1 & 2

• Business objectives

  • Survival
  • Cash flow
  • Growth
• Reasons why businesses set objectives

  • Everyone will be working towards the same goal, increasing efficiency
  • Motivational tool for staff, as they are clear of their role
  • Enables progress to be measured aiding future decision-making
• Reasons why a business has a mission statement

  • Establishes direction of the business
  • Forms the basis of alignment with the owner(s) and all employees
  • Informs the public of the reason why the firm exists
• Examples of variable costs

  • Raw materials
  • Direct labour
  • Fuel
• Examples of fixed costs

  • Management salaries
  • Rent
  • Insurance
• Mission of a business

  The organisation's long-term intentions and details its overall purpose
• Objectives of a business


  SMART and set out how the aims of the organisation will be achieved
• Private limited company


  Has 'Ltd' after its name
• Public limited company


  Has 'plc' after its name
• Private limited companies

  • Usually smaller than public limited companies
  • Owned by families/friends, control over who can buy shares
  • No restrictions on who can buy shares in a plc
• Public limited companies

  • Must publish more detailed financial accounts compared to a Ltd
  • Minimum capital requirement of £50,000, no requirement for a Ltd
• Limited liability

  Legal protection offered to shareholders in public and private limited companies, whereby if the business experiences financial difficulty, the shareholders' responsibility for paying any debts will be restricted to the value of the fully paid up shares; the personal possessions of shareholders are therefore protected
• Unlimited liability

  The owners of an unincorporated business, for example a sole trader, are responsible for all the debts of the business; this may involve selling personal possessions in order to pay business debts
• Objectives of a sole trader

  • Survival
  • Being own boss
  • To provide sufficient income to have a comfortable standard of living
  • Provide a service to locals/pursue an interest
• Objectives of a public limited company

  • Efficiency
  • Cost savings
  • Increase in sales/market share
  • Growth
  • Profit maximisation
  • Increase in share value
• Private sector organisations

  Run by individuals or groups of individuals, rather than being run and controlled by the government
• Public sector

  Organisations which are owned and controlled by the government on behalf of the public
• Ordinary share capital

  The total value of the shares when they were first issued and is permanently invested in a company, calculated by the number of ordinary shares x share price when first issued
• Benefits of SOLE TRADER


  • Decision-making is fast, therefore the business can respond quickly to changing situations
  • Owner is able to keep all the profits
  • Financial accounts do not need to be published
  • Easy and cheap to set up
  • Owner has full control over the business
• Drawbacks of SOLE TRADER


  • Unlimited liability
  • Lack of capital
  • Limited collateral to support bank loans
  • Difficulty to take time off
  • Stressful
  • Limited skill base
• Benefits of PRIVATE LIMITED COMPANY


  • Incorporated business therefore benefits from limited liability
  • Full control over who is able to buy shares
  • Access to more capital compared to a sole trader
  • Less financial information is available to the public compared to a plc
• Drawbacks of PRIVATE LIMITED COMPANY


  • More difficult to raise large amount of funds through share capital compared to a plc
  • Financial accounts are available to view by the general public
  • More expensive and time consuming to set up compared to a sole trader
• Benefits of PUBLIC LIMITED COMPANY


  • Incorporated business therefore benefits from limited liability
  • Can raise large amounts of finance through selling shares on the stock exchange
  • Can receive favourable media attention
  • Ability to expand quickly
• Drawbacks of PUBLIC LIMITED COMPANY


  • Expensive to set up
  • Must publish detailed financial information
  • Could be subject to a takeover
  • Pressure to maximise short-term profits rather than focus on the long-term direction of the firm
• Non-profit organisation


  • Charities, social enterprises, community groups; they may make a profit, but the profits are reinvested back into the organisation in order to meet its objectives rather than being distributed to owners
• Reasons why share prices change

  • If the financial performance of the company is strong, the business may get favourable publicity which will push the share price up
  • If the economic outlook is uncertain, investors may lose confidence about the future performance of a business and look to sell their shares; if there are a large number of shareholders that wish to sell, this may reduce the share price
• Reasons why share price changes are significant to the shareholders of a company


  • It will directly impact on the value of their shareholding; if a shareholder was looking to sell their shares, an increase in the share price could result in the shareholder making a capital gain on the sale of his/her shares
  • A falling share price may result in the company being taken over; the original founders/shareholders of the business may lose control
• Reasons why shareholders purchase shares in a company


  • To receive dividends
  • To make a capital gain
• Reasons why a private limited company might change into a public limited company


  • To raise share capital to finance expansion
  • To increase the exposure reputation of the business
• Factors that can influence costs


  • Interest rates
  • Environmental issues
  • Legislation e.g. with regards to the minimum wage and the national living wage
• Factors that can influence demand


  • Demographics
  • Income levels
  • Competition
• Total revenue


  Selling price per unit x number of units sold
• Profit


  Total revenue - total costs
• Total costs


  Fixed costs + variable costs
• Market capitalisation


  Number of issued shares x current share price
• Charities


  An organisation that is set up with the intention of raising money for those in need
• Demographic factors


  A study of the population eg. the UK has an ageing population
• Dividends


  The share of the profit after tax that a company distributes to shareholders according to the number of shares that they hold; a company does not have to issue a dividend payment
• Ethical objectives


  Moral objectives that a business sets
• External environment


  Factors that can influence business activity, but the business has no direct control over e.g. a change in legislation