Topic 1

• What is enterprise?

  • An enterprise is simply another name for a business.
  • Enterprise also describes the actions of someone who takes a risk by setting up, investing in and running a business.
• What is an entrepreneur?

  Someone who takes a calculated risk through starting a business.
• What makes a good entrepreneur?

  • Innovative
  • Risk-taker
  • Hard working
  • Organised
  • Persuasive
  • Leadership skills
  • Lucky
• What is a business?

  An organisation that exists to produce goods or supply services to customers.
• What are goods and services?

  • Goods are actual, tangible, objects. They can be touched, felt, and held. They are produced and consumed.
  • Services are activities. They are intangible. They are provided by other people or businesses.
• What are needs and wants?

  • Needs are those goods and services that we have to consume if we are to live. These include food, shelter, and warmth.
  • Wants are goods and services that we would like, but do not have to consume in order to survive. These include holidays, smartphones, entertainment, and other luxuries we may like, but do not need.
• What is the definition of opportunity cost?

  Opportunity cost is the value of the next best alternative foregone when making choices or purchasing products.
• What are the purposes of businesses?

  • Producing goods
  • Supplying services
  • Distributing products
  • Fulfilling a business opportunity
  • Providing a good or service to benefit others
• Describe each of the business sectors and give examples for each.

  • Primary sector - producing raw materials which are extracted from nature, e.g. farming, mining, oil exploration, fishing.
  • Secondary sector - manufacturing goods which are made from raw materials and turned into finished goods. This sector also includes firms involved in construction, e.g. car manufacturing, steel, chemicals, clothing maker, builders.
  • Tertiary sector - providing services. This sector will also include businesses involved in the distribution process, e.g. shops, transport, hairdressing, banking, entertainment.
• What are the 4 factors of production?

  • Land - the land where the business is based, but also includes the natural resources on, or under, that land.
  • Labour - the people working in the business, including the managers.
  • Capital - the buildings and the machinery needed by the business.
  • Enterprise - the entrepreneur who set up the business, organises the factors of production and takes the risks involved in running the business.
• What are the changes in the business environment (PESTLE)?

  Political

  Economic

  Social (+ cultural)

  Technological

  Legal

  Environmental
• What is a sole trader?

  A sole trader is an individual owning the business on their own. A sole trader can also employ people - but those employees do not share the ownership of the business.
• What are the advantages and disadvantages of a sole trader?

  Advantages:

  • quick and easy to set up
  • makes own decisions
  • keeps all the profits

  Disadvantages:

  • unlimited liability
  • heavy workload
  • high level of responsibility
• What is a partnership?

  • A partnership is formed where a business is started and owned by more than one person.
  • A legal document, called a Partnership Agreement, is always recommended and sets out how the partnership is run and how profits are divided.
• What are the advantages and disadvantages of a partnership?

  Advantages:

  • simple to form a business together
  • any losses are shared
  • jobs/workload is shared

  Disadvantage:

  • unlimited liability
  • decision making can take longer
  • profits have to be shared
• What does unlimited liability mean?

  When the business owner or owners are personally responsible for all the debt of the business, no matter what the value.
• What does limited liability mean?

  Limited liability means that the owners or shareholders of a company are not personally responsible for the company's debts or liabilities beyond the amount they have invested in the company.
• Limited companies.

  A company is formed when a business is set up to have a separate legal identity from its owners. The company's finances are separate from the personal finances of its owners.  The owners are now known as shareholders, who will each own shares in the company.
• What is a private limited company (ltd)?

  Private limited companies can raise funds from investors, such as friends and family, but not from the general public, as its shares are not listed on the stock exchange.
• What are the advantages and disadvantages of an ltd?

  Advantages:

  • limited liability
  • any new shareholders need to be invited, which protects the business from outside influence
  • easier to raise finance as the company can sell shares

  Disadvantages:

  • there is often more paperwork
  • it can be very time consuming to set up
  • shareholders will expect to receive a percentage of the profits as dividends
• What is a public limited company (plc)?

  In a PLC, shares are sold to the public on the stock market.
• What are the advantages and disadvantages of a plc?

  Advantages:

  • limited liability
  • the business has the ability to raise additional finance through share capital
  • firm is more prestigious

  Disadvantages:

  • it is expensive to set up
  • there is a greater risk of a hostile takeover by a rival company as the company cannot control who buys its shares
  • shareholders may clash when making decisions about the business
• What choices must be made when making a business?

  • Size of business
  • Type of business
  • Lender requirements
  • Investment protection
  • Control
  • Growth
• What are not-for-profit organisations?

  Not-for-profit organisations are set up to achieve objectives other than profit.
• What are aims and objectives?

  • Aim - states the overall purpose for the business, the long term goal.
  • Mission statement - general description of the overall aims of the business.
  • Objectives - specific, measurable targets to help meet the aims of the business.
• What are some business objectives?

  • Survival
  • Profit maximisation
  • Market share/sales maximisation
  • Growth
  • Social/ethical responsibilities
  • Customer satisfaction
  • Shareholder value
• What is the purpose of setting objectives?

  • Direction - to allow the firm to decide on the direction it should take, e.g. to expand or not.
  • Focus for employees - help increase efficiency.
  • Allow planning - allow for consistent planning.
  • Measurement of success - allows businesses to correct or change strategies.
• What are the internal and external reasons for why business objectives change?

  Internal:

  • These could come about because a business has achieved one objective and now needs another one.
  • Changes to objectives can also be due to a change in the views or requirements of the owners/shareholders or the board of directors.

  External:

  • A new competitor.
  • A change in the economic environment.
  • Technological change.
• What is a stakeholder?

  A stakeholder is any individual or organisation who has a vested interest in the activities and decision making of a business.
• What are examples of business stakeholders?

  • Shareholders
  • Employees
  • Customers
  • Suppliers
  • Competitors
  • Local community
  • Government
  • Financial institutions
• What are the factors that affect business location?

  • Proximity to market
  • Raw materials
  • Labour
  • Competition
  • Costs
• What is a business plan?

  A business plan is a written document that describes a business, its objectives, its strategies, the market it is in and its financial forecasts.
• What are the advantages of a business plan?

  • Allows business owners the opportunity to review their ideas and to see whether they will provide a profitable future.
  • Reduces risk by providing a guide for the business as to what needs doing by when.
  • Allows the owners to review the business's progress against the plan and make changes if required.
  • Will help to secure finance.
  • Conducting and including market research can help reduce the risk of failure.
• What are the disadvantages of business planning?

  • The plan may be poor quality, due to a lack of research and a general lack of experience by the people who wrote it; sales may be overestimated and costs underestimate.
  • Any plan will require constant updating; as the business environment changes.
  • Producing and reviewing a plan on a regular basis requires time and effort which may be expensive, especially for small businesses.
  • Can cause new opportunities to be missed, if they are not in the plan.
• What are economies of scale?

  Economies of scale are achieved when the cost per unit falls as the scale of production increases.
• What are the types of economies of scale?

  • Purchasing economies of scale - when big businesses are able to negotiate discounts for bulk-buying supplies of materials. This reduces the unit cost of each item purchased.
  • Technical economies of scale - gained by large-scale businesses, as they can afford to invest in expensive machinery for production, which would not be cost-efficient for a small business to purchase. Allows the firms to produce more, resulting in a lower average unit cost.
• What are diseconomies of scale?

  Diseconomies of scale occur when the cost per unit increases as the scale of production increases.
• What are the types of diseconomies of scale?

  • Control – larger businesses can experience problems monitoring productivity, as more staff are employed or a business operates from different sites.
  • Motivation - can decrease in a growing business, as workers feel that managers and owners of the business are too remote and therefore do not value them as individuals; resulting in a possible decrease in productivity and a lack of cooperation.
  • Communication – this is far more difficult in a big business, as the organisational structure becomes more complex and messages take longer to travel.
• How do you calculate unit costs?

  Average unit cost = Total cost/Output
• What is business expansion?

  The process of a firm getting bigger.