AICE Business

What is a business

an organization that uses resources to meet the needs of customers by providing a product or service that they demand.

What do businesses do

Identify the needs of customers, purchase necessary resources to allow production to take place, aims to satisfy the needs of customers with the aims of making profit.

Consumer

An individual who purchases goods and services for personal use.

Consumer goods

The physical and tangible goods sold to consumers.

Consumer services

The non-tangible products sold to consumers that are not intended for resale.

Examples of consumer goods

Cars, washing machines, or food.

Examples of consumer services

Hotel accommodations, insurance services, or cleaning service.

Factors of production

The resources needed by businesses to produce goods and services.

Four factors of production

Land, labour, capital, and enterprise.

Capital goods

The physical goods used by industry to aid in the production of other goods and services such as machines and commercial vehicles.

Land

This includes the land itself and the renewable and nonrenewable resources necessary.

Labour

Manual and skilled labour make up the workforce of the business.

Capital

The finance needed to start a business and pay for its continuing operations but also all the manufactured resources used in businesses.

Enterprise

The action of showing initiative to take the risk to set up a business.

Adding value

Increasing the difference between the cost of materials and the selling price of the product.

Added value

The difference between the cost of materials and the selling price of the product.

Branding

The process of differentiating a product by developing a symbol, name, image, or trademark for it.

Examples of added value

A shop with champagne available for customers while they dress shop for wedding dresses.

Opportunity cost

The next most desired option that is given up.

Since the business environment is always changing what are some examples of these changes

new competitors, legal changes, economic changes, technological changes.

Why do some businesses succeed

Good understanding of customer needs, efficient management of operations, adaptability, sufficient sources of finance.

Why do some businesses fail

Poor record keeping, lack of cash, poor management skills, bad product or service, no customers.

Local business

Operate in small well-defined parts of the country.

National business

Have branches or operations across the country.

International business

Sell products in more than one country, does not have operation branches in more than one country.

Multinational business

A business organization that has operations in more than one country.

what are the roles of an entrepreneur

Have an idea for the business, create a business plan, invest some of their own savings and capitals, accept the responsibility of managing the business, and accept the possibility of failure.

Qualities of successful entrepreneurs

Innovation, commitment and self-motivation, multiskilled, leadership skills, self-confidence and ability to bounce back, risk-taking.

Barriers to entrepreneurship

Lack of a business opportunity, obtaining sufficient capital, cost of good locations, competition, lack of a customer base.

Business risk

This is foreseeable and something that the entrepreneur is willing to risk.

Business uncertainty

This is an unforeseeable and unpredictable negative thing that happens to a business.

Roles of enterprise in economic development

Employment creation, economic growth, business survival and growth, innovation and technological change, exports, and increased social cohesion.

Intrapreneur

People with the same qualities as entrepreneurs but within an existing business.

What are key differences between entrepreneurs and intrapreneurs

entrepreneur starts up the business and takes the risks and rewards, intrepreneurs develop the ideas within and the risks and rewards are taken by the business

Business plan

A written document that describes a business, its objectives, its strategies, the market it is in and its financial forecasts.

Elements in a business plan

Executive summary, description of the business opportunity, marketing and sales strategy, management team and personnel, operation, financial forecasts.

Benefits of a business plan

Forces the owner to think about their business and find the strengths and weaknesses, gives them a clear guide of what they need to do in the early months of the business, will appeal to investors to acquire capital.

Limitations of business plan

Does not guarantee success, can put a false sense of certainty in business owners, may not be detailed enough.

Primary sector

Firms engaged in farming, fishing, oil extraction and all other industries that extract natural resources so that they can be used and processed.

Secondary sector

Firms that manufacture and process products from natural resources, including computers, brewing, baking, clothes-making and construction.

Tertiary sector

Firms providing services to consumers and other businesses, such as retailing, transport, insurance, banking, hotels and tourism.

Quaternary sector

Businesses providing information services, such as computing, web designs.

Does a higher GDP country have more primary, secondary or tertiary/quaternary industries

tertiary/quaternary industries

When developing countries has an increase of tertiary/quaternary industries

Known as industrialization.

Benefits of industrialization

GDP increase and standard of living increases, increase in export and decrease in import, more job creation.

Problems of industrialization

Import country cost can increase at first, can face a lot of competition in other countries, rising income=higher living costs.

Public sector

Organizations accountable to and controlled by local government.

Private sector

Businesses owned and controlled by individuals or groups of individuals.

Mixed economy

Economic resources are owned and controlled by both private and public sectors. Ex: US, UK

Free-market economy

Economic resources are owned largely by the private sector with very little state intervention. Ex: Hong Kong and Australia

Command economies

Economic resources are owned, planned, and controlled by the state. Ex: North Korea and Cuba

Public corporations

A business enterprise owned and controlled by the state.

Sole trader

A business in which one person provides the permanent finance and in return, has full control of the business and is able to keep all of the profits.

What is the most common form of business ownership

sole trader

Unlimited liability

Business owners have full legal responsibility for the debts of the business, meaning the owner's personal possessions can be taken to pay off debt.

Partnership

A business formed by two or more people to carry on a business together with shared capital investment and responsibilities.

Limited liability company (LLC)

A business structure that offers its owners limited liability, their personal assets are shielded from any debt.

Shares

A certificate confirming part-ownership of a company and being entitled to shareholder rights, ONLY IN LIMITED LIABILITY COMPANIES.

Limited liability

The only potential loss is the amount invested in the company.

Shareholders

A person or institution owning shares in a LIMITED company.

Public limited company

A company that can offer their shares to the general public such as the stock exchange.

Which sector is public limited companies in

private

Which sector is public corporations in

public

Memorandum of association

a required document to set up a business that states the name of the company, the address of the head office through which it can be contacted, the maximum share capital for which the company seeks authorisation and the declared aims other business

Articles of association

a required document to set up a business that covers the internal workings and control of the business, the names of directors and the procedures to be followed at meetings

Cooperatives

a jointly owned business operated by members for their mutual benefit, to produce or distribute goods or services - as in consumer's cooperatives or farmer cooperatives

What are some examples of things they

What are some advantages and disadvantages of (agricultural) cooperatives

advantages: buying in bulk, working together to solve problems, disadvantages: poor management skills, slow decision making

Franchise

The legal right to use the name, logo and trading systems of an existing successful business.

Franchiser

A person or business that sells the right to open stores and sells products or services, using the brand name and brand identity.

Franchisee

A person or business that buys the right from the franchiser to operate the franchise.

Do franchises allow the business to expand rapidly or slowly

rapidly

What are some disadvantages of franchises

a share of the profit is to be paid to the franchiser each year, the initial franchise licence fee can be expensive, franchisee cannot choose which supplies or suppliers to use, strict rules over pricing and layout

What are some advantages of franchises

there are fewer chances of failure, advice and training are offered by the franchiser, national advertising paid for by franchisor, supplies are from establish and quality checked suppliers

is a joint venture the same as a merger

no, but if the joint venture is extremely successful it can lead to a merger

What are some reasons for joint venture

costs and risks of a new business venture are shared, different companies have different strengths and experiences making them fit well together, different companies could have major markets in different countries leading to more effective selling

What are some risks of joint ventures

styles of management and culture might be different that the teams do not blend well together, error and mistakes may lead to blaming each other, business failure of one of the partners would put the whole project at risk

Joint venture

Two or more businesses who agree to work closer together on a particular project and create a separate business division to do so.

Social enterprise

A business with mainly social objectives that reinvests most of its profits into benefitting society rather than maximizing profits.

Common features of social enterprise

They directly produce goods or provide services, have social aims and ethical ways of achieving them, need to make a profit to survive.

What are some benefits that could occur from changing form of business ownership

access to more finance, gaining legal identity, protecting owners' capital through limited liability

What are some disadvantages that could occur from changing forms of business ownership

legal costs and formalities, some loss of control and ownership by the original owner, profits are shared

Why is it useful to measure business size

a government might wish to give assistance to smaller firms, so it will need to identify them, some customers may prefer buying from a small business, investors in a business may wish to compare the size and the rate of growth of the business with close competitors

What are two problems with attempting to measure business size

there are several ways of measuring business size so a business may appear large by one definition but small by another, there is no internationally agreed definition of a small, medium or large business

What are some variable measures used to measure business size

number of employees, revenue, capital employed, market capitalization, market share, any other industry relevant measurement

revenue

the total value of sales made during the trading period

revenue formula

selling price x quantity sold

capital employed

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

market capitalization

the total value of a company's issued shares

Market capitalization formula

current share price x total number of shares issued

market share

sales of the business as a proportion of total market sales

Market share formula

total sales of a business/total sales of industry x 100

What's measuring a business by the number of employees

Whats measuring a business by revenue

using the total value of sales made during the trading period as a measure of size, effective when comparing businesses in the same industry

Whats measuring a business by capital employed- the larger the business the greater of the value of capital employed

Whats measuring a business by market capitalization

(can only be used by companies on the stock exchange, PLC) the price of the company's shares compared to others

What are some downsides of sizing a business based on market capitalization

stock prices change everyday so it can be inaccurate

Whats measuring a business by market share

the size of the business is dependent on how much of the market they have

What are some examples of relevant industry methods used to size a business

number of guest rooms in a hotel business compared to other hotels, number of units sold v.s. The number the competitor sold

Which form of measurement is the best

there is no best measurement the one that should be used depends on what the business is trying to get established

What are the the different business sizes

microenterprise, small, medium and large

small business

a business that employs few people and has relatively low annual revenue