UNIT 1- Business And Objectives Flashcards
Definition a business
+benefits
The rule of an Entrepreneur
A business is an organisation that exists to provide goods and services on a commercial basis to customers.
They benefit society by creating employment developing human capital driving innovation paying taxes on profits creating wealth by providing returns on investment encouraging competition and fulfil society and human interaction.
An entrepreneur spot business opportunities take calculated risks in order to gain possible future returns and act as a catalyst for the creation and growth of new business Enterprises
The transformation process
+key inputs I to the process (CELL)
+added value formula
+USP
The transformation process describes what happens inside a business where value is added to inputs to create outputs create input into the transformation process are capital enterprise land and labour
added value = the selling price - the cost of bought in materials components and services a
unique selling point is a feature of a product or service that allows it to be differentiated from other products
The four business sectors
The four business sectors are based of their main from of operation
primary = any business that grows goods or extract materials from the land
(farming, fishing and oil production)
secondary sectors= any business concerned with manufacturing taking the role materials and converting them into new products
(Car manufacturers, food production)
Tertiary = concerned with providing a service activities done by businesses or people for consumers
(hairdressers bank, supermarkets or cinemas)
Quaternary= industries providing information services
(Computing ICT - info communication and technology, consultancy and research + development)
Revenue formula
Fixed and variable costs
+total costs formula
Profit formula
Revenue is the selling price x the number of items sold
refers to the money receive from the sales of good source services also known as turnover and sales
fixed costs = costs that do not change directly with the level of output they will increase as the firm grows
variable costs = costs that changed directly output And they will increase or decrease by a certain amount each time A new unit is made total costs are fixed costs plus variable costs.
Profit is the difference between total revenue and total costs
Profit and cash flow
causes of poor cash flow
+methods of improvement
Profit is total revenue minus total costs in business
-business doesn’t have to be making a profit to be functioning referred to as breaking even
cash is the money coming in and out of a business on a day-to-day basis and cash flow is this movement
A cash flow problem is when a business doesn’t have enough cash to pay its liabilities what it owes there is more money going out than there is coming in
causes of cash flow problems are
low profits, too much production capacity ( space or idle machinery), excess inventory held, allowing customers too much credit
overtrading, unexpected changes in the business, social factors such as fashion trend and seasonal demand.
Making sure finance keeps accurate records and predictions putting stricter limits on trade debtors renting out machines attempting to buy multifunctional machines attempting to keep on top of liabilities bank overdraft and short-term loans sale of assets and producing cash flow forecasts
Managing working capital
+definition of debtors, creditors, inventories
Debtors are amounts owed by customers
creditors are amounts owed to suppliers
inventories as cash tied up in raw materials work in progress and finished goods
Improving it involves
Debt factoring (The selling of debtors to a third-party generating cash)
!- can involve a reduction on profit margins
credit control (establishing credit limits for new customers and setting realistic credit limits to manage the amount of debts built up)
Managing case paid top suppliers
Trade credit or amounts owed to suppliers for good supplied on credit and not yet paid for
managing inventories to reduce stock holding
improving short term cash position by reducing current assets, increasing current liabilities and self surplus fixed assets
+long term position by increasing equity finance (when you raise money by selling shares in your business, either to your existing shareholders or to a new investor)
8and long-term liabilities and reducing net outflow on fixed assets
Different business formal
- Incorporated and unincorporated definition
- Limited and unlimited liability
Incorporated is that there is a legal difference between the business and the owners
(most owners have limited liability)
Most operate as private Limited companies
Unincorporated is that there is no legal distance between the owner and the business and therefore the owner has unlimited liability for the businesses actions including debts
Most operate as sole traders
Unlimited liability is a characteristic of an unincorporated business where the business/owner is personally responsible for the debts and liability of the business
limited liability is where shareholders own a share of the company but they do not own the assets and they are not liable for the debts of the company
A soul trader is an individual owning a business on his/her own
A some trader
+advantages and disadvantages
A soul trader is an individual owning the business on his or her own.
The advantages are low starting costs, complete control and greater flexibility, lower accounting fees, greater privacy, no sharing profits, and can be transferred to a limited company later on
the disadvantages are no legal distinction between the owner and business business therefore unlimited liability and soleresponsibility, fewer Tax paying opportunities, sale limitations, barriers to finance, hard to raise funds
Private Limited companies
+ advantages and disadvantages as operating as a limited company
Ltd= are companies that are separate legal entities to the founders but that the shares are not traded publicly on a stock exchange
Advantages are profits are only shared between shareholders, you can raise money through loans, shareholders have limited liability, owner retains control more as in comparison to a plc
disadvantages are LTD after the name, high set up costs, harder to motivate in control workers as profits are only shared between shareholders, costs and financial obligations
A public limited company is a more specialist type of limited company where shares may be traded on a public stock market but don’t have to be they usually have substantially more shareholders (they have to raise £50,000 in share capital)
Public limited company
+advantages and disadvantages
A public limited company is a more specialist type of limited company where shares may be traded on a public stock market but don’t have to be they usually have substantially more shareholders (they have to raise £50,000 in share capital)
Advantages are money can be raised through this exchanging of shares shareholders have limited liability, improved reputation, larger businesses can achieve economies of scale
Disadvantages are a lack of privacy as the financial performance is viewable, more complex to set up, shareholders have voting rights leading to a lot of control, risk of hostile takeover is if a shareholder comes to own over 50% of the business
Nonprofit organisation
mutuals
difference between public and private sector
Nonprofit organisations are businesses that trade in order to benefit the community and have social aims as well as trying to make money
Mutuals are organisations that are owned by and run for the benefit of their current and future members
The public sector, owned and operated by the government, aims to provide essential services and benefits to citizens, often funded by taxes, and doesn’t primarily focus on profit. In contrast, the private sector, owned by individuals or privately-owned firms, is driven by profit and seeks to maximize shareholder value through market competition
Public sector companies are companies that are owned or controlled by the government for example network rail
public sector organisations are those which provide goods and services that are owned and operated by public bodies that are funded by Central and local government
for example the NHS + highways agency.
Shares
shareholders
+ dividends and dividend yield
shares
Marketing capitalisation
A share is part ownership of a business
shareholders are those who possess shares and get their awards by the capital going up and then selling the shares
Dividends are payments made to the shareholders by the company from earned profits
dividend yield shows the percentage reward for investing in shares
and is calculated by dividend per share / by share price x 100
The share price is determined by the interaction of supply and demand
As well as many other factors both within an outside of the companies control including financial performance profit grow dividend policy relationship with key investors management reputation status of the economy whether the company is a takeover target
Market capitalisation is a representation of the total market value of issued share capital of the company and is calculated by share price x number of shares issued
Stakeholders
+classifications
A stakeholder is an individual or group with a direct interest in the activities and performance of the business
internal stakeholders are closely connected to the organisation and are likely to have strong influence on how it is run (managers, employees, shareholders
external stakeholders have diverse needs and varying levels of influence, relationship nor based on a legal contract (local government competitors and society)
connected stakeholders= connected by a relationship based on a contract (customers, supplies and creditors)
Primary stakeholders are directly involved and affected by the businesses action. They have the power to influence decisions
secondary or intermediaries are those that are indirectly affected by an organisations actions and key stakeholders have significant influence and importance
A stakeholders power may change depending on
the type of organisation, the organisations impact on the local environment, the highly competitive market that operates, all those with highly skilled specialist workers
Stakeholder needs expectations and objectives
Internal stakeholders such as shareholders, employees managers and trade unions all have varying desires and needs
External such as customers and suppliers have a large impact on profit
Banks Anselms investors, local community relies on it for employment opportunities and requires them to be socially responsible, Environmental pressure groups and central and local government for set to be compliant with legislation and make a positive contribution
Stakeholder mapping
The extent to which various stakeholders can influence decisions depends on a range of factors including their power over an interest in the activities of the business
Mendelows power interest matrix is an example of this and indicates the effort that the business needs to put in to meeting stakeholder needs
Level of interest
Low. High Power. Low. Monitor. Keep informed
High Keep satisfied. Manage closely
The level of interest depends on the investment that they have made personally,the number of alternatives jobs, customer suppliers and accountability if the business fails the extent of their
Power depends on status relative pay and social standing, claims on resources, volume of business transactions, percentage of workers that they speak before and extent of formal representation in the decision-making process
Traditional and alternative approach or stakeholder value perspective
+ concepts necessary to manage relationship with stakeholders
Traditional perspective the companies aims and objectives are dominated by the owners and are mostly focused on making profit and maximising shareholder value by striving for dividends and profits.
Alternative is cooperation between employees, suppliers shareholders external interest groups and customers to create mutually beneficial results.
Communication the transfer of information between people and consultation talking to interested parties to explain developments and issues to gather views and ideas that can contribute to the communication process
