Topic 1: Business Flashcards

Business

Organization that uses resources to meet the needs of customers by proving a product or service.

4 Business inputs

Land

Labor

Capital

Enterprise

4 Business functions

Human resource management

Finance and Accounts

Marketing

Operations

4 Sectors

Primary

Secondary

Tertiary

Quarternary

Entrepreneurs

Individual who takes financial risk of starting and managing a new venture

Intrapreneur

Someone within a large corporation who takes direct responsibility for turning an idea into a profitable finished product through using innovation

Steps to start a business

-Source capital

-Determining a location

-Building a customer base

Common issues of start-ups

-Lack of record-keeping

-Lack of finance and working capital

-Poor management skills

-Changes in business environment

Business plan

Written document that describes a business, its objectives and the market it is in, as well as the financials.

Public Sector

controlled by regional/national governments, and provides essential goods/services

Private Sector

Owned and run by private individuals and organizations that typically strive for a profit

Sole traders

Business owned by a single person

Advantages of sole trader

Quick to create

Retains full control of the company

Decision-making is quick

Disadvantages of sole trader

-Bears all risks and have unlimited liability

-Finance is limited

-Inability to exploit economies of scale

-Lack of continuity

Partnership

Commercial business owned by two or more people

Advantages of partnerships

-Improved continuity

-Partners are able to benefit from having more ideas -and share workloads/responsibilities

Disadvantages of partnerships

-Might be disagreements and conflicts

-Profits must be shared

-Unlimited liability is shared

Companies

Commercial business with limited liability and owned by their shareholders.

Private limited company

A company in which shares of it can only be sold or distributed privately, among families or close friends.

Public limited company

A company in which shares of it can be bought by and sold to any member of the public or institution.

Advantages of private limited company

-Control of the company is sustained

-Owners have limited liability

-Continuity

Disadvantages of a private limited company

-Restriction in source of finance, as cannot exploit selling of shares

-Lack of privacy

Advantages of a public limited company

-Easier to obtain finance for growth and evolution

-Easier to secure external sources of finance

-Economies of scale

-Limited liability and continuity

Disadvantages of a public limited company

-Lack of control

-Diseconomies of scale

-Alienation of the workforce

-Company is vulnerable to takeover

Social enterprise

An organization that uses commercial business practices to improve communities, the environment and human well-being rather than profits.

Cooperatives

Social enterprises owned and run by their members, strive to provide a service and to create value for their members, rather than a financial return for their member-owners.

Advantages of cooperatives

-Democratic style of business

-Limited liability

-Members own and control business rather than being governed by external investors

Disadvantages of cooperatives

-Difficult to attract shareholders/members as cooperatives main goal isn't to generate a financial return on investment.

-Limited resources

Microfinance providers

Type of banking service provided to start-ups/low-income earners.

Public-private-partnerships (PPP)

Organizations that are established by the government and one private sector organization

Advantages of PPP

-Risks are shared with both private and public sectors

-Government funding can help private firms to reduce the amount of money they need for investment projects

-Creative ideas and decision-making is effective, as both the government and private sector helps each other with this.

Disadvantages of PPP

-Potential conflicts of interests

-Costly for the private sector organization

-High-risk investments, as it involves many operational costs

non-profit social enterprises

Organization that acts in a business-like way but does not distribute its profits to owners or shareholders, but uses it to pursue its mission or vision.

Advantages of non-profit social enterprises

-Exempt from paying income taxes and corporate taxes

-Local communities and societies can aid with fundraising and donations

Disadvantages of non-profit social enterprises

-Source of finance is limited, only reliance is donations and external support

-Earnings of workers are often lowered

-Cost and financial control may not be stable as there is no expectation to earn a profit

NGOs

-Type of non-profit social enterprise that is neither part of a government nor a traditional for-profit business, and is ran by voluntary groups

Charities

Non-profit organizations that operate with he objective of promoting a worthwhile cause

Aim

Long-term goals of an organization

Objective

Targets an organization is trying to achieve (SMART)

SMART

Specific, measurable, achievable, realistic, time constrained.

CSR (Corporate social responsibility)

Refers to organization's duties to its internal and external stakeholders by behaving in a way that positively impacts society as a whole.

SWOT Analysis

Management tool to assess where a business is at the present time and how it is affected by external business environment.

Ansoff Matrix

Market penetration: Existing markets and existing products, focuses on promoting product in same market

Market Development: Business sells its existing products in new markets

Product Development: Business introduces new products into existing markets

Diversification: Business introduces new product in new market

Stakeholders

Individuals or organizations/groups with direct interest in the operations and performance of a particular business organization.

Internal stakeholders

Members that are directly in the organization, such as employees, managers, directors and shareholders

External Stakeholders

Not members of a business or organization yet have a direct interest in its operations and performance. Customers, suppliers, competitors, government and local community

STEEPLE Analysis

examines influences in external environment in which a business operates (Social, technological, economic, ethical, political, legal, environment)

Economies of scale

Cost-saving benefits of operating on a large scale, i.e the reduction in unit costs of production as an organization grows.

Diseconomies of scale

Diseconomies of scale are long run time period and occur as the cost per unit increases as the output increases.

Advantages of small organizations

-Enjoy independence in decision-making, freedom to operate independently from the demands of directors and shareholders

-Greater control and ownership of the business

-Closer relationship with customers

Advantages of large organizations

-Greater access to financial resources

-Less likely to fail and lower risk to owners

-Benefit from economies of scale

Internal Growth

When a company grows using its own resources, without involving other organisations

External growth

Business relies on third-party organizations for growth, e.g merger, acquisitions and franchising

Takeover

When one company purchases more than an existing company's shares by 50% in order to own a majority of said company.

Merger advantages

-Range of economies of scale gained through external growth

-Potential to enter new industries and geographic markets

-Could be a way for a business involved in the merger to survive due to its poor cash flow or financial difficulties

Disadvantages of Merger

-Resistance from employees, trade unions, managers and shareholders

-Not always successful and has a lot of risk, especially when entering a new market and diversifying

-Corporate culture clashes, different organizational structures and management styles.

-Diseconomies of scale

Joint Venture

Arrangement between two or more separate parties to pool their resources together to form a new legal entity

Strategic Alliance

Two or more businesses join forces to benefit from growth without any fundamental changes, and does NOT create an external entity.

Franchising

Refers to an agreement between a business giving legal rights to other organizations to sell products under the franchisor's brand name.

Advantages of franchising

-Expand the business without the need to raise finance and invest their own funds to make the business grow

-Fast method of business external growth

-Less stress of controlling a multitude of operations in your business, as the franchisee will control.

Disadvantages of franchising

-Very expensive for the franchisee

-Franchisee is charged an annual fee

-Franchisee lacks flexibility in decision making

-Diseconomies of scale can arise

Multinational Company

An organization that operates or owns/controls production in two or more countries, and has a base country for its headquarters.

Fishbone diagram

Diagram that identifies root causes of a problem or an issue

Decision Tree

A diagram that allows managers to visualize possible options and their probable outcomes

Forcefield Analysis

Framework for examining the factors for and against change

Gantt Chart

Planning tool that illustrates the sequencing and schedule of a particular project.

Define vision statement.

It is a philosophy, a vision set of principles which steers the direction and behaviour of an organization.

Long-term goals that the business sets.

It gives its employees a sense of purpose.

Define mission statement.

A business statement that explains why the business exists.

It includes business aims and most important values.

Companies’ focus.

They can change over time (not as common)