Unit 1-What is Business Flashcards
Business
Bisignis – which meant care, occupation, or anxiety.Over the years the word has mutated to the word we know and understand today which relates to the concept of being ‘busy’ – literally ‘busy-ness’.
Being a business
being busy transforming a variety of inputs into output – a business is busy taking resources and creating a product or service.
What’s the purpose of business?
Businesses turn resources (factors of production) into a product that is intended to satisfy the requirements of potential customers. The output of the production process may be a service (a haircut) or a finished good ( a toy)
Input —>Transformation process–> outputs
the transformation process is the conversion of the firms inputs into outputs that reach the customer and add value
4 MAIN RESOURCES WHICH ARE NEEDED IN THE PROCESS OF TURNING INPUTS INTO OUTPUTS AND ADDING VALUE
C - Capital - Goods that are made in order to produce other goods and services e.g. machinery, lorries, computer systems
E - Enterprise - The act of bringing the other factors of production together to create goods and services; making decisions and providing the finance
L- Land - all the natural resources that can be used for production e.g. coal, oil, livestock
L- Labour - Describes the Physical and mental effort involved in production e.g. manual effort in producing finished goods or individuals providing a service i.e. accountant
Goods
products which have a physical existence – literally something that, when purchased, you can hold.A Good is a physical product that can be purchased – car, pencil, book, house, television etc.
eg Peanut butter
Services
Products which are intangible/invisible, those products that we purchase but never actually hold in our hands ,
A Service is an untouchable product which meets a need or demand – insurance, electricity, dog-walking.
Product
Product has a bit more sense of specificity, eg. Skippy Peanut butter
A Product is the general term referring to something made or supplied by a business.
What Makes Business Important?
Wealth Can Be Created by Business
The process of creating and supplying products to meet demand is a financially based transaction – money is exchanged for the supply of products to customers. Typically, this is not a ‘like for like’ exchange, meaning customers do not necessarily pay just the cost of the product and its production. Businesses are trying to accrue money by charging the customer more to buy their product than it costs to provide. This creates a surplus.
Governments such as in the UK, for centuries, have utilised the financial surplus to invest into their countries. The surplus creates wealth in the country, and the wealth in the country can be used to create improvements within that country such as in infrastructure.
business pay corporation tax which can be used by the government to pay for public services such as hospitals and schools
New Products Are Created by Businesses
Businesses can be seen as responsible for improving the lives of the people of a country such as the UK. Businesses may invest heavily in pioneering and creating new goods and services for the betterment of people, whilst at the same time benefiting the business.
An example comes from the mighty company Apple. In 2008, following three years of development, they launched the iPhone 2G (now referred to as the iPhone1) – a device considered to be the first truly ‘Smart’-phone. This new product combined a variety of tools beyond just the function of having a phone in your pocket making life, in many ways, easier. In return, it sold 6.1 million units worldwide.
Pharmaceuticals to cure illnesses or green technology to solve environmental issues
Businesses Employ People
‘Estimates for April to June 2019 show 32.81 million people aged 16 years and over in employment’.
Businesses are a key part of the financial cycle. Businesses employ people as workers in a wide and varied range of roles. Employment then allows people to earn an income which they can then utilise on the purchase of goods and services. Not only that, but a country such as the UK is attractive to foreign businesses who further increase employment – hence companies such as HSBC have major bases in the West Midlands and other areas. Greater employment opportunities in a country also increases migration.
-Employed workers pay income tax, claim less benefits, and are able to purchase more goods and services to stimulate economic growth
Businesses Improve National Status
Britain, at one time, held the largest empire that the world has ever seen. This empire was not simply the product of a strong national army based in the UK. The empire was in fact driven by the might of big businesses such as the East India Company (EIC). Battles between the armies of the EIC and the Dutch Indies Company led to Britain winning exclusive trade deals with the rulers of India, ultimately the EIC helped to drive Britain’s seizing of India through their financial and military power.
In more modern times, successful businesses can reflect well on a country or even create an image of a country. The UK has a strong reputation related to Media production. The BBC is a publicly owned and operated company, as a publicly owned company it does not run to make profit. However, the BBC also includes BBC Studios, BBC America (jointly owned with AMC Networks) and BBC Worldwide. These for-profit business arms create content, which is popular and seen worldwide, in doing so they help to create a public image of the UK.
reputation, the UK music and film industry
Target Audience
The customer at whom a product is aimed, this can be defined by numerous parameters such as age, gender etc.
Nationalisation
This is the act of a government purchasing and controlling a business, typically ‘for the benefit’ of the people of the country, examples include the NHS and the BBC in the UK.
Publicly Owned Company
A business that has been nationalised and brought under government control, also known as State Owned Enterprises. Publicly owned companies may have public policies attached which ensure they operate for a specific benefit of the people.
Customers
An individual or business that purchases a product from a business.
SME
small to medium size enterprise
Three sectors of business
Primary - the extraction of raw materials from the earth e.g. farming, fishing, mining, oil extraction, forestry
Secondary- Transforming or refining the raw materials e.g. manufacturing, construction, oil refining, energy firms
Tertiary - the service industry, e.g. retail, restaurants, hotels, transportation, financial services, health industry and education
B2C
Businesses selling directly to customer /consumer
B2B
business selling to other business
Mission statement
a qualitative statement of an organisation’s aims, which describes the general purpose of the organisation
Corporate aims
The long term statement of what the business intends to achieve
Objectives
More precise and detailed goals and targets that must be achieved in order to achieve the corporate aims and mission
Corporate vision
what the company aspires to be
SMART GOAL
S - SPECIFIC and easily defined
M- MEASURABLE - objectives must be quantifiable, e.g. 15-20% a year
A- AMBITIOUS - agreed - managers and subordinates involved in setting should agree on objective to ensure all are motivated to work towards them or
attainable - challenging but possible
R- REALISTIC - achievable and not conflicting with other objectives
unrealistic targets do not motivate workers
or Relevant - improves the business in some way
T- TIMELY ( set a timeline)- time- bound - based on explicit time scales - e.g. over 3 years
Common Business Objectives
1.Survival - during early years of trading or during difficult economic or market conditions
2.Break even - Ensuring all costs are covered
3.Sales growth, profit growth, maximisation
4.Growth and expansion - increases in store numbers, product lines, workforce or by operating in more countries
5.Reducing risk- by releasing more products or operating in more countries
6.diversification - establishing a USP, launching new products in new markets
7.Improving cash flow and liquidity- ensuring cash inflows exceed outflows so short-term bills can be paid
8.increasing market share
9.increasing share holder value - better return on investment
10.maximising customer satisfaction
11.social and ethical objectives - better ethics, environmental considerations, contributing positively to society
12.staff retention, engagement, motivation, morale
Types of costs
fixed - costs that do not change directly with the level of output
they will increase as a firm grows, e.g. rents a larger store but will not go up by a set amount for each new unit made
output - 50 smoothies per week
rent for stores : 1000 per month
variable costs - costs that change directly with output , they will increase by a set amount each time a new unit is made
output - 20 sandwiches a day
variable costs of raw materials (lettuce , ham, bread etc) 1 pound per sandwich
total variable costs - 20 pounds a day
Total costs
total fixed costs + total variable costs
Profit
the difference between total revenue and total costs ; the money that is left from sales once all the costs have been paid
PROFIT - > TOTAL REVENUE - TOTAL COSTS
Mission Statement
A statement explaining why a business exists.
Aims
Overall goal of a business.
Aims, or Corporate Aims, are effectively the long-term plans of a business. Typically aims are expressed as a qualitative statement rather than a numerical value.
Objectives
Targets of the business in the long and short term
Liquid Assets
Something of value to a business which can easily be traded for legal tender (cash)
Cash Cycle
The length of time from investment into inputs and revenue raised from outputs
Profit
The difference between the cost of inputs and the revenue raised from sale of outputs
Revenue
The money raised by the sale of output
