Business in the real world

What is a business?

An organisation that produces goods or provides services to satisfy customer needs or wants.

What are the main reasons for starting a business?

Produce goods, supply services, distribute products, exploit a business opportunity or provide something that benefits others.

What is a good?

A physical/tangible product that can be bought.

What is a service?

An intangible activity provided to a customer.

What is a need?

Something essential for survival, such as food, water or shelter.

What is a want?

Something a person would like but does not need for survival.

What are the four factors of production?

Land, labour, capital + enterprise.

What does land mean as a factor of production?

Natural resources used to produce goods/services.

What does labour mean as a factor of production?

Human effort used to produce goods/services.

What does capital mean as a factor of production?

Man-made resources used in production, such as machinery, equipment + buildings.

What does enterprise mean as a factor of production?

Organising the other factors of production + taking the risk of starting/running a business.

What is opportunity cost?

The benefit of the next best alternative given up when making a choice.

What are the three sectors of business activity?

Primary, secondary + tertiary.

What is the primary sector?

Businesses that extract or obtain natural resources - e.g. farming, fishing + mining.

What is the secondary sector?

Businesses that manufacture or construct products - e.g. car manufacturing + construction.

What is the tertiary sector?

Businesses that provide services - e.g. retail, banking + transport.

What is enterprise?

The willingness and ability to take risks and organise resources to create a business.

What is an entrepreneur?

A person who takes the risk of starting + running a business.

What characteristics are useful for an entrepreneur?

Hard-working, innovative, organised + willing to take risks.

Why might someone become an entrepreneur?

Be their own boss, flexible working hours, pursue an interest, earn more money, exploit a gap in the market or dissatisfaction with their current job.

What is a gap in the market?

An unmet customer need or want that provides a potential business opportunity.

Why is the business environment described as dynamic?

It is constantly changing.

What four changes make the business environment dynamic?

Technology, economic situation, legislation + environmental expectations.

How can technological change affect a business?

It can change production, communication, selling methods, costs + customer expectations.

How can changes in the economy affect a business?

They can change consumer spending, business costs + demand.

How can legislation affect a business?

New laws may force businesses to change their operations, products or employment practices.

How can environmental expectations affect businesses?

Customers/governments may expect businesses to reduce waste, pollution + environmental damage.

What is a sole trader?

A business owned + controlled by one person.

What are advantages of being a sole trader?

Owner keeps profits, has full control, can make decisions quickly + business is relatively simple to set up.

What are disadvantages of being a sole trader?

Unlimited liability, limited sources of finance, owner carries risk + workload and business may depend heavily on one person.

What is unlimited liability?

The owner is personally responsible for business debts - personal assets may be at risk.

What is a partnership?

A business owned by two or more people who share responsibility for running it.

What are advantages of a partnership?

More owners can provide finance, skills, ideas + share workload/responsibility.

What are disadvantages of a partnership?

Profits are shared, disagreements may occur + partners may have unlimited liability.

What is a private limited company, Ltd?

A company owned by shareholders whose shares cannot be sold to the general public.

What are advantages of an Ltd?

Limited liability, greater access to finance than a sole trader + business has a separate legal identity.

What are disadvantages of an Ltd?

Profits are shared with shareholders, owners may lose some control + shares cannot be sold to the general public.

What is a public limited company, Plc?

A limited company whose shares can be sold to the general public.

What are advantages of a Plc?

Limited liability + ability to raise large amounts of finance by selling shares.

What are disadvantages of a Plc?

Original owners may lose control, profits are shared with shareholders + greater pressure from shareholders.

What is limited liability?

Owners can only lose the money they invested in the business - their personal assets are protected from business debts.

Which AQA ownership structures have limited liability?

Private limited companies - Ltd + public limited companies - Plc.

What is a shareholder?

A person or organisation that owns shares in a company.

What is a dividend?

A payment to shareholders from company profits.

What is a not-for-profit organisation?

An organisation whose main purpose is to achieve social or other objectives rather than maximise profit for owners.

What happens to surplus made by a not-for-profit organisation?

It is generally reinvested to help achieve the organisation's objectives.

What factors should be considered when choosing a legal structure?

Control, liability, sources of finance + distribution of profits.

Why might a start-up choose to be a sole trader?

Simple structure + owner keeps control and profits.

Why might a growing business become a limited company?

Limited liability + greater opportunities to raise finance.

Why might a large established business become a Plc?

It can raise substantial finance by selling shares to the public.

What is a business aim?

A broad long-term goal of a business.

What is a business objective?

A specific target a business wants to achieve.

Why do businesses set objectives?

Provide direction, help decision making, motivate employees + allow success to be measured.

What is survival as a business objective?

Continuing to operate and avoiding business failure.

When is survival particularly important?

For start-ups or businesses experiencing difficult trading conditions.

What is profit maximisation?

Aiming to make the greatest possible profit.

What is growth as a business objective?

Aiming to increase the size of the business domestically or internationally.

What is market share?

The percentage of total sales in a market made by one business.

Why might increasing market share be an objective?

It can strengthen the business's competitive position + make it more dominant in its market.

What is customer satisfaction as an objective?

Aiming to meet/exceed customer expectations so customers are satisfied.

What are social and ethical objectives?

Targets concerned with behaving responsibly towards people, society + the environment.

What is shareholder value?

The financial benefit shareholders receive from owning shares, such as dividends + increases in share value.

Why might a business aim to increase shareholder value?

To provide greater financial returns to its owners/shareholders.

Why do objectives differ between businesses?

Businesses differ in size, competition, ownership/type + circumstances.

How can competition affect business objectives?

Strong competition may make survival, customer satisfaction or market share more important.

How can business size affect objectives?

A small start-up may prioritise survival while a large established business may prioritise growth, international expansion or shareholder value.

Why might a not-for-profit organisation have different objectives?

Its main purpose is usually social/service-based rather than maximising profit.

Why might business objectives change over time?

The business may grow + its market, competition, finances or external environment may change.

What objectives might become important as a business becomes larger?

Market dominance, international expansion, shareholder value + ethical/environmental objectives.

Can business success be measured only by profit?

No - it can also be judged using growth, market share, customer satisfaction, survival + achievement of social/ethical objectives.

What is a stakeholder?

An individual or group with an interest in or affected by a business and its activities.

Who are the main stakeholders AQA requires?

Owners, employees, customers, local community + suppliers.

What do owners usually want from a business?

Profit, business growth + high dividends/returns.

What do employees usually want?

High pay, job security + good working conditions.

What do customers usually want?

Good-quality products, good service + value for money.

What does the local community usually want?

Jobs + economic benefits with minimal noise, pollution, congestion + environmental damage.

What do suppliers usually want?

Regular orders, fair prices + reliable/on-time payment.

How can owners influence a business?

They can influence objectives, investment + major business decisions.

How can employees influence a business?

Their productivity, motivation + behaviour affect business performance.

How can customers influence a business?

Their purchasing decisions affect demand, revenue + business success.

How can suppliers influence a business?

Their prices, quality + reliability affect business costs and operations.

How can the local community influence a business?

Community support or opposition can affect reputation + business decisions.

What is stakeholder conflict?

When the objectives/interests of different stakeholder groups are incompatible.

Give an example of conflict between owners and employees.

Owners may want lower costs/profits while employees want higher wages.

Give an example of conflict between owners and customers.

Owners may want higher prices to increase profit while customers want low prices.

Give an example of conflict between a business and the local community.

A business may want to expand while residents oppose extra traffic, noise or pollution.

What factors influence business location?

Proximity to market, raw materials, labour, competition + costs.

Why might proximity to the market influence location?

Being close to customers can increase convenience/demand + reduce delivery times or costs.

Why might proximity to raw materials influence location?

It can reduce transport costs + ensure reliable access to important inputs.

Why does availability of labour affect location?

A business needs enough workers with the appropriate skills.

How can competition affect location?

A business may want to locate near competitors to access an established market or avoid them to reduce competition.

What location costs might a business consider?

Rent/property, wages, transport + other operating costs.

Why will location factors have different importance for different businesses?

Different businesses have different customers, resources, labour requirements + methods of operating.

What is a business plan?

A document setting out a business's objectives and how it plans to achieve them.

Why do new businesses create business plans?

To plan the business, set objectives, organise functions + help raise finance.

Why can a business plan help raise finance?

Lenders/investors can use it to assess the business idea, plans + financial information.

What are the main sections of a business plan?

Business idea/objectives, market/marketing, operations, human resources + financial information.

What are advantages of business planning?

Provides direction, identifies potential problems, helps coordinate business functions + can help obtain finance.

What are drawbacks of business planning?

Plans take time to produce, forecasts may be inaccurate + unexpected changes can make plans outdated.

Does AQA require you to write a complete business plan?

No.