Understanding Business Flashcards
(35 cards)
ROLE OF BUSINESSES IN SOCIETY
Needs and Wants:
Need - required in order to survive, e.g. food, water, clothing, shelter
Want - makes lives more comfortable and enjoyable, e.g. electronics, salons.
ROLE OF BUSINESSES IN SOCIETY
Needs and Wants:
Goods are tangible, i.e. they can be seen and physically touched, e.g. mobile phone, packet of crisps, and a pen. They are categorised as follows:
* durable – goods that last a long time and used multiple times, e.g. washing machine
* non-durable – goods that can only be used once, e.g. food
* capital – goods that help to produce other goods, e.g. machinery
Services are intangible, i.e. they cannot be seen or physically touched. Services are when someone else does something for you, e.g. banking, hairdressing, teaching, plumbing.
ENTERPRISE AND ENTREPRENEURS
What is an Entrepreneur?
An individual who develops a business idea and combines the factors of production – land, labour, enterprise, capital – in order to produce a good or provide a service, usually with a view to earning profit.
ENTERPRISE AND ENTREPRENEURS
Skills and Qualities of an Entrepreneur:
Skills
* risk taker
* leadership
* communication
* decision making
* problem solving
* identify a gap in the market
Qualities
* positive
* creative
* conifdent
* motivated
ENTERPRISE AND ENTREPRENEURS
What are the Reasons for Setting up a Business?
- to be their own boss
- to develop a hobby into a business
- have an idea for a new product/service - gap in the market
- to earn more money than working for someone else
- been made redundant or are unhappy in present job
- believe they can provide products/services better than existing businesses
ENTERPRISE AND ENTREPRENEURS
What are the Risks of Setting up a Business?
- competition may enter the market
- giving up financial security of a wage/salary (unlimited liability)
- losing their investment - may result in losing their own home
- uncertainty over the demand for their products/services
FACTORS OF PRODUCTION
What are the Factors of Production?
Capital
* the tools, machinery and equipment that a business uses to make goods or provide services.
* e.g. motor vehicles, buildings, factories, tools, etc
Enterprise
* the business idea that an entrepreneur or owner has on how to use land, labour and capital in their business.
* e.g. Richard Branson, Alan Sugar
Land
* the natural resources that businesses use.
* e.g. plot of land, coal, trees, water, wood, fields, rivers etc
Labour
* the workforce of a business.
* e.g. joiners, shop assistants, teachers, clerical staff, electricians, cleaners, etc
FACTORS OF INDUSTRY
What are the Factors of Industry?
Primary
* grows the products, or extracts natural resources.
* e.g. farming, mining, oil drilling, forestry, fishing
Secondary
* tthe manufacturing or construction of products using raw materials from the primary sector.
* e.g. car manufacturer, food manufacturer, house building
Tertiary
* provides services.
* e.g. banking, tourism, hairdressing, teaching, hospitality
SECTORS OF ECONOMY
What are the Sectors of Economy?
Public
* sole traders
* partnerships
* private limited company (Ltd)
* public limited company (plc)
Main objectives (aims) are:
* grow/expand
* maximise profits
* socially responsible
* customer satisfaction
Private
* central government
* local government
Main objectives (aims) are:
* socially responsible
* provide essential services such as hospital care, education and police
* provide a high-quality product/service to the general public
* raise finance through taxes and use taxpayers’ money effectively
Third
* charities
* voluntary organisations
Main objectives (aims) are:
* fund raising to support causes
* raise awareness of their specific cause
* socially responsible
They do not aim to make a profit, though they may achieve a surplus of income over expenditure.
PUBLIC SECTOR ORGANISATIONS
What is the Central Government?
Central Government is organised and operated by elected politicians.
To help achieve its aims and objectives central government delegates financial resources, a budget, and responsibility to local government to manage on a day-to-day basis.
PUBLIC SECTOR ORGANISATIONS
What is the Local Government?
Local Government are set up by central government and are run on its behalf by locally elected councillors.
The day to day running of services is organised by managers and employees (civil servants) of each local council. They aim to meet the needs of local people and businesses and do not aim to make profit, instead they are required to provide the most efficient service possible within allocated budgets.
PUBLIC SECTOR ORGANISATIONS
Services of the Local Government:
- education and leisure, e.g. schools, museums, sports centres, libraries
- planning and transport, e.g. roads, public transport, planning permission
- environmental services, e.g. refuse collection, street lighting, maintenance of parks and cemeteries
- housing, e.g. allocation and maintenance of public housing, homeless provision, rent collection, building new council houses
- finance, e.g. annual budgets for managing income and spending, financial reports, collection of Council Tax
PRIVATE SECTOR ORGANISATIONS
What is a Sole Trader?
A business that is owned and controlled by one person, they take all the risk.
Most small businesses are sole traders, e.g. hairdressers, window cleaners, joiners.
PRIVATE SECTOR ORGANISATIONS
Advantages and Disadvantages of a Sole Trader:
Advantages
* all profits are kept by the owner.
* it is easy to set-up, no legal paperwork required
* the owner keeps overall responsibility
Disadvantages
* will normally work long hours and difficult to take time off
* has unlimited liability - if the business is unsuccessful the owner could lose their personal possessions, such as their home or car
* must make all the decisions themselves with no other advice or input, there is no-one to consult or share ideas with
PRIVATE SECTOR ORGANISATIONS
What is a Partnership?
A partnership is a business with 2 to 20 partners, who own and control the business together. The partners should produce a Partnership Agreement which outlines all the rules and conditions for the partnership. It also outlines the procedures to be followed when a partner joins, leaves or dies.
Examples of partnerships include accountants, dentists, vets and lawyers.
PRIVATE SECTOR ORGANISATIONS
Advantages and Disadvantages of a Partnership:
Advantages
* partners bring new skills and ideas to a business - partners may have expertise in different areas so they can specialise
* partnerships can raise more finance as there are more owners to contribute
* risk, workload, responsibility, and decision-making is shared - so there is less pressure on one individual
Disadvantages
* profits must be shared between partners
* the partners have unlimited liability - if the business is unsuccessful the partners could lose their personal possessions such as their home and car
* dispute and disagreements can take place between the partners over the direction of the business
PRIVATE SECTOR ORGANISATIONS
What is a Private Limited Company (Ltd)?
A company whose shares are owned privately and shareholders are invited to buy shares. Shareholders are usually friends and family.
A private limited company can have a minimum of one shareholder. Shareholders have limited liability meaning they can only lose the value of their shares and not their private assets or belongings. A Ltd is controlled by a Board of Directors (who are usually shareholders).
PRIVATE SECTOR ORGANISATIONS
Advantages and Disadvantages of a Private Limited Company:
Advantages
* capital can be raised from inviting individual to buy shares (usually family or friends)
* shareholders may have experience and expertise they can bring to the business
* shareholders have limited liability - if the business fails, each shareholder only loses the amount they invested rather than their personal possessions
Disadvantages
* decision making is more complex as there could be many shareholders and could be disagreements
* profits are shared amongst more people - shareholders receive a share of the profits known as a dividend
* there is a legal process involved in setting up the business, making it more expensive than a sole trader or partnership
THIRD SECTOR ORGANISATIONS
Types of Third Sector Organisations:
Charities
Exempt from paying most taxes. Set up as trusts with no individual owner, and overall management and control is undertaken by unpaid trustees (people who are placed in a position of trust with the responsibility for looking after the interests of others).
Objective
* socially responsible
* fund raising to support causes
* raise awareness of their specific cause
Finance
* sponsorship
* lottery grants
* government grants
* donations from the public
* sale of goods in charity shops
Voluntary Organisations
Run and staffed by volunteers, e.g. the Scouts, youth clubs, Brownies, sports clubs. They bring together people with similar interests and are run by a committee of elected volunteers.
Finance
* grants from the lottery, Sports Council, or local authorities
* fees charged to use facilities/become a member of the organisation
Social Enterprise
Operates in the third sector of the economy and have a social and/or environmental purpose such as tackling social problems, improving local communities or people’s life chances. However, a social enterprise will aim to make a profit (like a private sector organisation) which will be reinvested back into their cause.
Objectives
* social responsibility
* customer satisfaction
* clear social/environmental mission
* reinvest the profit made to support their mission
* generate income through selling goods and/or services
Finance
* grants
* bank loans
* sponsorship
* sale of shares
* bank overdraft
* selling goods and/or services
BUSINESS OBJECTIVES
Types of Business Objectives:
Profit Maximisation
* costs/expenses are kept to a minimum
* key objective of private sector organisations - shareholders/owners may focus on this objective
* the organisation aims to make as much profit as possible
Providing a Service
* although they are not in business to make a profit, funds must be managed efficiently and within budget
* this applies to most publicly funded organisations and charities
* main aim is to provide a service that people require, e.g. health and education
Social Responsibility
* this objective is very important for the image of all organisations
* the organisation should behave in a way that has a positive impact on the community it operates in, e.g. avoiding pollution, sponsoring local sports teams
* many organisations now aim to reduce their “carbon footprint” and display a “green” image to their customers
Survival
* new businesses focus on this objective
* this means to simply continue trading/operating as a business
* to avoid being taken over by other businesses and to continue operating in their own right
Customer Satisfaction
* the reasons for this depend on which sector of economy the organisation operates
* all organisations are concerned with providing the best possible service to their customers
Growth/Increase Market Share
* it could try to do this by charging lower prices than competitors to attract more customers
* reduces risk of being taken over by another business
* this is where the organisation tries to grow larger and increase its share of the market in which it operates
CUSTOMER SATISFACTION
What is Customer Satisfaction?
One of the most important factors to consider for an organisation. A happy customer is more likely to return to the organisation to purchase more goods and/or services and they are more likely to recommend the organisation to other people.
The ability of an organisation to successfully meet customer expectations can have a significant impact on an organisation as it is more costly to attract a new customer than to keep an existing one.
CUSTOMER SATISFACTION
How to Ensure Customer Satisfaction:
- having a returns policy
- produce good quality products
- having a customer service policy
- getting feedback from customers
- giving customers value for money (price v quality)
CUSTOMER SATISFACTION
The Importance of Customer Satisfaction:
- good publicity means that the company is likely to attract a better quality of employees
- good customer service improves the organisation’s reputation
- increased loyalty results in more sales and a bigger market share
- good customer relations are likely to mean regular repeat orders - customers happy with the service they received are likely to become loyal customers
CUSTOMER SATISFACTION
Complaints Procedure:
Most organisations will have a procedure for dealing with customer complaints. All employees need to know the complaints procedures as customers are more likely to remain with an organisation after making a complaint if it is dealt with to their satisfaction.
When dealing with complaints the business should consider:
* complaints should be handled by trained staff
* time limits for dealing with complaints should be established
* complaints should be treated seriously and recorded
* complaints should be acknowledged, and the customer kept informed
