Unit 1 Flashcards
(33 cards)
What are the six reason businesses exist?
- Profit
- Growth
- Survival
- Cash Flow
- Social
- Ethical
What is Profit?
To achieve sales revenue higher than total costs.
profit = SR - TC
What is Growth?
To increase size by value of sales or volume of sales
Can be organically or externally
What is Survival?
To continue to exist as a business
Could be first objective
What is cash flow as a definition or as a objective?
Cash flow is the flow of cash into and out of a business.
To ensure sufficient cash is available for day to day expenses
What is a social objectives?
To behave in a way which benefit society. Could be create employment, help local community or improve educational standards.
What are ethical objectives?
To behave in a way that is considered morally correct.
What is the meaning of SMART objectives?
- Specific
- Measurable
- Achievable
- Realistic
- Timed
What is a mission statement?
A brief written statement about the purpose of a company or organisation.
What is the relationship between mission and objectives?
1) Mission statement
2) Corporate aims
3) Corporate objectives
4) Corporate strategy
5) Business tactics
Why do businesses set objectives?
- Common sense of purpose
- Motivate employees (e.g. reward systems)
- Measure and review performance
- Inform decision making
What is revenue?
The money coming into a business from the sales of goods and services
Revenue = selling price x quantity sold
What is fixed costs?
Stay the same regardless of output.
What is variable costs?
Change in relation to the number of items produced.
What is total costs?
Fixed costs + variable costs
What are the business forms?
- Sole trader
- Partnerships
- Private limited companies
- Public limited companies
- Not for Profit
What is a Sole Trader?
Individual who runs and owns their own business
- legally required to record all income and expenses for tax.
- Profits made are taxable though income tax.
- Sole trader has unlimited liability
What are the pros of a Sole Trader?
Pros:
- cheap and easy to set up
- Get all profits.
- Autonomy in decision making
- Financial records remain private.
- Motivation is high as success of the business and individual is the same.
What are the cons of a Sole Trader?
- Unlimited liability
- Limited capital for investment
- Little specialist skills as the owner is a jack of all trades.
- Difficult to find cover when ill.
What is a limited company?
Limited companies are their own separate legal identities. Therefore finances are separate from the owner’s personal finance.
- They have limited liability
What are the pros of a Private limited company?
Pros:
- Limited liability
- Separate legal identity
- More flexible than a PLC
- Financial records remain private
- More capital can be raised through sale of shares
What are the cons of a Private limited company?
- More complex to set up
- Loss of control as shareholders have voting rights
- Unable to sell shares to the public
- May have to sell shares at decreased value
What are the pros of a Public limited company?
Pros:
- Limited liability
- Separate legal identity
- Large amount of capital can be raised by selling to public
- More prestigious to be a PLC
What are the cons of a Public limited company?
Cons:
- Financial performances are needed to be published
- More complex to set up due to increased legal requirements
- Some loss of control as shareholders have voting rights.
- Risk of hostile takeovers.
