mini-mocks

• Definition of a business: The key purpose of a business activity is to identify consumers' needs and wants
• Businesses must combine factors of production to produce finished goods or services, which are then provided to consumers at a price higher than their cost
• The added value created by the business leads to rewards in the form of profits
• Needs are essential for survival, while wants are desires that are not necessary
• Factors of production:

  • Land: raw materials provided by nature
  • Labour: everyone working in the business
  • Capital: finance, machinery, and equipment
  • Enterprise: skill and risk-taking ability of the owner
• Goods are products sold to customers, while services are jobs people do
• Added value is the difference between the selling price of a product and the cost of materials
• Scarcity is the lack of sufficient products to fulfill the total wants of the population
• Opportunity cost is the next best alternative given up by choosing another item
• Division of labour is when the production process is split into different tasks and each worker performs one of these tasks
• Specialisation occurs when people and businesses concentrate on what they are best at
• Sectors:

  • Primary: extract
  • Secondary: manufacturing
  • Tertiary: services
• Privatisation: Public sector organizations provide public services, while private sector organizations aim to earn profits
• Private sector: Businesses not owned by the government, aim to make a profit
• Public sector: Businesses owned and controlled by the government, provide goods and services, some free of charge
• De-industrialization: Decline in the importance of the secondary, manufacturing sector of industry in a country
• Mixed economy: Has both a private sector and a public (state) sector
• Capital: Money invested into a business by the owners
• Entrepreneurship:

  • An entrepreneur starts a business to meet customer needs
  • Takes responsibility for the risk involved
• Characteristics of successful entrepreneurs:

  • Hard working
  • Risk taker
  • Creative
  • Optimistic
  • Self-confident
  • Innovative
  • Independent
  • Effective communicator
• Economies of scale: Businesses buy in bulk to reduce the price per unit
• Business plan structure:

  • Description of the business
  • Products and services
  • The market
  • Business location and reaching customers
  • Organisation structure and management
  • Financial information
  • Business strategy
• Why governments support business start-ups:

  • Reduce unemployment
  • Increase competition
  • Increase output
  • Benefit society
  • Growth potential
• Measuring business size:

  • Number of employees
  • Value of output/sales
  • Value of market share
  • Value of capital employed
• Market share: Total percentage of sales in the market
• Reasons for business expansion:

  • Diversification
  • Increase customers
  • Benefit from economies of scale
• Ways to expand: Internal vs external, takeover vs merge
• Internal growth: Expanding existing operations
• External growth: Taking over or merging with another business
• Takeover: One business buys out the owners of another business
• Merge: Owners of two businesses agree to join their businesses together
• Problems with growth:

  • Loss of control
  • Management issues
  • Financial issues
• Problems to business growth and how to overcome them:

  • Difficult to control
  • Lower quality
  • Expansion costs
  • Conflict between management styles
• Causes of business failure:

  • Lack of management skills
  • Poor financial management
  • Over-expansion
  • Changes in the business environment
• Reasons why some businesses remain small:

  • Type of industry
  • Market size
  • Owners' objectives
• Business organisations in the private sector:

  • Sole trader
  • Partnerships
  • Private limited companies
  • Public limited companies
  • Franchises
  • Joint ventures
• Sole traders: Owned and operated by one person
• Types of business ownership:

  • Sole traders: owned and operated by one person

  Advantages:

  • Easy to set up
  • Complete control over the business
  • Keep all profits

  Disadvantages:

  • Unlimited liability
  • Limited sources of capital
  • No one to share workload with
  • Partnership: owned by two or more people

  Advantages:

  • Access to more capital
  • Expertise of multiple partners
  • Workload can be split

  Disadvantages:

  • Unlimited liability
  • Conflict between partners
  • Profits shared
  • Limited liability: shareholders' liability is limited to their investment
  • Unlimited liability: owners can be held responsible for business debts beyond their investment
• Types of companies:

  • Private limited company: owned by shareholders but can't sell shares to the public

  Advantages:

  • Shares sold to friends and family
  • Limited liability

  Disadvantages:

  • Significant legal matters
  • Less secret accounts
  • Control maintained
  • Public limited company: owned by shareholders, can sell shares to the public

  Advantages:

  • Raise large capital sums
  • Benefit from high status

  Disadvantages:

  • Legal formalities are complicated
  • Selling shares to the public is expensive
  • Franchises: franchisor sells the right to supply goods/services under their brand to franchisee

  Advantages for franchisor:

  • Faster expansion
  • Franchisee pays to use the name

  Disadvantages for franchisor:

  • Poor management by franchisee can harm reputation
  • Franchisee keeps most profit

  Advantages for franchisee:

  • Easier to get loans
  • Franchisor trains staff and sets up store

  Disadvantages for franchisee:

  • Expensive fee to buy franchise
• • Less freedom
  • Joint venture: two or more businesses start a project together, sharing capital, risk, and profits

  Advantages:

  • Share capital, profit, and risk

  Disadvantages:

  • Disagreement and conflict over decision-making