Topic 1 - Business in the Real World

Sectors in business

Primary (raw materials), secondary (manufacturing), tertiary (retailing)

The difference between goods and services

Goods are tangible items that are sold whereas services are intangible

Reasons for starting a business is to:

Earn more money, gain independence, have a job, pursue a passion, have flexible hours, exploit a business opportunity or benefit the public (only in not-for-profits)

Characteristics of an entrepreneur

Innovative, organised, determined, and risk-taking in the hope of profit

Factors of production

Land, labour, capital, entrepreneurship

Opportunity cost

The benefits a business misses out on when choosing an alternative

The difference between sole traders and a partnership

Sole traders have more profits and more independent decisions whereas a partnership has cover, more expertise and more investment

The difference between PLCs and Ltds

Public limited companies have a quicker process of selling shares on the stock market and there is a broader range of management whereas private limited companies have no risk of takeovers and shareholders have to be approved initially

Dividends

A distribution of profits by a company to its shareholders

Limited liability

When debts arise it is restricted to the owners' investments while protecting their personal belongings

Objectives

Targets set by a business to help achieve an aim (a business' overall goal)

Factors affecting aims

The business' size/age, the volume of competition and the type of business.

Financial aims

Survival, profit, sales, market share, security

Non-financial aims

Acting ethically, being satisfied, having control, being independent and to challenge yourself

Stakeholders

Anyone with an internal or external interest in a business

Influences on business location

Raw materials, employment, competitors, infrastructure, proximity to market, finance available

Things in a business plan

Executive summary, business name + idea, aims + objectives, market research, marketing overview, operations, HR (staffing needs), finances, and entrepreneur details

Pros and cons of a business plan

It can can minimise risk and shows direction for the future however it takes long to create and decreases flexibility due to it being potentially unrealistic

Profit, revenue and costs

Profit \= revenue (price x quantity) - costs (fixed + variable)

Economies of scale

The average unit cost of a product falls as the business grows

The difference between purchasing and technical economies of scale

In purchasing, when a business gets bigger it is given discounts when buying in bulk, whereas in technical, a business can purchase more advanced equipment

Internal and external growth compared

Internal growth has low risk, an increased chance of economies of scale, cheaper and the business can keep its identity; external growth has reduced competition and faster growth with higher market share

Internal growth types

It can be through e-commerce, opening new stores, outsourcing and franchising - having an increased chance of economies of scale and has lower risk, is cheaper and the business can keep its identity

The difference between the two types of external growth (relating to market)

Conglomerate integration is merging or taking over a business in a different market whereas horizontal integration involves the same market

The different types of vertical integration

Forward vertical integration is merging or taking over a business in a later sector whereas backward vertical is in an earlier sector