Business gcse wjec

What is an aim?

The long-term objective of the business. E.g. Become the biggest business in its sector. Should be SMART

What does SMART stand for?

Specific, Measurable, Attainable, Realistic, Timely

What is an objective?

A short or medium term target for a business needed to reach its aim. E.g. to increase sales by 20% in the next five years.

What are aims for nonprofit organisations?

- Survival

- Profit maximisation

- Increase sales revenue/sales maximisation

- Increase market share/ gain more customers/ customer base

- Growth/ expansion/ diversification/ multinational

- Improve reputation/ increase brand awareness

- Improve quality/ satisfy customers

- environmental/ ethical aims

- Provide jobs/ community aims

What are the aims for a nonprofit organisations?

- serve the community/ethical aims/environmental/social objectives/provide jobs

-Provide services

-Avoid wasteful duplication of resource resources where a natural monopoly exists e.g rubbish collection and beach cleaning

-Control strategic industries

-Prevent exploitation by Monopoly suppliers

-Help people in need

Why do some businesses decide to stay small?

-Some business owners are content to operate as a small business(less stress)

-Small businesses can survive on relatively low cost structure

-Same serve in markets that may not be able to expand

-Many services can be delivered more effectively on small scale(e.g hairdressers)

-Some customers like to purchase goods from specialist suppliers and outlets

-Small businesses can adapt quicker than large businesses

What is a stakeholder?

Individuals or organisations who are affected by the decisions and actions of a particular business

Examples of stakeholders:

- customers (quality/design/materials etc)

-Workers(treatment/pay/condition conditions/not hard-working, etc)

-Government(taxes, laws)

- Pressure groups(ethical/workers treatment/environment -> expenses)

- Local community(pollution/congestion)

- Suppliers(prompt payment/ethical treatment)

-Lenders/investors(debts/interest)

- Owners(decision-making)

- Competitors(price)

What is business enterprise?

The formation of a new business or development of a new good or service to be introduced to the market

What's an entrepreneur?

A person who sets up a business by taking on the financial risks in the hope of making a profit.

Responsible for bringing together the factors of production land labour and capital to create a business

Why do people want to set up their own business?

-personal ambition-wanting to achieve something

-Interest (passion)

- Keep a family business running

- Reward for own efforts-profit etc

- Exploited an opportunity-identify a gap in the market to increase wealth

- Provide a service to local community

(social enterprise)

- use skills/qualifications

- be own boss

- Employment

- Encouragement by external/ government agencies

- Use redundancy pay to make an advantage of the opportunity set of business business

- Easy to set up

What does being an entrepreneur involve?

- Initiative- taking action

- Innovation- idea for new good or service

- Identifying opportunities-gap in market

- Organising resources- e.g finance, employing, buying materials

What are the functions of an entrepreneur?

-set up a business- survival depends on their efforts

- Have an idea-initiative/innovation

- Take risks-face uncertainties

- Qualities- determined organised etc

- Invest money into business

- earn profit/income

What are the financial motives of entrepreneurs?

-generate a profit

- Provide employment for self

- Financial security for self and family

What are the non-financial motives of entrepreneurs?

- self satisfaction/challenge

- Be own boss

- Fill a gap in the market

- Create employment for others

What is a social enterprise?

Those whose prime objective is to do good in society rather than make profit.

- Surplus revenue is used to support a specific cause e.g. a charity

What are the potential rewards of being an entrepreneur?

-be own boss

- Flexible working hours

- Pursue an interest

- Good customer feedback

- Earn more money(profit)

- Dissatisfaction with current job

- Better work life balance

- self-esteem from building something new

- Self satisfaction

- Provide employment for self and others

What are the potential risks of being an entrepreneur?

- Financial loss of income and money invested

- Low sales

- Unexpected costs

- Unexpected events

- Potentially long hours and stress

- Loss of security

- Pressure on friends and family

- Damage reputation if fail

- May lose Home etc

Why do some businesses decide to grow?

-increase market share

- Increase sales

- Potential economies of scale

- Gain competitive advantage

- Opportunity to spread risk

What is internal (organic?) growth?

Where the business grows by increasing the size of a business by increasing its sales revenue profits or workforce

Advantages of internal growth

- less risk than external growth

- Can be financed through internal funds (e.g. retained profits)

- Build on a business' existing strengths

- Allow the business to grow at a more sensible rate in the long run

Disadvantages of internal growth

- can take a long time(stakeholders prefer rapid growth)

- Requires the owners to reinvest profits into the business

- Growth achieved may be dependent on the growth of the overall market

- Hard to build market share the business is already a leader

What is external growth?

What are the two types of external growth?

Involves increasing the size of a business by buying other businesses .

- merger(two or more businesses joined together to perform a new business)

- Takeover (when one business gains control over another)

Advantages of external growth

-faster growth

-Speed of access to new products or markets

-Increase market share a market power

-Economies of scale

- Make use of the strength of each business

- Invest in fast growing emerger businesses

Disadvantages of external growth

-The merger or takeover does not always work

-A takeover can result in creating a bad feeling between the new workforce

-The cultures of the two businesses may be different

What is diversification?

Allows a business to enter a different market in addition to the one they already involved in. This enables the business to spread its risks should be original business fail.

How can the size of a business be measured?

- value of sales (bigger than two no bigger the business)

- value of the business(how much the business is worth)

- number of employees

What's the effect of a takeover on various stakeholders: workers, customers, shareholders

WORKERS:

- Loss of jobs-if closure of factories or offices-> redundancies

- New skills may be needed

- Higher income

- Relocation

- Reapplying for jobs

CUSTOMERS:

-bigger business= economies of scale= lower costs= lower prices

-Less choice-possible reduction in outlets

-Less development/innovation

SHAREHOLDERS:

-Economies of scale= lower costs= increased revenue= greater profits

-Higher dividends-higher share value

-Error in takeover-possible lower profits

-Full and share value

-Increase market share= Greater profits

What are the four types of integration?

VERTICAL FORWARDS INTEGRATION

-occurs when a business takes over another business to control the direct distribution of a businesses product

CONGLOMERATE INTEGRATION

-Occurs when a business joins with another in a different type of production process

HORIZONTAL INTEGRATION

The buying or merger of other businesses producing the same or similar products

VERTICAL BACKWARDS INTEGRATION

- Occur when the suppliers of a business are taken over by that business

What are the benefits from owning businesses at different stages of production?

- Control over production-e.g. can decide how much to produce

-Control over sales-e.g. type and amount of advertising

-Take money at each stage of production

-Economies of scale

-Rationalisation

-Diversification-reduced risks

What are internal economies of scale?

The benefits of business gains as a result of being large. All costs can be spread between the large number of goods produced so the cost per good is lower than for a smaller business

What are types of internal economies of scale?

-risk bearing(selling product to wider markets if one market fails then they still get sales from others)

-Financial(borrow large sums of money and negotiate lower rates of interest)

-Managerial(as business increases its output need for large hierarchy-spread cost)

-Technical(use machinery24/7 -spread cost so lower price)

-Marketing(as business increases its output can afford more expensive advertising-can spread cost)

-Purchasing/bulk buying(lower cost per unit)

What is a franchise?

The right given by one business to another to sell goods or services under its name. They should be seen as a method of growth for the franchisor and a business opportunity for the franchisee rather than a type of business organisation

What is franchisor?

A business which allows franchisees to sell using their processes, experience and name in return for royalties

What are the advantages of a franchisor?

-enables growth

-Franchisor receives money

-Franchisee must buy stock from franchiser(increased profit)

-Franchisees may be more enthusiastic than company manager

-Franchisee organises outlet

-Franchisees organise his workforce

What are the disadvantages of being a franchisor?

-franchiser pay some costs (EG training)

-Less control over franchised outlet

-Franchisees may suffer from badly run outlets

What is a franchisee?

A business which pays royalties for the right to sell goods or services using established processes and under the name of another business

What are the advantages of a franchisee?

-Business model(e.g. well known name)

-Training received

-Advertising by franchisor

-Well-known name

-Equipment provided by franchiser

-Advice

-Finance may be provided

-Exclusive area(franchisees doesn't face competition from similar business)

-Good to sell bought from franchisor

-Process of making(efficient)

What are the disadvantages for a franchisee?

-set up cost paid to the franchiser

-Monthly royalties/fee pay to franchiser

-Little freedom to operate

-May suffer from bad reputation of other franchisees

-Difficult to go through qualification

What are the benefits of expansion through franchising?

-many businesses already have a large number of franchises

-Receipt of royalties

-No need to find finance to set up(role of franchisee)

-No need to find sites(role of franchisee)

-Able to expand the market and sales quickly

-Expansion can be achieved relatively cheaply

-Employees are responsibility of franchisee

-Can take advantage of enthusiasm

-Do not suffer losses of individual outlets

-Do not have effort/cost of running individual outlets

-Spreads the risk

-Statistics tend to suggest that franchise businesses generally do well

What are the benefits of expansion through opening of own shops?

-retain independence and in control of expansion

-Will keep all profit

-If set up by franchises less control over quality

-Operations of franchisees

-Avoid training and administration associated with setting up franchises

-Can reap benefits from economies of scale

What are the benefits the business has from owning its own shops rather than selling through shops owned by other businesses?

-Control over how products are sold/displayed

-Control over selling price

-Maximise profit

-Immediate feedback from customers

-Staff trained

What are the disadvantages the business has from owning its own shops rather than selling through shops owned by other businesses?

-fewer customers

-Extra cost of setting up

-Problems in finding premises

-Staff training

-Owner skills

-Leftover stock

-Selling cost from manufacturer

How can the success of a business be measured?

-Profit/profit and loss account

-Increase in sales/turnover/rate of turnover

-Increase in number of customers

-Increase in scale of production

-Ask customers opinions

-Compare financial result with targets

-Low staff turnover

-Meet objectives

What is the difference between location and site?

Location is a geographical area where businesses may be found whilst the site is a specific place within a geographical area

What does footfall mean?

The number of people passing close to the business. These are potential customers of that business.

Why is locating near a competitor not always a good thing?

-similar businesses might be well known-loyal customers

-Similar businesses may have a wider range of goods

-Similar business may have lower prices

-Potential for low sales

What are positive factors to think about when deciding on a business location?

-cost of rent

-Transport links

-Easy access for customers

-Car parks

-Easy access for delivery

-Competition

-Other businesses

-Common services

What are negative factors to think about when deciding on a business location?

-competition

-Congestion

-Distance to travel for customers

-Maybe more expensive

-Must conform to standards of other businesses

What is the public sector?

Organisations owned in controls by the government

What are the aims of the public sector?

-provider service

-Improve accessibility to others

-Avoid wasteful duplication of resources

What is the private sector?

Businesses run by private individuals

E.g. soul traders partnerships, LTDs and PLCs

What does unlimited liability mean?

Means that the owners of a business are responsible for all of the debts of a business. Personal belongings may need to be given up to pay the debts of the business.

What is a soul trader?

Businesses owned by one person who has unlimited liability. Other people can be employed, but there is only one owner.

What are the advantages of a sole trader?

-Can keep all profit

-Can make decision decisions without consulting other others

-Own boss

-Independence

-Easy to set up

-Employment

What are the disadvantages of a soul trader?

-unlimited liability

-More responsibility

-Limited sources of resources

What are examples of advice available to start up a business?

-Business Wales

-Commercial banks

-The Princes trust

-british chambers of commerce

What are the features of a partnership?

-A business that is owned by between 2 and 20 people

-A business owned by at least two people

-An unincorporated business

-A business with unlimited liability

What are the advantages of a partnership?

-raise more than sole traders

-Extra skills and expertise

-More people to make decisions

-Shared responsibility and more flexibility

-Easy to set up

What are disadvantages of a partnership?

-Partners may disagree

-Profits will be shared

-Some partners may not work as hard as others

-Continuity

-Unlimited liability

What is a deed of partnership?

A legal document which is an agreement between partners that sets out the rules of the partnership such as how profits will be divided and how the partnership will be valued if someone wants to leave

What does the deed of partnership contain?

-names of partners

-How profits will be shared

-Suggest how it can help overcome partnership problems

-Shows proportion of ownership to determine distribution of profit

-Shows duties and responsibilities of partners indicating who does what

-Condition conditions for end of partnership to show distribution of assets

-Liability of partners in case of business debt

Why move from a sole trader to a partnership?

IN FAVOUR:

-potentially more capital

-A new partner brings new skills

-Possibility of specialisation

-More ideas and problems can be shared

-Shared workload

-One owner can cover for holiday holidays or illnesses etc

-Avoids need to employ somebody

AGAINST:

-Original soul trader will lose their independence

-Will need to share profits

-Could result in disagreement

-Decision-making potentially slower

-By employing a new worker, the original sole trader could retain their independence

-Partner may leave

What does limited liability mean?

When the owners of a business are not responsible for the debts of a business. Personal belongings will not need to be given up to pay the debts of the business. The owners however, will lose the money they invested in the business if it fails.

what is a dividend?

The term for the share of profits of limited companies and cooperatives

What is a private limited company (LTD)?

Businesses which are owned by shareholders who have limited liability. Their shares are not available to others except with agreement of other shareholders. They are generally recognised with LTD after the business name.

What are the advantages of Private Limited companies?

-Limited liability

-Continuity

-More capital

-Specialised management

-Divorce of ownership and control possible

-Invited shareholders

What are disadvantages of private Limited companies?

-legal procedure in setting up takes time and cost money

-Having to disclose the accounts

-Profits have to be shared with the other shareholders

-Slower decision-making

What is a public limited company (plc)?

-businesses which are owned by shareholders who have limited liability. Their shares are available to others by selling to the general public often on the stock exchange. They are generally recognised with PLC after the business name.

What are the advantages for public limited companies?

-Limited liability

-Continuity

-More capital

-Specialised management

-Divorce of ownership and control possible

-Invited shareholders

What are the disadvantages for public Ltd companies?

-cost of setting up

-Need to share profits

-Affairs not kept private

-May lose control

-May need to share decision-making

-Limited capital available

-registration on share ownership

What is a social enterprise?

Businesses which operate for the benefit of the community or its workers or as a charity

What is a cooperative?

A business organisation is owned by its customers/workers/producers/members-they have a common purpose or aim-they receive dividends-they share/are consulted in decision-making

What are the advantages of social Enterprises and cooperatives?

-Community interested company

-Positive public relations

-Benefit society

What is a charity?

Organisation set up to provide help and raise money for those disadvantage in society.

-They are not established to make profit but they can earn surpluses

-Charities can often have a narrow focus on what they are trying to achieve

-Charities raise the majority of their finances through voluntary donations but more and more charities now operate retail outlets as well

What is a business plan?

Helps in decision-making by showing the aims and objectives of a business and the strategies and requirements needed to achieve these. It also provides information to banks and other possible providers of finance to pursuade these to grant loans and also other monies to the business.

Why write a business plan?

-it will be needed by banks before lending money

-It shows how the business will be run

-It shows the business has been researched and thought through

-It shows opportunities and problems

What are the contents of a business plan?

-aims of business/mission statement(direct goal)

-Cash flow forecast/projected sales/projected costs(for banks)

-Owner CV

-Type of ownership

-Marketing

-Location/premises

-Financial information

What is turnover/revenue?

The value of sales/income/revenue of a business/money made from selling goods or services

How to calculate turnover/revenue?

Selling price x quantity sold

How to improve turnover?

-increase price- more revenue per item

-Reduce price-create demand

-Increase promotion/advertising

What are fixed costs?

Costs which always stay the same no matter how many goods are produced

-e.g. Rent for the shop, monthly lease on equipment and machinery, payment of business rates on premises

What are variable costs?

Course that changes with the number of goods produced /sold/output

E.g. Raw materials, electricity, and gas

What are total costs?

The full amount of money spent by a business when producing the goods sold in a particular period. It is calculated by adding its fixed cost to its variable costs.

How to calculate total cost?

fixed costs + variable costs

What is profit?

The difference between the total revenue of a business and the total cost of a business, when revenue is greater than cost

How to calculate profit?

total revenue - total cost

What are the sectors of industry?

primary, secondary, tertiary

What is the primary sector?

Where the raw materials are produced e.g. farming, mining, forestry

What is the secondary sector?

Where the raw materials are manufactured into goods, e.g. factory

What is the tertiary sector?

Businesses in this sector provider service, e.g. retailer, hotel, School

What is the chain of production?

This process links the primary secondary and tertiary sectors together in the production process

Who are consumers?

The final uses of goods and services. They are at the end of the distribution channel.

What are needs?

Items that you have to have in order to survive, e.g. food, water, warmth, clothing, shelter

What are wants?

Items that you wouldn't like to have better not necessary to your survival. They enhance your lifestyle.

E.g. TV , mobile phones, holidays, cars

What are goods?

Tangible items that you can physically touch

What are consumer goods?

Good which are produced for the final customer, e.g. cars and clothes

What are producer (capital) goods?

Goods which are produced for the other businesses to be able to produce other goods and services

E.g. vehicles, computers

What is a durable good?

Consumer goods which are not used at once and do not have to be bought frequently because they last a long time

E.g. washing machine

What is a nondurable good?

Good, which are immediately consumed or have a lifespan of less than three years