Unit 1 and Unit 2 AO1 Definitions Flashcards
The nature of a business
An organization that uses resources to produce a good or service that satisfies the needs of consumers
Primary sector
Extraction, harvesting, and conversion of natural resources for use by firms
E.g., coffee, metals, fruit
Secondary sector
Manufacture and production of products from raw materials
E.g., clothing, mobile phone, input for other companies (e.g., steel)
Tertiary sector
Service industry, e.g., banking, insurance, education, tourism
Quaternary sector
Businesses involved in intellectual, knowledge-based activities regarding information
E.g. R&D, ICT, drug research
Entrepreneurship
Takes a financial risk
Starting and managing a new company
In return for profit
Challenges when starting a business
Financial problems
Lack of own start up capital
Lack of cash flow
Lack of customers
Strong competition
Poor Marketing - unwanted product, wrong pricing etc.
Hiring the wrong people and managing them poorly
High production costs
Legal Problems - e.g., copyright and patent problems, environmental laws
External influences - unforeseen global problems - e.g. a pandemic
Opportunities of starting a new business
Money
Inheritance - taking over the family business
Autonomy - be your own boss - can choose hours, salary etc
Challenge - personal satisfaction and self-esteem
Security - cant be fired, earn for retirement
Hobbies - pursue what you have passion for
Public sector
Firms who are owned and controlled by the government
Hospitals, police, public schools
Run by government because:
Everyone has access to those services (e.g. hospital) at a fair price
The country can be made safe (e.g. Police/Army)
Private sector
Firms who are owned and controlled by the people, rather than the government
Usually run in order to make profit
Sole trader
An individual who owns and controls their own business
They take all the risks but in return keep all the profit
They may hire employees to help them run the business
Most businesses are sole traders but are small
Hairdressers, restaurants, plumbers
They are unincorporated and have unlimited liability
Partnership
2 or more people, combine to form a business enterprise. They may combine their finances, run the business together, share and risk the profit
Partners usually
Share start up capital
Share the profit
Share responsibilities
Usually based on a legal document - e.g. deed of partnership - which might incluse also include
How much each partner puts in
How is the profit distributed
How much each partner will be paid
How may a partner leave
They are unincorporated and have unlimited liability
Privately held company
All the characteristics from the previous slide
Incorporated
Limited Liability
Owned by shareholders
Shares cannot be sold on the open market
Is not listed on a stock market
Shares can only be sold with the agreement of other shareholders
Usually small to medium-sized company
Shareholders are often the original investors and the CEO is often the original owner
Abbreviation = Ltd
GmbH in Germany
Public held company
All the characteristics from the previous slide
Incorporated
Limited Liability
Owned by shareholders
To “go public” mean to go from private to publicly-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
Shares are quoted on the stock exchange for public trading
Anyone can buy and sell shares easily
Ownership is often split across numerous people who are often not linked to the company
PLC
Public Limited company
Social enterprise
A business that makes revenue and profits but also has a social and / or environmental objects as part of its business model
Its objectives
Makes some profit (so don’t go bankrupt)
Benefit society
Private sector for profit social enterprise
Similar to other private sector businesses that make profit
Differences:
Some profit is used to benefit society rather than paid out to the owners
They try to run their business in socially responsible ways
Public sector for profit social enterprise
Government owned and run businesses that are run similar to private sector businesses
They aim to
Make profit (or avoid large costs)
Raise tax money through profits
Provide essential goods and services
E.g., electricity companies, freeway tolls
Cooperative social enterprise
For profit social enterprise owned and controlled by its members and run for the common benefit of its members
Decisions can be votes on by members democratically
Producer cooperative
E.g., farmers - can negotiate better prices on buying inputs
E.g., fertilizer selling price
Consumers cooperative
E.g., farmers - Crédit Agricole
Employee cooperative
A school owned by the teachers
Stakeholders
A person or organization who is interested in or impacted by the decisions of a business
Internal stakeholder
Part of the of organization (within the business)
Shareholders
Managers
EmployeesE
External stakeholders
Not part of the organization (outside the business)
Customers
Suppliers
Government
Competitors
Pressure Group
Banks
Business plan
Document that sets out the business idea, its goals and objectives and other details of how the business will operate
Elements of a business plan
Executive summary - covers the main parts of the business plan
Marketing & Sales
What product
Why will customers buy the product
How the business will sell to them
Human resources
Details of management team
Staff to be recruited
Operations Management
Location of shop / factory
IT systems, Machinery etc
Finance
Where capital will come from
Projected profits and cash flow for 1+ years
Purpose of business plan
Planning
Put your ideas on paper
Raise finance
Help investors make judgements about the business
Especially for Start-ups
Establish targets
Measure sucess/failure
Motivate employees
