Business studies section 1

key terms of business studies

Entrepreneur

an individual who has the idea for a new business, starts it up and carries most of the risks but benefits from the rewards

Customer

an individual consumer or organisation that purchases goods and services from a business

Consumer

an individual who purchases goods and services for personal use

Consumer goods

the physical and tangible goods sold to consumers that are not intended for resale

Consumer services

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

Factors of production

the resources needed by business to produce goods or services

Capital goods

the physical goods used by the industry to aid in the production of other goods and services

Enterprise

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

Adding Value

increasing the difference between the cost of bought in inputs (materials) and the selling price of the finished goods

Added Value

the difference between the cost of purchasing bought in inputs (materials) and the selling price of the finished goods

Branding

the process by differentiating a product by developing a symbol, name, image or trademark for it

Opportunity cost

the next most desired option that is given up

Intrapreneur

a business employee who takes direct responsibility for turning an idea into a profitable new product of business venture

Multinational business

a business organisation that has its headquarters in one country but with operating branches, factories and assembly plants in other countries

Business plan

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

Private Limited Comapny

a business that is owned by shareholders who are often members of the same family

Initial Public Offering

an offer to the public to buy shares in a public limited company

Public Limited Company

a company whose shares are traded on a stock exchange and can be bought and sold by the public

Primary sector business activity

firms and other industries that extract natural resources so that they can be used and processed

Secondary sector business activity

firms that manufacture and process from natural resources so that they can be used and processed

Tertiary sector business activity

firms providing services to consumers and other businesses

Quarternary sector business activity

business providing information services

Public sector

organisations accountable to and controlled by central or local government (the state)

Private sector

businesses owned and controlled by individuals or a group of individuals

Mixed economy

economic resources that are owned and controlled by both private and public sectors

Free market economy

economic resources are owned largely by the private sector with very little state intervention

Command economy

economics resources are owned, planned and controlled by the state

Public corporation

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 the profits

Unlimited Liability

business owners have full legal responsibility for the debts of the business

Partnership

a business formed by two or more people to carry on a business together with shared capital investment and usually shared responsibility

Limited Liability

the only liability or potential loss a shareholder has if the company fails, is the amount invested in the company not the total wealth of the shareholder

Share

a certificate confirming part-ownership of a company and entitling the shareholder owner to dividends and certain shareholder rights

Shareholder

a person or institution owning shares in a limited company

Memorandum of Association

this states the name of the company, the address of the head office through which it can be contracted, the maximum share capital for which the company seeks authorisation and the declared aims of the business

Article of Association

this document covers the internal workings and control of the business, the names of directors and the procedures to be followed at meetings

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 sell products or services, using the brand name and the brand image

Franchisee

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

Cooperative

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

Joint Venture

two or more businesses agree to work closely together on a particular project and create a separate business division to do so

Social Enterprise

a business with mainly social objectives that re-invests most of its profits into benefiting society rather than maximising returns to owners

Revenue

the total value of sales made during the trading period

Market Share

sales of the business as a proportion of total market sales

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

Internal growth (organic growth)

expansion of the business by means of opening new branches, shops or factories

External growth (inorganic growth)

business expansion achieved by integrating with another business by either merger of takeover

Merger

an agreement by owners and managers of two business to bring them together in a new combined business

Takeover / acquisition

when a company buys more than 50% of the shares of another company and becomes its controlling owner

Horizontal Integration

integration with a business in the same industry at the same stage in production

Vertical Integration

integration with a business in the same industry

Forward vertical integration

vertical integration with a customer business

Backward vertical integration

vertical integration with a supplier business

Conglomerate integration

integration with a business in a different industry

Synergy

the whole is greater than the sum of parts. it is often assumed that the new business will be more successful than the original separate businesses

Strategic Alliance

agreement between two organisations to commit resources to achieving a specific objective while remaining independent

Business objectives

a stated measurable target that a business plans to achieve

Corporate Social Responsibility (CSR)

when businesses consider the interests of society by taking responsibilities for the impact of their decision and activities on customers, employees, communications and the environment

Pressure group

organisations created by people with a common interest or aim, who put pressure on businesses and governments to change policies so that an objective is reached

Triple Bottom Line

the three objectives of social enterprises - economic, social and environmental

SMART objectives

aims that are specific, measurable, achievable, realistic and time-limited

Business aim

a long-term goal that a business hopes to achieve

Mission statement

a brief statement of the business’s core aims, phrased in a way to motivate employees and to stimulate interest from outside groups

Annual Company Report

a document that gives details of a company’s activities over the year, including its financial accounts

Business strategy

a long-term plan of action for a business, designed to achieve a particular objective

Tactic

a short-term action as part of an overall strategy

Target

a short-term goal that must be reached before an overall objective can be achieved

Budget

a detailed financial plan for the future

Ethical code

a document detailing a company’s rules and guidelines on staff behaviour that must be followed by all employees

Stakeholders

individuals or groups who work are separate from the business but are affected by or interest in its operation

Internal Stakeholders

individuals or groups who work within the business or own it and are affected by the operation of the business

Trade Union

an organisation of working people with the objective of improving the pay and working conditions of its members and providing them with support and legal services

Stakeholder concept

the view that businesses and their managers have responsibilities to a wide range of groups, not just shareholders (also known as stakeholder theory)