Business Basics and the External Environment

Flashcards based on the Save My Exams topic-by-topic layout for Unit 1, covering business nature, forms, and external environment.

Factors of Production

The four elements of land, labour, capital, and enterprise combined to supply goods or services that satisfy consumer needs and wants.

Profit (Objective)

Maximising the gap between revenue and total costs.

Growth

Expanding scale to achieve economies of scale and market share.

Survival

Keeping cash inflows $\geq$ outflows, which is key for start-ups and during recessions.

Cash Flow

Ensuring immediate liquidity to pay daily liabilities.

Social/Ethical Objectives

Prioritising Corporate Social Responsibility (CSR) over financial gain.

Business objectives

$$\text{Mission Statement (Core Purpose)} \longrightarrow \text{Corporate Objectives (Whole Business Targets)} \longrightarrow \text{Functional Objectives (Departmental Targets)}$$

Revenue Formula

$$\text{Revenue} = \text{Price} \times \text{Quantity Sold}$$

Total Variable Cost (TVC) Formula

$$\text{Total Variable Cost (TVC)} = \text{Variable Cost per Unit} \times \text{Quantity}$$

Total Cost (TC) Formula

$$\text{Total Cost (TC)} = \text{Fixed Costs} + \text{Total Variable Costs}$$

Profit Formula

$$\text{Profit} = \text{Total Revenue} - \text{Total Costs}$$

Fixed Costs

Costs that do not change with output, such as rent and salaries.

Variable Costs

Costs that change directly in proportion to output, such as raw materials.

Sole Trader

A business owned and run by one individual; cheap to set up and provides full control, but carries unlimited liability.

Unlimited Liability

A legal responsibility where the owner is liable for all business debts, and personal assets like a home or car can be seized to pay creditors.

Limited Liability

A situation where shareholders' financial liability is limited to the amount they originally invested, protecting personal assets.

Private Limited Company (Ltd)

A company where shares are sold privately to family and friends, providing limited liability but restricted access to public capital.

Public Limited Company (PLC)

A company whose shares are traded freely on the public stock exchange, allowing for massive capital raising but risking hostile takeovers.

Public Sector

Organisations such as the NHS or state schools that are owned, controlled, and funded by the government to provide essential services rather than profit.

Non-Profit Organisation

An entity that exists for a charitable or social cause, reinvesting all financial surpluses back into that cause.

Social Enterprise

A business that trades commercially to make a profit but explicitly reinvests a significant portion of its profits into social or environmental goals.

Ordinary Share Capital

Long-term finance raised by a company through selling shares in exchange for equity ownership.

Dividends

Regular cash payments made to shareholders out of the company’s retained profits.

Market Capitalisation

The total market value of a PLC’s outstanding shares, calculated as $\text{Market Capitalisation} = \text{Current Share Price} \times \text{Total Number of Shares Issued}$

Capital Gains

The profit made by a shareholder when the share price of their investment appreciates.

Voting Rights

The power granted to shareholders to influence major corporate decisions at the Annual General Meeting (AGM).

Normal Goods

Goods, such as holidays or premium technology, for which demand increases as household incomes rise.

Inferior Goods

Budget brands for which demand drops as incomes rise and increases during a recession as consumers switch from luxuries.

Interest Rates

The cost of borrowing or reward for saving; rising rates reduce disposable income and increase costs for variable-rate business debt.

Demographic Factors

Changes in population structure, such as an aging population or migration, which impact both demand for specific products and labour costs.

Fair Trade

An ethical business practice that serves as a Unique Selling Point (USP) to drive demand but increases operating costs by paying higher prices to suppliers.