business igcse revision

need

good/service essential to living

opportunity cost

the loss of other alternatives when one option is chosen

specialisation

when businesses and people do what they do best to make production more efficient

how to "added value”

• branding

• service quality

• product features

• convenience

benefits of added value

• able to charge a higher price

• diffrenciate from competition

• protection from competitors

• target different market segments

business sectors: primary

business activity involving the extraction of natural resources

business sectors: secondaty

businesses that process and manifacture goods from natural resources

business sectors: tertiary

firms that supply a service to customers

how does the government support NEW businesses

• grants and interest free loans

• lower tax on profits

horizontal integration ( business growth)

2 businesses in the same industry and sector joined tgt

• primary + primaty business

• secondary + secondaty business

forward vertical integration ( business growth)

2 businesses in the same industry. one business buys another business in the next stage of production

• manufacturer + retailer

backward vertical integration ( business growth)

2 businesses in the same industry. one business buys another business one step behind in the stage of production

• producer + supplier

conglomerate integration ( business growth)

2 businesses in different industries joined together

• business in industry a + business in industry b

benefits of expanding

• increase profits

• increase market share

• economies of scale

partnership definition

association between 2 and 20 people who agree to run a business together

partnership adv

• share expenses, responsability, decision making

• more capital available to invest

• individual partners can offer specialsm

partnership dis

• disagreement between partners

• business has unlimited liability

private limited company

company with shareholders that contribute funds in return for shares ( shares cant be sold on the stock exchange)

private limited company adv

• limited liability

• easier to raise capital

• management is shared

private limited company dis

• expensive set up

• shres cant be sold to the publid (only friends and family)

• slow decision making

public limited company

• company in which unlimited number of shareholders contribute funds to in return for shares ( shares can be sold on stock market)

public limited company adv

• limited liability

• easy to raise finance as shares can be sold on stock exchange

public limited company dis

• company voulenrable to takeovers

• shareholders recieve some profit

• communication issues due to size of business

revenue

the amount a business earns from the sale of its products

unlimited liability

if a business fails, the owner might have to use their personal savings to finance the businesses debts

limited liability

shareholders only risk loosing the amount they have invested if the business fails, not their personal wealth

dividend

a payment out of profits given to shareholders as a reward to their investment

franchise

when enterpreneurs / companies buy the right to use the name, logo and product of an existing business

franchisor adv

• expansion of their business is cheaper

• reduced risks as they are shared with the franchisee

• fast expansion

franchisor dis

• brand image / reputation

• high costs to cover advertising, training, support of franchisee

franchisee adv

• continuos financial support from franchisor

• banks more willing to land money

franchisee dis

• less indepencence

• franchisor does most decision making

joint venture

2+ businesses agree to work together on a project and set up a separate business for this purpose

public corporation

business owned by the state

factors influencing motivation

• money

• firnge benefits

• job secutiry

• promotion

• training

• status

• safe environment

Abraham Maslow - motivational theory

5 human needs that must be met

• self actualisation

• esteem needs

• social needs

• safety needs

• physiological needs

Hezerbergs 2 factor - motivational theory

• hygene factors (conditions) (work conditions, dalary, insurance, supervision)

• motivators (incentives) (responsability, status, achievements)

taylors theory - motivational

humans are only motivated by money and threats

• price rate method ( paying by the amount of product produced)

abseinteesm

a workers non attendance at work without a good reason

labour turnover

the rate at which employees leave a business

financial rewards - motivators

cash / non cash rewards paid to employees t omotivate them to improve their efforts

• salary

• fringe benefits

• profit sharing

non financial rewards - motivators

methods to motivate employees without financial rewards

• job rotation

• job enrichment

• quality circles

• delegation

• trianing

• opportunity for promotion

hourly wage rate

payment fixed on amount of hours at work

commision

payment to sales staff based on the value of items they sell

job rotation

allowing employees to switch from a range or tasks

• workers become milti skilled and flexible

job enlargement

allowing employees to choose from a variety of similar level tasks

• reduces boredom

job enrichment

challanging workers, involve them in decision making to feel valued

• job satisfaction and motivation

quality circles

groups of workers who meet regularly to discuss work related issues and ocme up with solutions

delegation

passing responsability to perform tasks to employees lower down in the organisation

hierarchy

number of levels in an organisational structure

span of control

number of employees that direcrly report back to the manager

chain of command

the system through which authority is passed down in an organisation

tall organisation features

• expensve

• communication / decision making is slow

• many levels

• narrow span of control

flat organisation features

• small businesses

• few levels of managment

delayering

reducing the size of hierarchy

centralised business

all decision making power is held at head office

decentralised business

decision making powers passed down the organisation

role of managers

• planning

• organising

• coordinating

• commanding

• controlling

autocratic leadership style

leader makes all decisions

democratic leadership style

workers take part in some decision making

laissez faire leadership style

most deicsion making done by workers

choosing a leadership style

• skills of workforce

• time available to make a decision

rectuitment

the action of enlisting new workers

reasons to rectuit new staff

• business expansion

• employees leave

• new skills needed from employees

internal recruitment

filling the vacancy with someone already working in the business

external recruitment

filling the vacancy with someone new to the business

job description

a list of all key points bout a job

• job title

• key duties

• responsabilities

• accountability

on the job training

training at the business, watching or following an experienced employee

employment law

regulations stating rights and obligations of employers and employees

legal controls

• legal minimum wage

• health and safety

• discrimination

• cdontract of employment

• unfair dismissal

trade unions

organisation of workers aiming to protect workers interests ( pay, legal conditions

internal communication

employees communicate with each other within departments ( echanging info, discussing product/sales)

external communication

communcation with people outside the business (selling goods, complaints from customers, placing orders)

communication methods

• oral (meetings,phone call)

• written (letters, orders, invoice) (more formal, permanent record)

• electronic (fax, email, zoom)

• visual( presentation, charts, pictures)

benefits of effective communication

• fast decision making

• quick response to market changes

• coordination between departments

• motivation for workers

• customer relationships

communication barriers

• problems with channel of communication

• problems with sender and reciever

• problems with physical environment

need of sources of finance

• start up capital

• expanding a business

• working capital

• purchasing buildings and machinery

• investing in technology

start up capital

the capital needed by an enterpreneur when starting a business

working capital

capital needed to finance day to day expenses and pay the short term debts of a business

non current (fixed) assets

resources owned by a business that will be used for more than a year (buildings/machinery)

capital expenditure

spending by a business on non current assets like machinery and buildings

• to invest in the latest technology

internal sources of finance

sources or funds that are obtained from the business itself

retained profit (internal sources of finance )

profit that is kept back in the business after the owners have taken their share of profits

• does not have to be repaid +

• keeping more profit in the business reduces payments to owners -

selling fixed assets (internal sources of finance )

existing assets which are no longer needed by the business can be sold (redundant buildings / vehicles)

• not available to new businesses -

selling stocks (internal sources of finance )

running down on stocks for cash

owner savings (internal sources of finance )

sole trader puts his own savings into the business

• quickly available to the firm +

• no interest paid +

• savings might not be enough money -

• increases risk for the owner -

external sources of finance

capital raised from individuals/institutions outside of the business - divided in long and short term

short term external finance

the finance borrowed is needed for less than a year

long term external finance

any source of finance needed for more than a year

overdrafts - short term external finance

agreement with the bank to withdraw a sum of money from their account

• firm can use this to pay expenses

• cheaper than loans

• - interest rates are variable

• - bank might ask to be repaid with short notice

trade credit - short term external finance

when a business delays paying off its suppliers

• increased short term finance

• increased motication to produce goods

• - SUPPLIER MIGHT REFISE TO GIVE DISCOUNTS

• - supplier might not deliver anymore unless paid

bank loans - long term external finance

money borrowed from the bank that is returned with interest

hire purchase - long term external finance

allows a business to buy a fixed asset over a long period of time with monthly payments which include an interest charge

share issue - long term external finance

selling shares to the public, only possibler for limited companies

• doenst need to be repaid to shareholders

• no interest is paid

• - dividends are paid to shareholders

• balance of ownership can be affected by large share issue

debentures - long term external finance

bond issued by a company to raise long tern finance usually at a fixed role of interest

liquidity

the ability of a busines to pay its short term debts

credit sales

goods sold to customers who will pay for them at an agreed date in the future

managing cash flow

enough cash is coming in the business to cover the amount of cash going out

cash flow

the money coming into a business form selling its products and money a business spends on all aspects of procution

• NOT PROFIT

cash flow IN business

• cahs sales

• payments from debtors

• sale of assets

• bank loans