Unit 1:What is business?

Why do businesses exist?

-To provide goods and services

-To satisfy customer needs

-To generate income

-To fulfil personal or social aims

What is a business objective?

A target or goal a business sets to help achieve its overall mission.

What is the purpose of setting business objectives?

-To provide direction

-To motivate employees

-To measure success

-To support decision-making

What are profit objectives?

Aim to maximise the difference between revenue and costs.

What are growth objectives?

Aim to increase size, output, or market share.

What are survival objectives?

Aim to continue trading, especially in difficult circumstances

What are cash flow objectives?

Aim to ensure enough cash is available to meet short-term payments

What are social and ethical objectives?

Aim to operate responsibly, contribute to society, and follow ethical practices.

What is the relationship between a business’s mission and its objectives?

-The mission defines overall purpose

-Objectives break this into measurable targets

What is revenue?

Income from sales of goods or services.

What is turnover?

Another term for revenue, often used interchangeably.

What are sales in the context of revenue?

Revenue generated by selling goods or services.

What are fixed costs?

Costs that do not change with output e.g. rent or salaries

What are variable costs?

Costs that vary with output e.g. raw materials

What are total costs?

Sum of fixed and variable costs

How is profit measured?

Profit = Revenue - Total Costs

What are the reasons for choosing different forms of business?

-To suit control, liability, tax or growth needs

-To respond to business size, objectives or external conditions

What is a sole trader?

-Business owned and run by one individual

-Has unlimited liability

What is a private limited company?

-Business owned by shareholders

-Limited liability

-Shares not sold publicly

What is a public limited company?

-Business owned by shareholders

-Limited liability

-Shares traded publicly on the stock exchange

What is the private sector?

Businesses owned by individuals or groups aiming for profit.

What is the public sector?

Organisations owned by the government or state.

What is a non-profit organisation?

-Organisations not driven by profit

- Aim to benefit society

What is a social enterprise?

Businesses that trade for a social purpose.

What is unlimited liability?

Owner is personally responsible for business debts.

What is limited liability?

Owner’s financial liability is limited to their investment.

What is ordinary share capital?

Money raised by a company through sale of shares to shareholders.

What is market capitalisation?

Market value of a company = share price × number of shares

What are dividends?

Payments made to shareholders from profits.

What is the role of shareholders?

-Provide capital

-Influence decision-making

-Receive dividends

Why do shareholders invest in businesses?

-For dividends

-Capital gains

-Control or influence

-Support values

What influences share prices?

-Performance

-Expectations

-Interest rates

-Economic conditions

What is the significance of share price changes?

-Affects perception of business success

-Influences investment decisions

How does ownership affect a business’s mission?

Ownership structure shapes long-term goals and priorities.

How does ownership affect a business’s objectives?

Different owners may have different objectives e.g. profit vs ethics

How does competition affect business costs?

May increase spending to stay competitive or reduce prices.

How does competition affect business demand?

High competition can reduce demand for a business’s products.

How do market conditions affect costs?

High costs in markets (e.g. materials) raise business costs.

How do market conditions affect demand?

Demand rises or falls with consumer confidence and trends.

How do incomes affect costs?

Rising incomes can increase wage demands and cost of labour.

How do incomes affect demand?

Higher incomes can increase consumer spending and demand.

How do interest rates affect costs?

Higher rates increase loan costs, raising business expenses.

How do interest rates affect demand?

High rates reduce borrowing and spending, lowering demand.

How do demographic factors affect costs?

Ageing population or migration may change labour or supply costs

How do demographic factors affect demand?

Affects types and volume of goods demanded.

How do environmental issues affect costs?

May lead to increased costs for compliance and sustainability.

How do environmental issues affect demand?

Can boost demand for eco-friendly or sustainable products.

How does fair trade affect costs?

Fair trade usually means paying suppliers more, raising costs.

How does fair trade affect demand?

Consumers may prefer ethically produced goods, raising demand.