
Chain of command meaning
The line in which orders and decisions are passed
83
What is the hierarchical structure?
It has many layers of management and a long chain of command.
84
What is a flat structure?
Only a few layers of management Managers have a wider span of control and a shorter chain of command.
85
Advantages of a flat structure
Decisions made more quickly Higher worker motivation as organisation is smaller
86
Disadvantages of a flat structure
No clear chain of command so may be unproductive
87
Advantages of a tall structure
clear chain of command Decisions made quickly at the top
88
Disadvantages of tall structure
Decisions take time to be passed down Decisions can be distorted Demotivated workforce due to isolated departments
89
What is a centralised structure?
Where senior managers have control over the whole organisation, making decisions for the whole business
90
What is a decentralised structure?
Decision making is spread out to include other managers in the hierarchy
91
Pros of centralised structure
easier to control business as decision making is quick and does not have to go through several layers of managemen Chain of command and accountability is clear
92
Cons of centralised structure
Less ideas from other managers Decisions require authorisation from senior managers
93
Pros of Decentralised structure
Gives power to other managers, motivating them and improving their morale Decision making which caters to the needs of local customers
94
Cons of decentralised structure
No strong leadership to give direction to the organisation.
95
Why is communication important?
Motivates staff No mistakes Customers and suppliers stay happy Increase customer loyalty
96
What is the result of insufficient communication?
Unproductive workers Ignored customer feedback
97
What are the 3 different ways of working for a business as an employee?
1. Full time work 2. Part time work 3. zero-hour contracts
98
What is meant by full time work?
People who work 5 days a week for at least 35 hours
99
What is meant by part time work?
People who work for a limited number of hours in a week, usually people who can't work full time
100
What is meant by zero-hour contracts?
Employees who are only called into work when the business becomes too busy
101
What are the 3 types of job contracts?
1. permanent contract 2. Temporary contract 3. freelance contract
102
What is meant by the permanent contract?
An ongoing contract which expires when the employee leaves the business
103
What is meant by temporary contract?
A contract which includes a clear end of contract of when the worker will leave.
104
What is a freelance contract?
Someone who is self employed but carries out work for another business.
105
What are the advantages of part time employment?
Lower hourly wage Flexible working hours
106
Disadvantages of part time employment
Staff may not be fully committed to role Increased staff turnover as part time jobs lack career progression.
107
Advantages of temporary contracts
If a business does not like an employee, they can be replaced at the end of the contract Allows businesses to then employ the best employees on permanent contracts
108
Disadvantages of temporary contracts
Staff may not take role seriously Increased staff turnover as they are more likely to accept a permanent contract offer somewhere else
109
What impact has technology had on how businesses work with employees?
Working from home reduces business overheads and workers become more motivated Better technology results in more efficient staff
110
What is staff retention? What effect does it have on costs?
The ability of a business to hold onto workers, lowering recruitment costs
111
What is staff turnover?
Percentage of workers that leave a business per year
112
What is a job description?
A document which describes the role and responsibilities of the candidate
113
What is a person specification?
A document which lists the qualities a company looks for in a candidate.

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