Unit 1:What is business?

Why do businesses exist?

-To provide goods and services

-To satisfy customer needs

-To generate income

-To fulfil personal or social aims

What is a business objective?

A target or goal a business sets to help achieve its overall mission

What is the purpose of setting business objectives?

-To provide direction

-To motivate employees

-To measure success

-To support decision-making

What are the limitations of setting business objectives?

-May lead to short termism

-Risk of conflicting objectives

-Less flexibility

-Unrealistic objectives can be demotivating

What is meant by short termism?

Concentration on the short-term for immediate benefits at the expense of long-term security

Why do business objectives vary?

To suit the business type or situation

What are profit objectives?

Aim to maximise the difference between revenue and costs

What are growth objectives?

Aim to increase size, output, or market share

What are survival objectives?

Aim to continue trading, especially in difficult circumstances

What are cash flow objectives?

Aim to ensure enough cash is available to meet short-term payments

What are social and ethical objectives?

Aim to operate responsibly, contribute to society, and follow ethical practices

What is a mission statement?

A qualitative description about the organisation, this allows stakeholders to understand the businesses intent

What are corporate aims?

Broad and long-term goals that define a businesses general direction

What are corporate objectives?

Short-term goals driven by the mission statement

What are functional objectives?

Short-term and detailed goals for each department in the business

What is the relationship between a business’s mission and its objectives?

-The mission defines the businesses’ overall purpose

-Objectives break the mission down into SMART targets

What is meant by ‘breakeven’?

The point at which total costs and total revenue are equal, meaning the business isn’t making a profit or loss

Give examples of traditional financial business objectives.

-Profit and revenue maximisation, and cost minimization

-These are focused on the financial performance of the business

What is an example of a growth-related business objective?

-Increasing market share

-This focuses on expanding the business's presence in the market

What are examples of customer-focused business objectives?

Improving customer satisfaction through surveys and increasing customer loyalty through repeat business

Why might survival be a business objective?

For start-ups or new businesses that need to establish themselves in the market

How can ethical responsibility be a business objective?

To ensure they operate in a socially responsible and ethical manner

How do business objectives adapt to different business types?

e.g. a start-up might focus on survival, while a public limited company focuses on profit growth

What is a typical objective for a public limited company?

Profit growth to provide returns to shareholders through dividends and share price appreciation

What is a key objective for a social enterprise?

The impact on its community and raising awareness of its mission

What is a primary objective for a cooperative?

Member benefits, such as price reductions for its members

What are the benefits of having business objectives?

-Provide direction

-Aid decision-making

-Help measure success

-Motivate staff

-Facilitate coordination between functional areas

How do business objectives provide direction?

Give focus to the business, ensuring that all employees and managers are aligned towards a common goal, especially in large organizations

How do business objectives aid decision-making?

Help prioritize decisions, especially when faced with conflicting objectives, such as cost-cutting versus quality improvement

How do business objectives help measure success?

Provide specific, measurable targets that allow businesses to review, track progress, and benchmark against the original objective

How do business objectives motivate staff?

Aligning profit sharing, bonuses, and performance to the achievement of business goals, leading to higher productivity

How do business objectives help with coordination?

Facilitate coordination between functional areas like marketing, operations, HR, and finance, ensuring everyone works towards the same goals

What is a danger of conflicting business objectives?

Conflicting objectives, such as aiming for both lower costs and higher quality, can create problems and hinder overall business performance

What is the problem with rigid business objectives?

Very strict and rigid objectives can make a business less agile and flexible, reducing its ability to adapt to changes or crises in the industry

Why are unrealistic business objectives problematic?

Can be demotivating for employees, negatively impacting their performance and morale

How is profit measured?

Profit = Revenue - Total Costs

Why is profit important as a source of finance?

-Fund Expansion e.g. to open a new branch or launch in a new market

-Investments e.g. new machinery or new tech

-Research & Development e.g. innovating new products or services

How does profit serve as a reward for risk-taking for owners?

Entrepreneurs take risks, and profit is the potential reward putting their capital and efforts on the line

How does profit serve as a reward for risk-taking for shareholders?

Shareholders invest their own money in companies to help fund business activities and receive dividends as a return if the business is profitable

Why is profit important for not-for-profit businesses?

What is revenue?

Income generated from the sales of goods or services

What are fixed costs?

Costs that do not change with output e.g. rent or salaries

What are variable costs?

Costs that change with output e.g. raw materials or wages

What are total costs?

Sum of fixed and variable costs

What are the reasons for choosing different forms of business?

-To suit control, liability, tax or growth needs.

-To respond to business size, objectives or external conditions

What is a sole trader?

-Business owned  by one individual

-Has unlimited liability

What is a partnership?

-Business owned by 2 or more people

-Has unlimited liability

What is a private limited company?

-Business owned by shareholders

-Has limited liability

-Shares not sold publicly

How do you buy shares in a private limited company?

Buy them directly from the company

What is a public limited company?

-Business owned by shareholders

-Has limited liability

-Shares traded publicly on the stock exchange

What is a co-operative business?

-A business that is jointly owned and democratically controlled by its members

-Members can include: customers, employees, residents, or suppliers

What is the private sector?

Businesses owned by individuals or groups aiming for profit

What is the public sector?

Organisations owned by the government or state

What is a non-profit organisation?

-Organisations not driven by profit

-Aim to benefit society

What is a social enterprise?

Businesses that trade for a social purpose

What is unlimited liability?

Owner is personally responsible for business debts

What is limited liability?

Owner’s financial liability is limited to their investment

What is ordinary share capital?

Money raised by a company through sale of shares to shareholders

What is market capitalisation?

Market value of a company = share price × number of shares

What are dividends?

Payments made to shareholders from profits

What is the role of shareholders?

-Provide capital

-Influence decision-making

-Receive dividends

Why do shareholders invest in businesses?

-For dividends

-Capital gains

-Control or influence

-Support values

What influences share prices?

-Performance

-Expectations

-Interest rates

-Economic conditions

What is the significance of share price changes?

-Affects perception of business success

-Influences investment decisions

How does ownership affect a business’s mission?

Ownership structure shapes long-term goals and priorities

How does ownership affect a business’s objectives?

Different owners may have different objectives e.g. profit vs ethics

How does competition affect business costs?

May increase spending to stay competitive or reduce prices

How does competition affect business demand?

High competition can reduce demand for a business’s products

How do market conditions affect costs?

High costs in markets (e.g. materials) raise business costs

How do market conditions affect demand?

Demand rises or falls with consumer confidence and trends

How do incomes affect costs?

Rising incomes can increase wage demands and cost of labour

How do incomes affect demand?

Higher incomes can increase consumer spending and demand

How do interest rates affect costs?

Higher rates increase loan costs, raising business expenses

How do interest rates affect demand?

High rates reduce borrowing and spending, lowering demand

How do demographic factors affect costs?

Ageing population or migration may change labour or supply costs

How do demographic factors affect demand?

Affects types and volume of goods demanded

How do environmental issues affect costs?

May lead to increased costs for compliance and sustainability

How do environmental issues affect demand?

Can boost demand for eco-friendly or sustainable products

How does fair trade affect costs?

Fair trade usually means paying suppliers more, raising costs

How does fair trade affect demand?

Consumers may prefer ethically produced goods, raising demand

What is meant by ‘shareholder returns’?

The total return to shareholders over a given period of time, which typically includes both dividends and capital gains