Business in the real world

Characteristics of an entrepreneur

Innovative, risk-taking, hard working, organised, persuasive and a leader

Reasons for starting a business

Making a profit, Investing money, Work-life balance, skills and interest, Being your own boss

What is an enterprise?

Actions of someone who takes a risk by setting up, investing in and running a business

What is an entrepreneur?

A person who takes calculated risks through starting a business

What does a business do?

Provides goods and services to customers or to other businesses

What is a good?

physical products eg. Cars

What is a service?

intangible products eg. Cleaning

What is a social enterprise?

A business that is set up to help society rather than to make a profit.

What are the factors of production?

Land, Labour, Capital and Enterprise

What is land?

natural resources used to produce goods and services

What is labour?

physical or mental effort

What is capital?

machinery

What is enterprise in factors of production?

ideas, talents, ability to find finance

What is a primary business?

Extracts or develops natural resources such as timber or oil

What is a secondary business?

Makes use of extracted primary materials to build manufacture or develop finished goods

What is a tertiary business?

Provides the services the needed to meet the needs of the end users eg. Insurance

What is a want?

A good or service we would like but do not have to consume to survive

What is a need?

A good or service we have to consume

What is opportunity cost?

what needs to be given up in order to obtain something

What are the 5 words in Pestle? - influences on a business

Political & Legal, Environmental, Social, Technological, Economy

Political & Legal

the way in which governmental decisions and new laws affect a business

Environmental

How environmentally friendly a business is, are they being ethical?

Social

what people spend their money on, viral trends(Prime) and how people live their lives

Economy

The money flowing into, within and out a country. Inflation rates, interest rates, unemployment and exchange rates all affect a business

What is an internal factor in a business?

Something the business can control

What is an External factor in a business?

something the business cannot control

What is a sole trader?

business owned and operated by one person

Advantages of being a sole trader

simple and cheap, you control the company, the money belongs to you, minimal financial reporting

Disadvantages of being a sole trader

unlimited liability, harder to raise a finance, don't get paid leave, legally responsible for your business

What is unlimited liability?

The owner is personally and fully responsible for all losses and debts of the business

What is a partnership?

business owned by 2 or more people, have unlimited liability

What type of business is likely to be a partnership?

Doctors or vets

What should a partnership agreement include?

how profits are to be shared, how much each person must invest in the business, how decisions are to be made, what happens if someone wants to leave

Advantages of Partnership

losses can be shared, simple to form, more money can be invested, shared workload

Disadvantages of Partnership

unlimited liability, profits to be shared, decision making can take longer

What is limited liability?

If the company falls into debt you only pay back what you invested

What is a company?

legal structure of a business

What is a shareholder?

someone who owns part of a company/business

What is a Private Limited Company(ltd)?

Owned and run by shareholders who are family and friends

Advantages of being a ltd

limited liability, easier to raise a finance, original owners are likely to stay in control,

Disadvantages of being a ltd

finance limited to people you know, more paper work than sole traders, shareholders must agree about the profits

What does a business need to do to register as an ltd?

appoint directors, name shareholders, register with companies warehouse

what is a public limited company(plc)?

a business that has floated on the stock market, usually a much larger organization.

Advantages of a plc

limited liability, can raise a lot of money, business has status

disadvantages of a plc

expensive to set up, financial documents are available to the public, risk of company being taken over

What does a business have to do top become a plc

send a copy of its annual accounts to the companies house, have general meetings and invite shareholders to attend, have a minimum $50,000 share capital

What is the difference between limited and unlimited liability?

in unlimited liability the owner of the business is responsible for all debts it might acre, however in limited liability the owner is not responsible for these debts

What is a non for profit organisation?

An organisation set up for a purpose other than profit

What must a non profit organization do?

still meet legal requirements, register with HMRC and have a 'registered charity number', invest at leas 50% of its surplus money back into the enterprise

What is a mission statement?

a statement of the organization's purpose - what it wants to accomplish in the larger environment

Corporate objectives

Medium to long term goals established to co-ordinate the business

What must objectives be?

SMART

• Specific - clearly state what is to be achieved

• Measurable - outcome is a number value that can be measured

• Achievable

• Realistic - target is possible given the resources available

• Timed - target will be met within a given period

Why do businesses set objectives?

allows planning, focus for employees, direction, measurement of success

What are the key corporate objectives?

profit maximisation, survival, growth, quality, market share, share value, social responsibilities

What is market share?

the percentage share a business has of an entire market

How to calculate market share?

market share value/whole market value x 100

What affects choice of objectives

size of a business, level of competition, type of business

Why businesses might change objectives

internal reasons - a business has reached its past objective and needs a new one, external reasons - new competitor may force a business from profit maximisation to survival

What is revenue?

Income gained by a business selling goods or a service

What is revenue formula?

Selling price x quantity sold

What are costs?

Expenses paid to set up and run the business

Total costs formula

total fixed costs + total variable costs

What are fixed costs?

costs that do not vary with output

Examples of fixed costs

rent, insurance, salaries

What are variable costs?

costs that change as output changes

Examples of variable costs

Wages, packaging, delivery costs

What is profit?

the difference between total revenue and total cost

Profit Equation

total revenue - total cost

How to increase profit

Increase sales revenue

Cut costs

What are the 4 functions of a business?

Finance, Operations, Marketing and Human Resources

What does the marketing department do?

Promote products, market research, advertising and branding, sales support

What do the operations department do?

Oversee production, make sure products meet quality standards, outsourcing, procurement

What do finance departments do?

Record financial transactions, budgeting, investment management, financial analysis

What do HR departments do?

Recruitment, training of employees, disciplinary actions, management employee interactions

What is a stakeholder?

A person, group of people or an organisation affected by a businesses activities or decisions

Internal Stakeholders

Managers + employees, shareholders/owners

External Shareholders

Suppliers, competitors, banks, government, local community, customers, pressure groups

Difference between a stakeholder and shareholder

A shareholder owns part of a public company through shares of stock, while a stakeholder has an interest in the performance of a company for reasons other than stock performance or appreciation.

What does the amount of interest or influence a shareholder have depend on?

The size of a business, the number of customers a business has, the type of products and the location of a business

What factors affect the location decision of a business

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

What is a business plan?

a document created by a business or entrepreneur that provides details about each element of the business.

What is the purpose of a business plan?

Can be used to measure actual performance, helps raise finance from outside providers, provides a focus on objectives, helps with organisation

Advantages of a business plan

May help secure finance

Maps out the actions needed to achieve business success

Helps measure the success of the business

Disadvantages of a business plan

-Costs time and money to plan

-Hard to predict future for start up businesses

-If inaccurate can demotivate staff

Methods of internal growth

franchising, opening new stores, e-commerce, outsourcing

What is franchising?

a right to use a company name or business in a certain way

Advantages of Franchising

The business can expand faster as it doesn't need to finance the opening of the store, but benefits from the sale of additional products

Disadvantages of Franchising

a loss of some decision making control, along with lower levels of profit for both a franchisee and franchisor. Franchises can also be expensive to set up and manage.

What is outsourcing?

when a business uses another business to produce for it

Methods of external growth

merger, takeover

Horizontal integration

when two competitors join through a merger or takeover

Vertical integration

a business joins with its suppliers (backward vertical) or its distributers (forward vertical)

Conglomerate integration

a business joins a business in a different market

Advantages of Growth

economies of scale, access to more retailers, greater brand awareness, less vulnerable to takeover, spread risk

Disadvantages of growth

Diseconomies of scale, slower decision making, communication more difficult

average cost per unit formula

total cost / output

economies of scale

factors that cause a producer's average cost per unit to fall as output rises

Purchasing economies of scale

bulk buying discounts which will reduce the unit cost of each product.

Technical economies of scale

As a business gets bigger it can purchase more advanced machinery and equipment, increasing output

Diseconomies of scale

increases in cost per unit when output increases