Unit 1 (1.1, 1.2, 1.4)

Question 1

What is a business

Answer 1

An organization that uses resources to produce goods and services that satisfies the needs of consumers

Question 2

Primary Sector

Answer 2

Extraction, harvesting and conversion of natural resources for use by firms

• E.g. coffee, metals, fruit

Question 3

Secondary Sector

Answer 3

Manufacture and production of products from raw materials

• E.g. clothing, mobile phones, input for other companies (e.g. steel)

Question 4

Tertiary Sector

Answer 4

Service industry, e.g. banking, insurance, education, tourism

Question 5

Quaternary Sector

Answer 5

Businesses involved in intellectual, knowledge based activities regarding information

• E.g. R&D, ICT, drug research

Question 6

Entrepreneur
(Definition)

Answer 6

Someone who:

• Takes the financial risk
• Starting and managing a new company
• In return for profit

Question 7

Challenges and opportunities for starting up a business

Answer 7

Challenges:

Financial Problems:

• Lack of own start up capital
• Lack of cash flow (liquidity)
• Dont have enough money to pay your bills
• Lack of customers
• Strong Competition
• Poor Marketing - unwanted product, wrong pricing, etc.
• Hiring the wrong people and managing them poorly

Opportunities:

• Money
• Inheritence - taking over the family business
• Autonomy - be your own boss - can choose hours, salary, etc
• Challenge - personal satisfaction and self-esteem

Question 8

Business Plan

Answer 8

Document that sets out the business idea, its goals and objectives and other details of how the business will operate

Question 9

Elements of the Business Plan

Answer 9

Executive Summary - covers the main parts of the business plan

Marketing and Sales:

• What product?
• Why will customers buy the product
• How the business will sell to them

Human Resources:

• Details of the management team
• Staff to be required
• Operations Management
• Location of shop/factory
• IT systems, machinery, etc

Finance:

• Where capital will come from
• Projected profits and cash flow for 1+ years

Question 10

Public Sector

Answer 10

Firms who are owned and controlled by the Government

• Hospitals, police, public schools

Question 11

Private Sector

Answer 11

Firms that are owned and controlled by the people/business

Question 12

Sole Trader

Answer 12

When one person owns and control the business

• Unincorporated and Unlimited liability
• Gets to keep all profit
• All the decision making
• Have full control of the business
• They may hire employees to help them run the business

Question 13

Partnership

Answer 13

2 or more people combine to form a business enterprise. They may combine their finances, run the business together, share the risk and the profit

• Share start up capital
• Share responsibility
• Share profit
• They are unincorporated and have unlimited liability

Question 14

Unincorporated

Answer 14

Owner is same legal entity as company

Question 15

Incorporated

Answer 15

Company and owners are different legal entities

Question 16

Privately - held Company (Private Limited Company)

Answer 16

• Incorporated
• Limited liability
• Owned by shareholders
• Shares cannot be sold on the open market
• Often has small amount of shareholders that holds high % of shares
• Shares can only be sold with the agreement of other shareholders

Question 17

Publicly-held Company (Public Limited Company)

Answer 17

• Incorporated
• Limited liability
• Owned by shareholders
• To “go public” mean to go from private to public-held company
• IPO - Initial Public Offering = Stock market flotation
• Will sell a % of the company to raise finance
• Shares can be bought freely on the stock market

Question 18

Social Enterprise

Answer 18

A business that makes revenue and profits but also has social and/or environmental objectives as part of its business model

Its objectives:

• Makes some profit (so don’t go bankrupt)
• Benefit society

Question 19

Private Sector For Profit Social Enterprise

Answer 19

Similar to other private sector businesses that make profit

Differences:

• Some of the profit is used to benefit society rather than paid out to the owners
• They try to run their business in socially responsible ways

Question 20

Public Sector for Profit Social Enterprises

Answer 20

Government-run businesses operating similar to the private sector.

They aim to:

• Make profit (or avoid large losses)
• Raise tax money through profits
• Provide essential goods and services

Question 21

Cooperative

Answer 21

• For profit social enterprises owned and controlled by its members and run for the common benefit of it members
• Decisions can be voted by members democratically

Question 22

Non-profit Social Enterprise

Answer 22

Business that are run not for the purpose of making profit but to benefit society

Question 23

Non-Governmental Organisations (NGO)

Answer 23

Business with a social mission which operates out of the Government control

Question 24

Stakeholder

Answer 24

A person or organisation who is interested in or impacted by the decisions of a business

Question 25

Internal Stakeholders

Answer 25

* Shareholders (investors) * Owners * Employees

Question 26

External Stakeholders

Answer 26

* Bank * Pressure Groups * Customers * Government * Supplier * Competitors

Question 27

Types of conflicts

Answer 27

* Managers vs consumers * Managers/employees vs shareholders * Shareholders vs pressure groups

Question 28

Managers vs consumers

Answer 28

* Managers may want to raise the price of the product * Consumer would not want to price rise

Question 29

Managers/employees vs shareholders

Answer 29

* Shareholders want high divident payouts * High dividend payout may lead to lower bonuses for managers/employees

Question 30

Shareholders vs pressure groups

Answer 30

* Shareholders might not be worries about environmental harm if it means higher profits * Pressure groups would be concerned

Question 31

Unlimited liability

Answer 31

* Unincorporated (sole trader, partnership) * You can lose more than you put into the business

Question 32

Limited liability

Answer 32

* Incoporated (public & private companies) * You can only lose the amount that you put into the business

Question 33

Pros of Sole trader

Answer 33

* Gets all profit * Have all decision making power * Flexible * Easy to set up

Question 34

Cons of Sole Trader

Answer 34

* Unlimited liability * Owner is responsible for all areas - workload and stress * Less start-up capital so hard to expand

Question 35

Pros of Partnership

Answer 35

* Each partner may share the work and specialize * More capital allows expansion * More input in decision-making

Question 36

Cons of Partnership

Answer 36

* Unlimited liability * Decision-making - more time, less control and disagreements * Profits are shared

Question 37

Pros of Private company

Answer 37

* Limited liability * Can raise more finance than sole traders/partnership * Can hire specialist managers in each department * Finances are still private

Question 38

Cons of Private company

Answer 38

* Profits are shared with all owners * Cannot sell shares to the general public, making shares less attractive to investors * Legal requirements of being a company

Question 39

Pros of Public company

Answer 39

* Limited liability * Raise large amounts of capital * Easy for shareholders to trade shares, making shares more attractive * Can hire specialist managers in each department

Question 40

Cons of public company

Answer 40

* Costly legal requirements of going public (IPO) * Lack of financial privacy - everyone can look at your finances * Short-termism of shareholders - they will demand profits and dividends

Question 41

Pros of Social Enterprises

Answer 41

* Benefit society and also generate profit * Are self-sustaining - don’t need to depend on taxpayer money or donations * Motivation for employees

Question 42

Types of Business (Diagram)

Question 43

Added Value

Answer 43

Businesses 'add value' when output > input worth. e.g. car is worth more than the sum of all parts

Question 44

Producer cooperative

Answer 44

individuals or businesses engaged in the production of a specific product come together to collectively manage and control various aspects of their production process, distribution, and sales E.g. farmers - can negotiate better prices on buying inputs (e.g. fertilizer) and selling price

Question 45

Consumer cooperative

Answer 45

individuals come together to collectively purchase goods and services for their mutual benefit E.g. farmers - credit agricole

Question 46

Employee cooperative

Answer 46

A place owned by employees e.g. a school owned by teachers

Question 47

Cons of social enterprise

Answer 47

* Funding * Greenwashing * Growth can pose challenges * More difficult to stick to your core beliefs

Question 48

Business Outputs

Answer 48

Goods * Tangible products sold by businesses Services * Non-tangible - e.g. banking, education