Topic 1-Business In The Real World Flashcards
(143 cards)
1
Q
What are human needs
A
Water,shelter,food
2
Q
What are human wants
A
Goods we want as consumers
Eg:watch
3
Q
What is a business
A
A business is an organisation
which trades to make money,
these come in all shapes and sizes
4
Q
What is a product
A
A product is anything that is
capable of satisfying
customer needs, it is
tangible and can be
touched
5
Q
What is a service
A
A service is an act that a business person carries
out for you in exchange for money
6
Q
4 factors of production
A
Land,labour,capital,enterprise
7
Q
What is land
A
somewhere to produce the goods e.g. a farm
8
Q
What is labour
A
people to work in the business e.g. farm
workers
9
Q
What is capital
A
Money,equipment,factories,schools that help to produce goods or services
10
Q
What is enterprise
A
This is the drive or motivation from
the owners to start a business
11
Q
What is an opportunity cost
A
When making
important
decisions in
business, the
cost of not
selecting an
alternative is
an opportunity
cost
12
Q
Reasons for starting a business
A
To produce goods/products,to supply/provide a service,to distribute products,to fulfill a business opportunity
13
Q
How can social enterprises help people
A
Aim to tackle the effects of poverty
• Provide jobs and tackle unemployment
• Help children with a social need
• Tackle the issue of an aging population
• Help the homeless
• Education and training initiatives
14
Q
How can social enterprises help the planet
A
• To reduce pollution
• To tackle deforestation
• To halt climate change
15
Q
What is the primary sector
A
The primary sector is the extraction of raw materials from the planet
16
Q
What is the secondary sector
A
In the secondary
sector goods are
manufactured from raw
materials into finished
goods
17
Q
What is the tertiary sector
A
The tertiary sector is all the support services
for business.The tertiary sector also includes
shops, retail, banking and insurance
18
Q
What is a enterprise
A
A company or
business. It also can mean a complex project.
19
Q
What is a entrepreneur
A
A person who starts a business and takes on financial risk in the hope of making a profit
20
Q
Characterisrics of entrepreneurs
A
Hard working,initiative,organised,risk taker
21
Q
Why do people become entrepreneurs
A
To be there own boss,flexible hours,to pursue an interest,to earn money,to identify a gap in the market,dissatisfaction with current job
22
Q
How can a dynamic business environment change
A
– Changes in technology
– Changes in the economic situation
– Changes in legislation (laws)
– Changes in environmental expectations
23
Q
What is inflation
A
The rate of increase in prices for goods and services
24
Q
What are exchange rates
A
Exchange rates are: the cost of one currency expressed in
terms of another e.g. $ to £
25
What is a sole trader
A sole trader is a business which has only one owner
26
Examples of sole trader businesses
Small shop,plumbers,electrician,cleaner
27
Advantages of being a sole trader
Easy to set up –
2. Make decisions quickly from other people
3. Less capital needed
All profits kept by the owner and do not need
to be shared
5. Can offer personal
attention to customers
They are their own boss
28
Disadvantages of being a sole trader
1. Unlimited liability
Difficult to raise money – seen as a risk
Don’t have economies of scale (buying in bulk)
No one to take over for ill-health or holidays
No one to share ideas with
Only one set of skills (the owners)
Can feel isolated from others
29
What is unlimited liability
This means that the
business and the owner are
ONE legal entity.
30
What does unlimited liability apply to
Sole traders,partnerships
31
What are partnerships
Partners are all joint
owners of the business
32
Examples of partnerships
Doctors,dentists,accountants,vets
33
Advantages of partnerships
• Easy to set up
• Capital needed is small
• Easier to raise extra capital than a sole trader as there are more partners to invest
• Profits go to partners which means motivated
workers
• Smaller which means good working relationships
• Partners contribute with range of skills
34
Disadvantages of partnerships
• Partnerships have unlimited liability
• Trust and reliability can be an issue
• Partners can have disagreements;
– Control of business
– Sharing of profits
– Withdrawal from the partnership
– Inviting new partners into the business
35
What is limited liability
Limited liability protects a business owner’s personal
funds from being used to pay business debts.
36
What does limited liability apply to
Private and public limited company
37
What is a private limited company
A company in which Shares cannot be bought by the public, the share issue is limited (hence the ltd) to friends and family who can buy shares in the business
38
Advantages of private limited companys
Protection of limited liability for investors, they
cannot lose their own assets on the value of the
investment
• Easy to raise capital – issue more shares to
friends and family
• Banks more willing to lend money to a ltd
company than a sole trader
•seperate legal entity
39
Disadvantages of private limited companys
• Cannot sell shares on the market therefore harder to raise capital
• Business has to prepare Annual Accounts and have these printed and sent to all shareholders
40
What is a public limited company
A company in which Shares can be bought and sold by anyone on the Stock Exchange
41
Examples of Public limited companys
Tesco,barclays,Bt
42
Advantages of Public limited companys
Protection of limited liability for owners and
investors
• Easy to raise capital – issue more shares
• Banks more willing to lend money to a large
well-established company – less risk
• Easier to grow and expand
43
Disadvantages of public limited company
Expensive to produce accounts every year
• Has to publish annual accounts which means
the public and competitors can see all their
financial information
• Expensive process to become a plc
• Original owners can lose control of the
business if some shareholders get a majority
share 51%
44
What is a non for profit
A not-for-profit organisation is one that has
the objective of something other than making
a profit (but it still might make a profit)
45
Examples of non for profits
Make a wish,unicef,cafod
46
What is survival as an objective in business
The objective is to reach
a sustainable level of
sales that allows the
business to reach its
break-even point
• This may not mean
much profit in the first
instance, but when the
business starts to grow
it will able to
comfortably raise prices
to the best level
47
What is profit maximisation
• A business will aim to maximise profit,
they must do this therefore in only two
ways:
– Increase revenue into the business
– Reduce costs out of the business
48
Business object-growth
As businesses trade and develop
over time, the objectives may
change and they owners may wish
to grow the business
49
Business objectives-domestic growth
The business may wish
to increase the number
of shops or outlets that
they have in the UK
(this is the domestic or
home market)
50
Business objectives-international
The business may wish
to expand into other
countries, for example
Europe (this is the
international market)
51
Business objective-market share
• A business may aim to increase their market
share. This is the percentage of sales held by
a business in a market.
• They will have to take sales away from
competitors to achieve this aim
52
How can a business increase marker share
Promotion,higher quality,lower prices,discounts
53
Business objective-customer satisfaction
Some businesses will
need to set customer
satisfaction objectives
to meet a quality
standard
54
What are social enterprises
Social enterprises are
businesses trading for social
or environmental purposes
55
Business objectives-ethical
Ethics is the principal of
knowing right decisions
from wrong ones in
business
56
Business objectives-shareholder value
• This means the business may make decisions
to buy or sell goods just to maximise the
amount of money they can give back to their
shareholders
57
What is a business aim
Aims are the long term strategic
goals of a business; for
example, to grow
58
What is a business objective
Objectives are more
specific steps; for
example, to increase
sales by 5% over the
next year
59
Purpose of setting business objectives
(a) Setting business objectives gives specific
targets by which business performance can be
measured
(b) Setting objectives can be used to motivate
workers to be more productive
(c) Setting objectives clarifies business direction
and aids decision making
60
Why dont all businesses have the same objectives
A. Business size will have an impact on objectives
B. Level of competition faced will also change the
objectives
C. Type of business; sole trader, partnership, ltd or
plc
61
What is a stakeholdee
A stakeholder is defined as anyone who has an
interest in a business and is affected by the
actions of the business
62
Role of an owner
Role; to start and run a
business to make a
profit
63
Role of employees
Role; to work in a
business in return for
wages
64
Objectives for employees
Objectives; To have job
satisfaction, to have job
security so they can pay
their bills, to get
promoted
65
Role of customers
Role; to buy goods or
services from the
business
66
Role of local community
For those who live
near a business who may be
affected by its operations
67
Role of suppliers
to provide the
business with goods or
services that they might
need
68
how can employees impact business activity
can influence the success of an organisation by their productivity and efficiency in the tasks they do everyday.
They can also resort to industrial action (strike) if they disagree with working conditions, pay or company policies
69
How can suppliers impact business activity
can decide whether to raise prices for orders which can obviously affect a firm's profits. Also a supplier's reliability could affect production.
70
How can the government impact business activity
can influence a firm by introducing new laws that can affect operations such as the National Minimum Wage, or they can raise Corporation Tax which would eat into a firm's profits
71
How can customers impact business activitys
can influence a business by deciding to continue to purchase goods and services from the organisation. They can choose to take their custom elsewhere.
72
How can the local community impact business
activity's
can influence a business by protesting against the building of premises
73
Possible conflicts between shareholder groups for employees
Employees want
higher wages but
owners and
shareholders don’t
want to pay higher
wages, as this will
raise costs and
therefore impact
profit
74
Possible conflicts between stakeholder groups for managers
Mangers want big
bonuses but owners
and shareholders
don’t want to pay
them as this will
impact costs and
lower profits
75
Possible conlficts between stakeholder groups for customers
Customers want
low prices and high
quality, but owners
and shareholders
want high profit so
want to charge high
prices and quality
costs so may also
have an impact on
profit
76
Possible conflicts between stakeholder groups-local communities
Local communities
want lower
pollution levels, but
owners and
shareholders want
high profits and
reducing pollution
will raises costs and
so may lower profit
77
Possible conflicts between stakeholder groups for suppliers
Suppliers want to
get good prices for
their goods and
services, owners
and shareholders
want high profits
and want to keep
their costs low
78
How does cost influence the location of a business
Cost of rent for shops in
town centres and
shopping centres will be
higher than elsewhere
• Premises are often the
second largest cost after
wages
• Small businesses that can
start from home can
make a huge cost saving
79
How does goverment grants influence location for a business
Some businesses may
decide to open in a
certain location because
they have been given a
government grant
• Government grants do
not need to be paid back
80
How does proximity to market influence business location
bulky or perishable goods manufacturers need to be close to their customers as the goods cannot be transported long distances e.g. abroad.
Location close to customer traffic is important
as it is good for the customers (convenience)
and good for the business as it may need
more sales
81
How does proximity to competitors influence location of a business
Some businesses choose to locate
in a certain area which is well
known for their products
82
How does labour influence the location of a business
Adequate supply of
cheap and skilled labour
is necessary for
businesses
• Some businesses may
move to areas of high
unemployment so there
is a large pool of
applicants for any jobs
they advertise
83
How does labour also influence location of a business
Some businesses may
decide to set up near a
cluster of other similar
businesses or close to
very skilled staff
84
What is a business plan
A document which sets out the future plans for a business and what they want to achieve.
85
List purpose of a business plan
To help set up a new business
• To help the business raise finance
• To help the business to set objectives
• To outline how functions of the business will be
organised
86
How does a business plan help to set up a new business
A business plan will help an
entrepreneur to decide what
resources they need to start
their business:
Eg:company van,raw materials
87
How does a business plan help the business raise finance
A business plan may help
to persuade lenders that
the business will make
enough profit to be able
to pay back interest and
loan capital on any
finance taken out
88
How does a business plan help to identify sources of finance
It shows how much money is needed, what it’s for, and for how long. This helps the business choose the most suitable source (like loans, overdrafts, or investors). A clear plan also builds trust with lenders and investors by showing how the money will be repaid.
89
How does a business plan help the business to set objectives
A business plan can show
how a business aims to
achieve its goals
✓ For example it may show
any planned activities of
the business e.g. a launch
night for a new restaurant
90
How does a business plan outline how functions of the business will be organises
The business plan may
show how many staff
and location of the
following departments;
• Production
• Marketing
• Purchasing
• Human Resources
• Accounting and Finance
91
Problems with business planning
Uncertainty- It is not always easy to predict
what will happen in a market or future sales.
Market conditions can change very quickly.
• Lack of Experience- People starting out a
business may not have the necessary skills to
produce a business plan.
• Change- A business plan must not be created
once and used forever. It needs to be regularly
updated.
92
How does section 1 of a business plan contain
Personal details
93
What does section 2 of a business plan contain
Mission statement
94
What does section 3 confain
Objectives
95
What does section 4 of a business plan contain
Product description
96
What does section 5 of a business plan contain
Production details
97
What does section 6 of a business plan contain
Staffing requirements
98
Benefirs of business planning
Helps set clear objectives and direction.
2) Identifies potential problems and how to avoid them.
3) Increases chances of securing finance by showing the business is well thought-out.
99
Negatives of business planning
Businesses are in dynamic
markets, and demand and
supply can change on a
daily basis, a business plan
is a rigid and fixed
document which may not
take these changes into
account
Plans are only good if they
are put into motion
correctly
100
What are fixed costs
Costs that do not vary with the level of business.All the running costs of the business
101
What are variable costa
Variable costs are costs that DO vary
with the level of output.
• These are the direct costs associated
with the production of the
goods/services which will be sold
102
What are total costs
The fixed and variable costs added
103
What is sales revenue
Money into your business through sales
104
Formula to calculate sales revenue
Price x quantity
105
What is gross profit
Gross profit (GP) is sales revenue
(SR) minus variable costs (VC)
106
What is net profit
Net profit (NP) is sales revenue (SR)
minus fixed (FC) AND variable costs
(VC)
107
What is a loss
This is when the COSTS of the business are
larger than the REVENUE that it makes
108
Two main types of business growth
Organic,inorganic
109
What is organic growth
the business has
grown from within
• The business has grown by itself without
needing a merger or takeover with another
business
110
How can organic growth happen through
Franchising
– Opening more stores
– Expanding through e-commerce
– Outsourcing
111
How can franchising lead to organic growth
A business may decide it wants to grow – but
it does not want to open lots of new stores or
restaurants itself.Instead it lets others buy rights and open new stores
112
How can they get organic growth by opening a new store
A business may decide to grow by opening
more stores
• This is a low risk strategy as the business
model is known to work
• It is slow and steady and carries little risk of
failure
113
How can e commerce lead to organic growth
A business may decide to grow through e-
commerce;
– By adding a website
– By adding an online shop
– By selling on online auction sites
– By adding an online booking feature to the
website
114
How does outsourcing lead to organic growth
A business could decide it needs to grow, but
does not have the ability to perform some of the
functions of a larger business.This makes third party companies do functions and jobs to help makework easier.
• For example; with growth comes lots of new
customers, who may need to speak to an advisor
on the phone
115
Outsourcing example-Production
Some motor manufacturers
now outsource assembly of engines and
other car parts
116
Outsourcing example-payroll
most common task that
companies outsource, this makes sure
everyone in the business gets paid
117
Outsourcing example-How does purchasing and maintaining information systems
hiring and evaluating IT staff and training
users can all be very difficult. By outsourcing the
information systems function, the business can obtain
the latest technology and suitably skilled personnel
118
Outsourcing example-delivery
Larger businesses might prefer to contract
a major delivery firm rather than maintain their own
fleet. Either way, the business can hire the expertise to
keep delivery problems and decisions off their desk
119
Advantages of organic growth
a) A business that grows from within can retain
their own company culture
b) Higher production means the business can
benefit from economies of scale and lower
average costs
c) Much cheaper than a merger
d) Less risk, slower growth, known business
model
120
Disadvantages of organic growth
This is a very high risk strategy, opening lots
of stores or taking on new staff is very risky
b) Long period between investment and return
on investment
c) Growth may be limited and is dependent on
reliability of sales forecasts
121
What is inorganic growth
A business may decide to grow quicker and so it
will decide to merge or takeover another
business:
122
What is a merger
two businesses merge to become one
new one
123
What is a takeover
One business will takeover a another
business (by buying more than 50% of the
shares), sometimes this can be hostile if the
shareholders don’t agree
124
Advanatges of merging
Economies of scale; Better deals because of
increased order size,
Increased revenue and market share;
Buying technology; Sometimes it’s simply
impossible for a company to create the technology
it needs to sustain its growth, it can be a lot simpler
to just buy it
International Expansion; Buying a business in
another country helps with culture issues,
125
Disadvantages of mergers
Clash of cultures; All businesses have a slightly
different culture and they may not work well together
Possible communication problems; as the business
gets bigger, or if there are now too many employees
Unreliable merger partners; A good merger will
depend on trust between the businesses
Diseconomies of scale; As a business gats larger costs
will go up with problems of motivation,
communication and co-ordination
80% of all mergers fail*
126
Benefits to businesses of takeovers
Quick way to grow the business.
2) Access to new markets and customers.
3) Gain new skills, technology, or products.
4) Reduce competition by taking over a rival.
127
Drawbacks to business takeovers
This is a very expensive and risky way to grow a
business
• The takeover deal may have additional legal costs
• The deal may need outside investment which
may result in a loss of control for the owners
• Lots of resources may be needed to rebrand the
new sites, retrain the staff and integrate the
takeover
128
What is economies of scale
Economies of scale (we say EOS for short)
occur when unit costs or average costs fall as
a result as an increase in the level of output of
the busines
129
How does production/technical economies of scale work
Large scale producers can employ
techniques that cannot be used by a small
scale producer
⚫ A large firm could use computers and
technology to replace employees on a
production line
⚫ Able to transport bulk materials
⚫ Mass production means that unit costs
are lower
130
How does purchasing/bulk buying economies work
⚫Bulk buying – being able to buy goods in
bulk lowers the average unit price
131
What is diseconomies of scale
As the level of output of a business increases,
eventually the average costs increase, this is
called diseconomies of scale (DEOS)
.
132
Problems which happen which lead to diseconomies of scale
Lack of communication,Lack of co-ordination,lack of motivation
133
How does lack of communication lead to diseconomies of scale
As the size of the workforce
increases there will be less
face-to-face communication
• Takes a long time for messages
to get through as there are
many layers of management
134
How does a lack of co-ordination leads to a diseconomies of scale
As a business grows, communication becomes harder between departments. Poor coordination can lead to mistakes, delays, and duplicated work, increasing costs and reducing efficiency—this causes diseconomies of scale.
135
How does a lack of motivation lead to diseconomies of scale
Workers in large companies
may feel demotivated – with
little say in their working life
• This can lead to powerlessness
and alienation
• Means increased absenteeism
and lateness
136
What is CELL
C.E.L.L.
C = Capital (man-made tools, machines, buildings)
E = Enterprise (entrepreneur who organises, takes risks)
L = Land (natural resources like water, oil, fields)
L = Labour (human work – physical or mental)
137
What type of liability do small businesses have
Unlimited
138
What type of liability do bigger businesses tend to have
Limited
139
How to calculate average unit cost
Total cost/output
140
Stage 7 of a business plan
Finance
141
Factors which influence location
Cost
Location to market
Competition
Labour supply
Location to raw materials
142
Definition of outsourcing
A business pays another firm to carry out tasks that it could it by itself
143
What does LTD mean
Private limited company
