Theme 2 key terms

Economic variables

Features of an economy which have effects on business and consumers e.g. unemployment, inflation and exchange rates

Internal finance

A source of (internal) finance provided by the owner of a business/personal money from the owner

Personal savings/owners' capital

The raising of capital/cash from within/inside the business

Retained profit

Profit is re-invested back into/kept by the business which is not paid as a dividend. It is an internal source of finance

Sale of assets

A type of internal finance, involves selling resources that belong to the business

Bank loan

An external method of finance/money borrowed from a bank paid back, with interest (over a period of time)

Business Angels

Individuals who invest in a business in exchange for a stake in the business (shares)

Crowd funding

An external source of finance where a large number of individuals provide funding for a business or project in return for shares/free products/discounts

External finance

Money raised from outside the business

Grant

A sum of money given by a government or other organisation. It does not need to be repaid and no interest is charged

Leasing

A contract to acquire the use of resources such as property or equipment

Loan

An external source/method; amount of money borrowed, usually repayable after a fixed term of more than 12 months

Overdraft

When a business has a negative balance in their bank account because the amount withdrawn is greater than the current balance

Peer-to-peer funding

When a person lends money to other individuals or businesses via online transactions

Share capital

The finance raised a business issuing/selling of new shares

Trade credit

Where a firm receives stock/inventory/raw materials from a supplier, which it does not have to pay for until later

Venture capital

External source of finance when the business issues shares to a small number of investor(s) in return for a capital injection into the company

Liability

A liability is an obligation to pay another person/lender/supplier

Limited liability

The obligation of a shareholder for the debts of a business is limited to the value of their investment.

Unlimited liability

The obligation of a business owner to cover all the debts of the business.

Business plan

A document giving details of a variety of aspects about the business in order to provide a strategic look at the business and to attract investors.

Cash flow

The movement of cash into and out of a business over a period of time.

Cash Inflow

The flow of cash into a business

Cash Outflow

The flow of cash out of a business

Cash-flow forecasts

The predicted flow of cash into and out of a business over a period of time

Closing balance

Cash left in the account at the end of the month. Net cash flow + Opening balance

Net cashflow

The difference between the cash flowing in and out of a business over a period of time cash inflows- cash outflows

Opening balance

Cash in the bank on the first day of the month

Consumer trends

Habits or behaviour of those involved in the use of goods and services

Economic uncertainty

Where firms/consumers are unable to predict their future sales/incomes and costs

Sales forecast

A prediction of the expected level of sales volume/revenue for a business for a future period

External causes for business failure

The factors outside the control of a business which might cause it to fail, e.g. competition, legislation, customer tastes and economic conditions

Financial factors for business failure

Factors which a business can control e.g. poor decision-making, loss of key staff

Internal causes for business failure

Can come from inside or outside the business e.g. poor management, external shocks

Non financial factors for business failure

Factors which may contribute to a business running out of cash, e.g. late payments, inability to borrow

Overtrading

The situation where a business does not have enough cash to support its production and sales, usually because it is growing too fast

Batch production

A manufacturing process in which components or goods are produced in groups (batches). The manufacturing of a limited number of identical products

Capital intensive

This is where output of the firm is made primarily using machinery/capital goods relative to the use of labour

Cell production

A method of manufacturing where employees are organised into multiskilled teams, with each team responsible for a particular part of the production process

Efficiency

The ability to minimise waste therefore reducing the cost of production. Making the best use of its resources

Flow production

The manufacture of an item/product in a continuous process

Job production

A method of production where the production of a single good/service is carried out one at a time that involves producing this good/service to the specific requirements of the customer

Labour-intensive production

A production method that requires a higher proportion of labour than capital

Productivity

Output per person/machine per period of time

Standardisation

Using uniform resources and activities or producing a uniform product

Capacity utilisation

The current output of a factory measured as a percentage of the total maximum potential output. Current output/maximum possible output x100

Downsizing

Involves reducing capacity, such as making employees redundant. This would reduce costs, such as wages

Full capacity

The point where a business cannot produce any more output

Over utilisation

The position where a business is running at full capacity and straining resources

Under utilisation

The position where a business is producing at less than full capacity

Buffer stocks

Buffer stock is the minimum level of stock that is held in reserve to protect against surges in demand or late delivery by suppliers

Inventory

The raw materials/work-in-progress held by a business

Just in time (JIT)

A stock control system that organises operations so that items of stock arrive immediately before they are needed for production or sale

Lean production

A production method that involves using as few resources as possible in the production of a good or service. It can include concepts such as waste minimisation, Just in Time (JIT) and TQM

Re order level

The level of current stock when new orders are placed

Re order quantity

The amount of stock ordered when an order is placed

Stock

Items held by the business for future sale/processing such as raw materials/work in progress (WIP)/finished products

Stock control

The optimum quantity of goods/components a business holds for the purpose of resale/production

Stock control diagram

Shows details of inventory movements such as minimum and maximum inventory levels, reorder level and quantity and lead times

Stock rotation

The flow of stock into and out of storage

Waste minimisation

Producing goods and services at a given quality using as few resources as possible/identification of an impact of waste minimisation.

Work in progress

Partially finished goods

Kaizen/continuous improvement

A Japanese practice which places emphasis on making small improvements in all business processes as it tries to achieve a culture of continuous improvement; good processes bring good results

Quality

A positive feature of a product that has no defects

Quality assurance

A system where the product is checked/tested at each stage of the production process. It focuses on preventing faults with products during production

Quality circles

Small groups of workers who meet regularly to discuss and resolve problems in production

Quality control

A method that uses quality inspectors as a way of finding any faults. Checking that final products are of a good enough standard, capable of doing what they were intended to do

Quality management

The process of a business maintaining a desired level of excellence in a product/service by paying attention to each stage of the process

Total Quality Management/TQM

A right first time approach ensuring that at every stage of production products are checked for quality, rather than a sample, which should eliminate any defects

Appreciation

The rise in the price of one currency against another currency

Barriers to entry

Obstacles that make it difficult for new firms to enter the market

Boom/peak

The high point in the business cycle where GDP is growing quickly

Business cycle

Measures economic activity over time and shows stages of boom, downturn (where there is rising unemployment), recession and recovery

Consumer Prices Index

A measure which shows changes in average prices over time.

Deflation

A fall in the general price level

Depreciation

A fall in the value of a currency

Downturn

A period in the economic cycle where GDP grows but slowly

Economic influences

Economic variables such as economic growth, inflation, interest rates and unemployment

Exchange rate

The price of one currency in terms of another.

Government expenditure

The amount spent by the government in its provision of public services and welfare benefits

Inflation

The general increase in the level of prices in an economy in a year

Interest rate

The price of borrowing money/the return on saving money

Recession

When GDP falls for two or more quarters (6 months)

Recovery

A period where economic growth begins to increase again after a recession

Unemployment

The % of the working population who are without a job and actively seeking work

Consumer legislation

Legislation that is designed to protect consumers from poor-quality products and poor business practices.

Consumer protection legislation

Is legislation aimed against any business' unfair selling practices. The consumer has basic legal rights if the product/service is given a misleading description, of an unsatisfactory quality, unfit for purpose

Discrimination

Favouring one person or group over another

Employee protection legislation

Laws that a business must follow that give employees basic rights to prevent them from being exploited, e.g. minimum wages, redundancy payments, maternity leave, etc.

Environmental protection legislation

Legislation designed to reduce the impact of businesses and protect the environment

Health and safety

Measures put in place by businesses to prevent accident or injury in the workplace

Legislation

A collective name for laws and regulations used by governments to restrict certain activities

National minimum wage

A wage rate set by the government. It is illegal to pay below this

Market structure

The characteristics of a market, such as the size of the barriers to entry to the market, the number of businesses in the market, which determines the behaviour of businesses within the market