Business - 1.1-2.3 (MAY REVISION 2025)

Includes 1.1, 1.2, 1.3, 1.4, 1.5, 2.1, 2.2, 2.3

What do businesses do?

Identify, Produce, Purchase

Profit formula

Profit = Revenue - Cost

Why might a business fail?

Lack of investment, lack of resources, no demand, strong competition

Factors of Production

Land, Labour, Capital, Enterprise

Added Value

Difference between the cost of manufacturing and the selling price of the finished good

Adding value

Increasing the worth of the product by improving quality or branding

Economic Problem

Unlimited wants but limited resources

Opportunity cost

The next best alternative given up when making a choice

Effects of businesses in countries

Improved trade/export, economic growth, employment opportunities, encouraging innovation

Entrepreneur

An individual who has the ability to innovate, organise, and manage a business, taking on financial risks to do so

Intrapreneurs

Within a company to develop new ideas or products

Business Plan

A document that describes a business, its situation & future forecasts. Used when applying for loans or when seeking investors

Dynamic Business Environment

The ever-changing factors (like technology, competition, trends) that affect businesses

Profit

The money a business keeps after subtracting costs from revenue

Revenue

The total money a business earns from selling goods or services

Primary Sector

Extraction of raw materials

Secondary Sector

Processing of raw materials (manufacturing)

Tertiary Sector

Service and retail

Quaternary Sector

Advanced services

GDP Increases

As demand increases, businesses make and sell more products/services

Increased tax revenue for government

As GDP increases, pay more tax

Private Sector

Funded by investors, owners, debt (from bank) and the businesses are owned and operated by individuals for profit

Public sector

Funded, owned and operated by the government (tax-payers) and doesn’t strive for profit

Command Economy

Small private sectors and businesses are mainly controlled by the government

Mixed Economy

Businesses are owned and run by individuals with the government also operating some businesses

Free-Market Economy

Businesses are mainly owned and operated by private individuals

Sole Trader

Unlimited liability, same legal entity, no continuity, easiest form of business to start

Partnership

Unlimited liability, same legal entity, no continuity, partnership agreement needed to be signed by all partners

Private Limited Company (LTD)

Limited liability, separate legal entity, continuity, no limit on number of shareholders

Public Limited Company (PLC)

Limited liability, separate legal entity, continuity, shares are publicly sold on the stock exchange, owners are called “shareholders”

Franchiser

The larger business who owns the license and sells the right to use it to franchises

Franchisee

The small business owner who purchases the license to operate the franchise

Joint Ventures

When 2 or more businesses work closely together on a project and both businesses exist independently

Co-operatives

A business owned and operated by its members for mutual benefit

Social Enterprises

Private sector, owned by individuals and shareholders that aim to make a profit in a socially responsible way

Revenue ($ or units sold)

The total value of sales made over a period of time

Number of employees

Useful when comparing products in the same market but doesn’t consider the skill level of employees

Capital Employed

The total value of all long-term finance invested in the business

Market Capitalisation

The total value of a company’s issued shares

Market Capitalisation Formula

Current share price x total number of shares issued

Market Share

Sales of a business as a proportion of the total market sales

Market share formula

Total sales of the business/Total sales of the industry x 100

Profit (Business Size)

Used to expand business and reward owners, it is found by deducing total costs from total revenue

Small Business

Having fewer than 20 employees

Business growth dependents

Market demand and competition, access to finance and investment, innovation, skilled workforce, effective marketing, government policies, economic conditions

Business growth reasons

Increased production, brand recognition, access to more resources, increased profitability, risk diversification, market power and competitive advantage

Organic Growth

Expansion of a business by opening new branches, shops or factories, can be slow but reduces risk

External growth

Where a business grows through a merge or a takeover

Merger

When 2 businesses combine for a larger business

Takeover

When a business buys more than 50% of shares to become the controlling owner

Horizontal Integration

Acquiring a business in the same industry to increase market share and reduce competition

Vertical Forward Integration

Acquiring a business close to customers like retail

Vertical Backward integration

Acquiring a business that sources raw materials (suppliers)

Conglomerate integration

Acquires a business in an unrelated industry to diversify operations and reduce risk

Synergy

Two businesses or organisations work together, and the combined result is better or more effective 

Private Sector

Owned and operated by individuals, main objective is profit and is funded by investors, debt and retained profit

Public Sector

Organisations owned by the government, very infrequently make profit, funded by taxpayers and provide public services

Profit maximisation

Maximising value added and achieving the highest possible difference between total revenue and total costs

Profit satisficing

Achieving enough profit to keep the owners satisfied

Growth objectives

A business that does not attempt to grow could become uncompetitive, through growing too much, or too quickly can lead to problems

Rapid expansion

Causes cashflow problems, increases financial risk, results in lower sales prices to meet targets

Increasing market share

Making more sales than competitors can indicate successful marketing strategy and an effective business plan

Corporate Social Responsibility (CSR)

When businesses consider the impacts of and take responsibility for their decisions on other stakeholders

Reasons for objective change

Response to competition, financial underperformance, business growth/expansion, change in business environment, leadership/management and stakeholder priorities

Mission statement

A statement of the business’ core aims, phrased to motivate employees and appeal externally

Triple Bottom Line

Assessing success by profit, people and planet

SMART Goals

Specific, Measurable, Achievable, Relevant, Time Bound

Stakeholders

Individuals/groups affected by a business

Internal stakeholders

Owners, employees

External stakeholders

Customers, suppliers, investors, community

Stakeholder conflict

When stakeholder interests’ clash

Customers (Business responsibilities)

Safety, Price, Design, Durability, Customer Service

Suppliers (Business responsibilities)

Pay them on time, clear about quantity, honour and contracts

Employees (Business Responsibilities)

Abide by the law, pay employees’ KiwiSaver, provide training, safe working conditions, provide job security

Local Community (Business responsibilities)

Employment opportunities, use local suppliers, consider environmental issues, consider impacts

Government (Business responsibilities)

Meet employment law, pay tax on profits, pay PAYE on behalf of employees, employ citizens

Creditors/Lenders (Business responsibilities)

Repaid on the agreed date, paid finance charges

Human Resource Management

Strategic approach to effective management of employees to gain competitive advantage

Labour Turnover

The rate at which employees are leaving the business

Labour Turnover Formula

Number of staff leaving (year) / Average Number of staff employed x100

High Labour Turnover causes

Low pay/uncompetitive wages, poor working conditions, lack of training and development, poor management or leadership

Recruitment

The process of identifying the need for a new employee, defining the job to be filles and the type of person needed to fill it, attracting suitable candidates for the job

Job description

A detailed list of all the key tasks and responsibilities involved with the job

Job Specification

A detailed list of all the key tasks and responsibilities involved with the job

Person Specification

A detailed list of the qualities, skills and qualifications that a successful applicant will have

Application Form

Document used by employees to collect information from job applicants about their skills, experience and qualifications

Curriculum Vitae (CV)

A document outlining a person’s education, experience, and skills when applying for a job

Reference

Person or statement that provides information about a job applicant

Job Interview

A formal meeting where an employer assesses a candidate’s suitability for a role through questions about their skills and qualifications

Assessment Centres

Standards or guidelines used to evaluate and measure a person’s suitability for the role

Short listing

Selecting the best candidates from a list of applicants for the next stage

Internal Recruitment

When a business fills a vacancy from its existing workforce

External Recruitment

When a business fills a vacancy with an applicant from outside the business

Employment Contract

A legal document that sets out the terms and conditions governing a worker’s job

Redundancy

When a job is no longer required and the employee doing this job becomes unnecessary

Employee morale

The overall outlook, attitude and level of satisfaction of employees when they are at work

Equality policy

The practices aimed at achieving a fair organisation where everyone is treated the same way and can fulfil their potential

Diversity policy

The practices aimed at creating a mixed workforce and placing positive value on diversity in the workplace

Staff training

Upskilling and developing employees to improve their productivity and/or capabilities

Induction training

Given to all new workers to explain the business’ mission statement, introductions and outlines health and safety