Topic 1 - Business Activity Flashcards Preview

Business > Topic 1 - Business Activity > Flashcards

Flashcards in Topic 1 - Business Activity Deck (55):
1

Business activity

What the business does to provide its customers with a product/service

2

Customer

Buys product/service

3

Consumer

Uses product/service

4

Enterprise

Spotting an opportunity to provide a product/service that people are willing to buy

5

Entrepreneur

An individual who has the skills and knowledge to set up and run their own business enterprise, and is willing to take risks

6

Characteristics of an entrepreneur

Identifies a need and fills it
Determined
Not afraid to fail
Has an idea and makes it happen
Driven by ideas
Won't let others stop them
Realistic expectations
Unique ideas
Takes risks
Is able to plan
Persuasive
Good leader
Uses initiative

7

Rewards for risk taking

Financial
Independence (you are your own boss)
Self-satisfaction
Changing customer habits (such as animal testing, carbon pollution)

8

Drawbacks for risk taking

Financial (could lose everything)
Health
Strained relationships

9

Business aims

The overall goal of the business (the long term goal)

10

Business objectives

The measurable targets of how to achieve the business aims

11

Business plan

Sets out how the owners/managers of a business intend to achieve its objectives. Without a plan, the business is likely to fail

12

Objectives need to be (SMART)

Sensible
Measurable
Achievable
Relative
Time

13

The objectives most often set by businesses (PIGSS)

Profit
Increase market share
Growth
Survival
Service

14

Advantages of a business plan

To review ideas
Provides a guide - reduces risk
To review progress, make changes if needed
Secure finance (eg getting a bank loan as lenders will see the business is organised)
Include market research, helps reduce the risk of failure

15

Disadvantages of a business plan

Poor quality due to lack of experience by people who wrote it (eg sales maybe overestimated, costs underestimated)
Constant updating required
Producing and reviewing can be expensive and time consuming
Can miss opportunities if not included in the plan

16

Sole trader

Describes any business that is owned and controlled by one person however they can employ other people

17

Advantages of a sole trader

Set up (easy and cheap)
Finance (little finance needed)
Control of everything
Financial info. is private
Profits - the owner can keep all profits

18

Disadvantages of a sole trader

Shortage of capital (may be difficult to operate, grow or get a loan if there isn't enough money)
Illness (no one to run the business if the owner is ill)
Hours of work
No continuity
Shortage of skills
Unlimited liability

19

Capital

Wealth in the form of money or assets (something owned)

20

Partnership

A business which can have 2-20 owners

21

Advantages of partnership

Different skills
More capital can be raised to help the business grow/operate
Workload and ideas shared
When one is ill, there is another left to run the business
Easy & cheap
Financial info. remains private

22

Disadvantages of partnerships

Profit has to be shared
Many disagreements *MAIN PROBLEM*
Slower decision making than sole trader
Partners can have unlimited liability
May be shortage of capital because raising finance is restricted
Lack of continuity - if one leaves the business must be set up again

23

Deed of partnership

A legal document which:
Provides info. on how the business is operated
How profits and losses will be shared
Details how much more capital each partnership has contributed
Reduces arguments between partners when decision making

24

Sleeping partner/limited partners

They invest money into the business but do not take part in the day to day running of the business or any decision making

25

Limited liability partnerships (LLP)

Their responsibility for their debts of the business is limited to the amount of money they put in

26

Companies

Businesses where the owners are shareholders

27

Shareholders

The owners of private and public limited companies

28

Limited liability

When the responsibility for the debts of the company is limited to the amount the shareholder have put in

29

Share

A piece of paper which says you own part of that business

30

Dividend

The percentage of profits paid to the shareholders

31

What's the abbreviation of a private limited company?

Ltd

32

What's the abbreviation of a public limited company?

Plc

33

What happens with the shares in a private limited company?

Only friends and family can buy shares

34

What happens with the shares in a public limited company?

Shares can be traded on the stock exchange and can be bought buy members of the public

35

6 points for choosing the most suitable legal structure for a business (business ownership)

1) size of business
2) type of business
3) lender requirements
4) investment protection
5) control
6) growth

36

Advantages of a public limited company

Limited liability
Can raise large sums of finance via the stock exchange
Continuity
Borrowing money from a bank will be easier because they are seen as less of a risk
Firm is more prestigious (a higher graded business/better reputation)

37

Disadvantages of a public limited company

Greater costs to set up and operate than an Ltd. Plc must have £50,000 of shares minimum
Anyone/the public can see the company's information and accounts
May be inefficient because of its size (because anyone can buy shares)
Risk of company being taken over

38

Advantages of a private limited company

Limited liability
Easier to raise finance as they can sell shares
Continuity
Original owners are likely to retain control

39

Disadvantages of a private limited company

Shareholders have to agree about how the dividends are distributed
Greater administrative costs (paperwork) than setting up as a sole trader or partnership
Finance is limited to friends and family
Less privacy (financial info. is published) but not as extreme as a plc

40

Stakeholder

Any individual or an organisation who has a vested interest in the activities and decision making of a business

41

Examples of an internal stakeholder

Employees
Shareholders/owners

42

Examples of an external stakeholder

Competitors
Government
Society/the wider community

43

Stakeholder conflict

The interests of different groups of stakeholders may be conflicting. This means that the objectives between 2 different groups may be completely different

44

Organic / internal growth

Concerned with increasing sales of products and services. It is internal, as in it grows by increasing its own size rather than taking over another business

45

Increasing output (internal growth strategy)

Increasing the amount of product a business produces. This can be done by introducing more efficient technology, building more factory space or taking on more workers. This is quick and easy

46

Gaining new customers (internal growth strategy)

Reducing the prices of its products or services
Opening shops in new places
Better marketing (such as better advertising but this can be expensive)

47

Developing new products (internal growth strategy)

A business could develop new products/service which appeal to a wider range of customers (such as what Pets at Home did; they added veterinary services to the products already sold which enabled further growth to take place) Developing new products is essential for technology based businesses (such as Apple; they started with computers and now have iPods, iPads, iPhones and the Apple Watch

48

Increasing market share (internal growth strategy)

This means to increase its share of the overall market for a product. It is used to show if a business has grown in relation to the total market

49

External growth / integration

Achieved by joining with another business

50

Merger

2 or more firms join to create a brand new business
Reduced costs and increased revenues

51

Takeover / acquisition

One business buys another by buying loads of shares
In case of a limited company, this means buying more than 50% of shares
Can provide access to new markets, suppliers and technology
The business that has been taken over no longer exists

52

Types of integration

Horizontal growth-a business takes over another business on the same level (eg Nike and Adidas)
Backwards vertical growth-a business takes over a firm one stage before (eg Nike taking over a materials place)
Forwards vertical growth-a business takes over a firm one stage after it (eg Nike buying a store)
Diversification-a business buys a company which is completely unrelated (eg Nike selling food)

53

3 sectors of the economy

1) Primary sector-business that produce raw materials for other businesses to use (eg farming)
2) Secondary sector-businesses that use the raw materials to manufacture products (eg car manufacturers)
3) Tertiary sector-concerned with providing a service. Also includes education, police e.t.c. The people who work for these organisations provide a service for others (eg retailing)

54

Advantages of growth

More profit as there are more customers
More customers because the more stores open, the more likely it is that more people will use it
Less risk of takeover if the business is so big
More jobs created because there are more stores
Generate more ideas
Eliminate competition
Can improve the reputation of the business because when more customers come, the business can make profit and improve reputation

55

Disadvantages of growth

More costs as stores are expensive to open
Risk of unemployment as when a business mergers, they don’t need as many people doing the same job
Disagreements in the workplace
Employees can be demotivated
Communication can be more difficult
Disliking one side of the merger can result in loss of customers