| the purpose of business activity | uses resources to meet the needs of customers by providing a product or service that they demand. Uses scarce resources to produce goods and services allowing us to have a higher quality of life compared to if we remained entirely self sufficient |
| 4 factors of production | land, labour, capital, enterprise |
| land | this general term includes not only land itself but all the renewable and non renewable resources of nature such as coal, crude oil and timber |
| labour | manual and skilled labour make up the workforce of the business |
| capital | this is not just the finance needed to set up a business and pay for its continuing operations but also all the manufactured resources used in production such as capital goods like computers factories etc |
| enterprise | the initiative and coordination provided by entrepreneurs. they combine the other factors of production into a unit capable of producing goods and services. enterprise provides the managing, decision making and coordinating roles |
| adding value | increasing the difference between the cost of bought in inputs (materials) and the selling price of finished goods |
| economic problem | there are insufficient goods to satisfy all of our needs and wants at any one time |
| purpose of economic activity and the problem of choice | provide for as many of our wants as possible, if we make the right choice of what to get we will choose this things that give us the greatest benefit leaving out those things that provide less value to us |
| opportunity cost | the next most desired option that is given up |
| changes in the business environment | new competitors - entering the market
legal changes - like safety regulations or limits on who can buy the product
economic changes - that leave customers with less money to spend
technological changes - that make the products or processes of the new business outdated |
| why do some businesses succeed | good understanding of customer needs - leads to sales targets being achieved
efficient management of operations - keeps costs under control
flexible decision making to adapt to new situations - allows investment in new business opportunities
appropriate and sufficient sources of finance - prevents cash shortages and allows for expansion |
| why do some businesses fail | poor recording keeping, lack of cash, poor management skills |
| how to improve poor record keeping | keep hold of paper records like receipts from suppliers or details of big deliveries. They’re a good backup if a computer stops working and provided evidence to tax authorities of business activity |
| how cash flow problems can be reduced | - cash flow forecast is made and kept up to date
- good relationship with the banks so cash problems can be financed with an overdraft extension
- make sure customers with credit pay on time |
| how to improve poor management skills | get management experience through employment, get a five and training from a specialist organisation, employ people with management experience but expensive so new formed business cannot afford |
| local business | operate in small well defined parts of a country. owners often don’t aim to expand so don’t try get countrywide attention. generally small businesses like hairdressing |
| national business | have branches or operations across a country. don’t try establish operations in other countries or sell internationally. like a small retail shop |
| multinational business | a business organisation that has it’s headquarters in one country but with operating branches, factories and assembly plants in other countries |
| entrepreneur | an individual who has the idea for a new business, starts it up and carries most of the risk but benefits from rewards |
| intrapreneur | a business employee who takes direct responsibility for turning an idea into a profitable new product or business venture |
| qualities of an entrepreneur | leadership skills - if the business has employees, the entrepreneur must lead by example and will have to have a personality that encourages and motivates workers
risk taking - must be willing to take risks, normally with investing savings
self-confident - have belief in themselves and their ides that they would bounce back from setback also get money |
| the role of intrapreneurship in the ongoing success of a business | encouraging people to stay - don't have to leave to be an entrepreneur
competitive advantage - more innovative products
more innovation - increase sales or exciting ways to sell existing products |
| barriers to entrepreneurship | lack of a customer base, obtaining finance, lack of business opportunity, competition |
| business risk and uncertainty | can reduce risk by studying why other ones failed to avoid making the same mistakes |
| the role of business enterprise in the development of a country | employment creation, economic growth, exports if expand |
| business plans definition | a written document that describes a business, the objectives, its strategies, the market it is in and its financial forecasts |
| elements of a business plan | executive summary - overview of the new business and its strategies
operations - premises to be used, production facilities, IT systems
financial forecasts - the future projections of sales, profit and cash flow for at least one year ahead |
| advantages of a business plan | forces owner to think about its strengths and any potential weaknesses, gives owner a clear plan of action t guide actins and decisions in early stages of the business |
| disadvantages of a business plan | can create a false sense of security, if plan is not detailed and has evidence from market research then investors can delay making a finance decision |
| 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 consumer and other business such as retailing, transport, insurance, banking, hotels and tourism |
| quaternary sector | businesses providing information services such as computing, web design, management consultancy |
| advantages of industrialisation | total national output increases which raises standard of living, increasing output of goods can result in lower imports and higher exports of such products, expanding and profitable firms will pay more tax to the government |
| disadvantages of industrialisation | increased job can cause influx of people to towns causing housing issues, imports of raw materials needed increasing import costs, the multinationals' expansion can have negative consequences |
| impacts of deindustrialisation | job losses, job opportunities in service sectors, increased need for retraining programmes |
| public sector | organisations accountable to and controlled by central or local government |
| private sector | businesses owned and controlled by individuals or groups of individuals |
| 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 |
| sole trader advantages | easy to set up, 100% control, profits, close personal relationships, business based on interests or skills of the owners |
| sole trader disadvantages | unlimited liability, often faces intense competition, owners unable to specialise in areas of the business that are most interested in, difficult to raise capital, long hours, lack of continuity |
| partnership | a business formed by 2 or more people to carry on a business together with shared capital investment and usually shared responsibility |
| partnership advantages | greater access to capital, shared responsibility, greater opportunity for specialisation, easy to set up, shared decision-making, shared losses |
| partnership disadvantages | unlimited liability, profits are shared, no continuity, all partners are bound to decisions made by any of them, potential for conflict |
| private limited company | a business that is owned by shareholders who are often members of the same family, the company cannot sell shares to the general public |
| private limited company advantages | shareholders have limited liability, original owner is still often able to regain control, company has a separate legal personality |
| private limited company disadvantages | lots of legal formalities, difficult for shareholders to sell shares, capital cannot be raised by the sale of shares to the general public |
| public limited company | a company whose shares are traded on a stock exchange and can be bought and sold by the public |
| public limited company advantages | shareholders have limited liability, the company has a separate legal identity, easy for shareholders to buy and sell shares |
| public limited company disadvantages | lots of legal formalities, risk of takeover, directors may be influenced by the short term objectives of major investors |
| franchise | the legal right to use the name, logo and trading systems of an existing successful business |
| franchise advantages | franchiser pays for national advertising, lowers risk for franchisee, advice and training are offered by the franchiser |
| franchise disadvantages | a share of the profits or revenue has to be paid to the franchiser every year, initial franchise licence fee can be expensive, franchiee cannot choose which supplies or suppliers to use |
| cooperatives | a jointly owned business operated by members for their mutual benefit, to produce or distribute goods or services as in consumers cooperatives or farmers cooperatives |
| cooperatives advantages | buying in bulk, working together to solve problems and take decisions, good motivation for all members to work hard as they will benefit from shared profits |
| operatives disadvantages | poor management skills unless professionals are employed, capital shortages because the sale of shares to non-member is not allowed, slow decision king is all members are to be consulted |
| joint ventures | two or more businesses agree to work closely together on a particular project and create a separate business division to do so |
| joint ventures advantages | costs and risks are shared, different companies might have different strengths and experience, major markets in different countries |
| joint ventures disadvantages | business failure of one of the partners would put the whole project at risk, errors and mistakes might lead to one company blaming the other for mistakes, culture might not blend well |
| social enterprises | a business with mainly social objectives that reinvests most of its profits into benefiting society rather than maximising returns to owners |
| social enterprises advantages | clear social purpose, not pure profit objectives |
| social enterprises disadvantages | limited capital, market competition |
| unlimited liability | business owners have full legal responsibility for the debts of the business |
| limited liability | a legal status where the owners (shareholders) of a business are only responsible for the company’s debts up to the amount they have invested |
| the advantages of changing from one type of business ownership to another | access to more finance, gaining legal identity, protecting owners capital through limited liability |
| the disadvantages of changing from one type of business ownership to another | legal costs and formalities, some loss of control and ownership by the original owner, profits are shared |
