The Nature of Business Key Terms

Chapter 1-4

Business

The organised effort of individuals to produce and sell, for a profit, the products that satisfy individuals’ needs and wants

Choice

The act of selecting among alternatives

Dividend

a distribution of a company’s profits (either yearly or half-yearly) to shareholders that is calculated as a number of cents per share.

Entrepreneur

Someone who starts, operates and assumes the risk of a business venture in the hopes of making a profit 

Entrepreneurship

The ability and willingness to start, operate and assume the risk of a business venture in hopes of making a profit

Finished product

A product that is ready for customers to buy and use.

Goods

items that can been seen or touched (tangible)

Income

Money received by a person for providing his or her labour, or a business from a return on its returns.

Innovation

Either creating a new product, service or process, or significantly improving an existing one. 

Operating expenses

All the costs of running the business except the cost of goods sold

Product

A good or service that can be bought or sold 

Production

 Refers to those activities undertaken by a business that combine the resources to create products that satisfy customers’ needs and wants.

Profit

What remains after all the business expenses have been deducted from sales revenue

Quality of life

Refers to the overall wellbeing of an individual, and is a combination of both material and non-material benefits.

Research and development

a set of activities undertaken to improve existing products, create new products and improve production.

Revenue

The money a business receives as payment for its products

Risk

 Refers to the possibility of a loss.

Salary

A fixed, regular payment, usually paid on a fortnightly or monthly basis but often expressed as a sum, made to a permanent employee of a business.

Services

 things done for you by others.

Shareholders

People who are part owners of a company because they own a number of shares.

Wages

Money received by workers, usually on an hourly basis, for services they provide to an employer.

Float

The raising of capital in a company through the sale of shares to the public.

Geographical spread

The presence of a business and the range of its products across a suburb, city, state or country, or the globe.

Government enterprises

Government-owned and operated businesses.

Incorporated

Refers to the process companies go through to become a separate legal entity from the owner/s.

Industry

Businesses that are involved in similar types of production.

Large business

Businesses with 200 or more employees

Limited liability

A feature of corporate ownership that limits each owner’s financial liability to the amount of money he or she has paid for the business's shares.

Local business

A business that has a restricted geographical spread; it serves the surrounding area.

Medium business

A business with 20-199 employees.

Micro business

A business with fewer than five employees.

Multinational corporation

 A company that has branches in many different countries.

National business

A business that operates within just one country.

Partnership

A legal business structure that is owned and operated by between 2 and 20 people with the aim of making a profit.

Primary industry

includes those businesses involved in the collection of natural resources

Pirvatisation

The process of transferring the ownership of a government business to the private sector

Proprietary (pirvate) company

An incorporated business and usually has between 2 and 50 private shareholders

Prospectus

A document giving details of a company and inviting the public to buy shares in it

Quaternary industry

Includes services that involve the transfer and processing of information and knowledge.

Quinary industry

Includes services that have been traditionally performed in the home.

Secondary industry

Includes businesses that take raw materials and make it into a finished or semi-finished product.

Small business

 a business with 5-19 employees

Small to medium enterprises (SME)

Defined by the Australian Bureau of Statistics as firms with fewer than 200 full-time equivalent employees and/or less than $10 million turnover

Sole trader

 A business that is owned and operated by only one person

Tertiary industry

 Involves people performing a vast range of services for other people

Unlimited liability

When the business owner is personally responsible for all the business’s debt

Venture capital

Money that is invested in small and sometimes struggling businesses that have the potential to become successful.

Business (corporate) culture

The values, ideas, expectations and beliefs shared by members of the organisation

Business environment

Refers to the surrounding conditions in which the business operates. It can be divided into two broad categories: external and internal

Complementary business

One that sells a similar range of goods and services

Deregulation

The removal of government regulation from industry, with the aim of increasing efficiency and improving competition

Ecologically sustainable

When economic growth meets the needs of the present population without endangering the ability of future generations to meet their needs

Economic cycles (business cycle)

The periods of growths and recession that occur as a result of fluctuations in the general level of economic activity

External environment

Includes those factors over which the business has very little control over

Financial resource

The funds the business uses to meet its obligations to various creditors

Globalisation

The process that sees people, goods, money and ideas moving around the world faster and more cheaply than before

Human Resource

The employees of the business; generally, it's the most important asset

Information Resource

The knowledge and data required by the business, such as market research, sales report, economic forecasts, technical material and legal advice

Internal environment

Includes those factors over which the business has some degree of control

Market concentration

Refers to the number of competitors in a particular market.

Monopolistic competition

Where there is a large number of buyers and sellers in a particular market

Monopoly

Complete concentration by one business in the industry

Oligopoly

Where a small number of larger firms have a greater control over a market

Perfect compeition

Where there is a large number of small firms that sell similar products. They are unable to differentiate products from each other and so can only use price as a way of achieving market share

Physical resource

The equipment, machinery, building and raw materials used by the business

Regulations

Rules, laws or orders that businesses must follow

Stakeholder

Any group or individual who has an interest in, or is affected by, the activities of a business

Support services

The activities needed to assist the core operations or prime function of a business

Sustainable compeititve advantage

Refers to the ability of a business to develop strategies that will ensure it has an ‘edge’ over its competitors for a long period of time

Acquisition

When one business takes control of another business by purchasing a controlling interest in it.

Bankruptcy

A declaration that a business or person is unable to pay his or her debts

Business life cycle

Refers to the stages of growth and development a business can experience

Cash flow

The money coming into the business in the form of cash receipts, and the money leaving the business as cash payments

Creditors

Those people or businesses who are owed money

Diversification (conglomerate integration)

 when a business acquires or merges with a business in a completely unrelated industry

Horizontal integration

When a business acquires or merges with a business that makes and sells similar products

Insolvent

When a company is unable to pay its debts and when they fall due

Involuntary cessation

When the owner is forced to cease trading by the creditors of the business

Liquidation

When an independent and suitably qualified person- the liquidator- is appointed to take control of the business with the intention of selling all the company’s assets in an orderly and fair way in order to pay the creditors

Merger

When the owners of two separate businesses agree to combine their resources and form a new organisation

Realisation

The process of converting asses of a business into cash

Receivership

When a business has a receiver take charge of affairs of the business. Unlike liquidation, the business may not necessarily be wound up

Vertical integration

When a business expands at different but related levels in the production and marketing of a product

Voluntary admission

When an independent administrator is appointed to operate the business in hopes of trading out of present financial problems

Voluntary cessation

When the owner ceases to operate the business of their own accord