Business in the real world

Reasons to start a business

* produce goods
* supply a service
* distribute products
* fulfill a business opportunity
* provide a service/good to benefit others

Define goods

Physical items

Define services

Action performed by other people to aid a customer

Define wants

things you would like to have

Define needs

things you cant live without

Name the factors of production

land, labour, capital and enterprise

Define land

territory and natural resources

Define labour

work done by people who contribute to the production process

Define capital

equipment, factories and schools that help produce goods or services

Define enterprise

people who take risks

Define opportunity cost

the benefit thats given up in order to do something else

Define primary sectory and give an example

produces raw materials, farmer

Define secondary sector and give an example

manufactures goods, car manufacturer

Define tertiary sector and give an example

provides services, shop

What is meant by enterprise?

taking advantage of new business opportunities

What is meant by entrepreneur?

someone who takes advantage of new business opportunities

Name the characteristics of entrepreneurs

* hardworking
* innovative
* organised
* willing to take a risk

What are the objectives of entrepreneurs?

* own boss
* flexible working hours
* pursue an interest
* earn more money
* identify a gap in the market
* dissatisfaction of current job

How do businesses environments change constantly?

* changes in technology
* economic situation
* legislation
* environmental expectations

What is a sole trader

one owner

What is a partnership

2-20 partners who share the business

What is a ltd

private limited company, shares are only sold if shareholders agree

What is a plc

public limited company, shares are traded on the stock exchange

What is a not for profit organisations

arent aiming to make a profit

Benefits of sole traders

* easy to set up
* be your own boss
* control over profit

Drawbacks of sole traders

* long hours
* no holiday pay
* unlimited liability
* unincorporated = no separate legal identity
* hard to raise money

Benefits of a partnership

* more ideas
* more skill and expertise
* share workload
* more capital (money)

Drawbacks of a partnership

* each partner is legally responsible for others
* unlimited liability
* more disagreements
* shared profits

Benefits of a ltd

* limited liability
* incorporated
* easier to get a loan or mortgage
* control over shares

Drawbacks of a ltd

* more expensive to set up than partnerships
* legally obligated to publish its accounts every year, unlike sole traders and partnerships

Benefits of a plc

* more capital then any other business structure


* helps expand and diversify
* limited liability
* incorporated

Drawbacks of a plc

* hard to get an agreement with shareholders
* someone could easily takeover if they get enough shares
* accounts have to be made public when published
* share its profits with more shareholders

Benefits of a not for profit organisation

* get tax relief
* apply for certain grants
* benefit others

Drawbacks of a not for profit organisation

* hard to set up
* hard to manage
* no stable income

What is unlimited liability

when the owners of a business are legally responsible for all the debts its business has

What is limited liability

when the owners of a business are NOT legally responsible for all the debts its business has

Whats an aim and give examples

An overall goal that a business is trying to achieve; survival, maximize profit, growth, increase shareholder value

Whats an objective and give examples

A measurable step that a business will set in order to work towards an aim, linking to: survival, profit, growth, shareholder value, market share, social & ethical issues, customer satisfaction

Why do objectives set differ between businesses

* size of business
* level of competition
* the type of business

How and why objectives change as the business evolves

As the business gets bigger, its objectives will be suited towards the businesses needs as a bigger business

How to measure the success of the business, not profit

* Whether objectives are achieved
* Number of employees
* shares on stock market
* shareholder value

Whats a stakeholder

Anyone who is affected by the business

Who are the main stakeholders of a business

* Owners
* employees
* suppliers
* local community
* government
* customers

Whats the main objectives of the main stakeholders (at least 1 for each)

* owners = make profit, be successful
* employees = job security, promotion prospects, high pay
* suppliers = profitability and growth of business to get more income
* local community = decrease noise and pollution, good job opportunities, sponsor local activities, being ethical
* government = profitability, growth and support to increase tax income
* customers = high quality, low prices

How may conflict occur due to stakeholders?

* Stakeholders have conflicting opinions
* Owners may prioritize some stakeholders over others

What influences location?

* Location of raw materials
* labour supply
* location of market
* cost
* competiton

Why is creating a business plan important?

Helps outline what the business will do and how it aims to do it

What are the main sections of a business plan?

* personal details
* mission statement
* objectives
* product description
* production details
* staffing requirements
* finance

State what each section of the business plan means

* personal details = of owner and other important personnel
* mission statement = broad aims
* objectives = more specific than aims
* product description = how the firm aims to achieve its USP and marketing strategy of the business
* production details = how the firm will make its products
* staffing requirements = what type of person will be needed
* finance = how much money is needed to start a business

Benefits of a business plan

* help get a bank loan
* gives business a clear idea of finances and aims

Drawbacks of a business plan

* time consuming

Equation that links, fixed costs, variable costs and total costs

Fixed costs + variable costs = total costs

Equation that links, revenue, sales and price

Revenue = sales x price

Whats the difference between revenue and profit

Revenue = before costs

profit = after costs

Advantages of opening new stores

* low risk
* should be a success
* increase sales

Drawbacks of opening new stores

* extra costs-

Advantages of e-commerce

* larger market
* people can buy whenever
* cheaper than running a store
* dont have to pay for many staff
* no rent

Disadvantages of e-commerce

* technology has to be regularly updated
* technical problems causes issues

Advantages of outsourcing

* quick
* cheap
* high standard

Disadvantages of outsourcing

* loss of control
* bad reputation if theres poor standards

State the 5 different ways of expanding

* organic growth through franchising
* opening new stores
* e-commerce
* outsourcing
* mergers/takeovers

What is economies of scale

fall in average unit cost

What is diseconomies of scale

increase in average unit cost

What is purchasing economies of scale

when a large firm buys its supplies in bulk and gets a cheaper unit price than a small firm

What is technical economies of scale

a large firm can afford to buy and operate more advanced machinery than smaller firms

How does the risk of diseconomies of scale increase

Growth

How does risk occur due to diseconomies of scale

* Poor communication
* coordination skills
* reduced staff motivation

How do you calculate average unit cost

total costs / output

What is outsourcing

a business paying another firm to carry out tasks it could do itself

Whats a merger

whens two businesses join together to form a new larger firm

Whats a takeover

when a business expands by buying more than half the shares of another firm