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Flashcards in Understanding Business Deck (36)
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Name Business Stakeholders

Internal = Owners - want the business to maximise profits to receive a return on their investment - Get to make all the decisions. Shareholders - Want the business to make a profit so they continue to receive a dividend from their shares. - Vote at meetings to influence the decisions being made. Employees - Want a wage/salary and want good conditions of service from the business. - Can vary the quality of their work and can take industrial action (strike) if unhappy.

External = Banks - Want to make sure the business will pay them back. - Can refuse to grant loan. Customers - Want a good quality good/service and want to be treated well by the business. - Can decide to shop elsewhere. Suppliers - Want the business to continue to buy from them and want the business to pay them for goods. - Can change the price they sell the goods for and can change the time it takes for the goods to be delivered and can change the amount of credit they give the organisation. Local Community - Want the business to provide jobs in the community and want to know if the business will have a negative impact on the local area (e.g., pollution) - Can protest if unhappy and can complain to their member of parliament. Pressure Groups. - Want to know if the business will have a negative impact on the area/environment. - As Above. The Government - Want to know if the business will provide jobs in the area/country and want to know how much profit they earn to charge the correct amount of taxation. - Can change the rate of taxation the business has to pay and can introduce and change laws they have to abide by and can grant/refuse planning permission to build new premises.


Name/ Describe Sectors of Industry

PRIMARY = Carries out first stage of production - extracting things from nature.

SECONDARY = Carries out second stage of production - manufacturing, building and processing.

TERTIARY = Selling on finished products to the customer.


Name/ Describe Sectors of The Economy

PRIVATE SECTOR = made up of businesses which are privately owned.

PUBLIC SECTOR = made up of business/services which are owned by the government.

THIRD SECTOR (VOLUNTARY) = made up of businesses who exist to help others - not to make a profit.


Name/ Describe the Factors of Production

LAND = natural resources which businesses use.

LABOUR = the workforce of a business - human workers of all kinds.

CAPITAL = the tools, machinery, equipment that a business owns or controls (money, buildings, equipment etc.)

ENTERPRISE = the business idea that an entrepreneur has on how to use land, labour, capital in his/her business.


Sections of a Business Plan

Description of the Business/Staff
The Product/Service
The Market
Marketing Plan
Operations Plan
Financial Information


What Is an Entrepreneur?

Someone who has a business idea, or is prepared to take someone else's idea and develop it in order to produce a good or provide a service.


What Makes a Good Entrepreneur?

communicate well with people
make good decisions
problem solving
good at dealing with finances

problem solver
good at coming up with ideas
self confident
risk taker


What Is a Private Limited Company?

A group of people who come together to set up a business. Each person has a share in the business and has invested money in it.


What Is a Sole Trader?

This is the most common form of business ownership and the easiest to set up. A Sole Trader is a business owned by one person - though it may employ a large mount of people.


What Is a Partnership?

A business association between 2-20 members.


Market Research
(Methods of Field Research)

PERSONAL INTERVIEW = This involves a face-to-face discussion between two or more people. The interviewer will ask a number of questions.
FOCUS GROUP = A discussion between selected people about a specific good or service. People taking part will be asked a number of questions about the good or service with the aim of generating a discussion on these days.
POSTAL SURVEY = When a list of questions is sent to people through the post. They will be asked to complete the survey and to send it back to the business.
TELEPHONE SURVEY = When people are contacted by telephone and asked to answer questions.
ONLINE SURVEY = When people answer a number of questions that are displayed on a website. It may involve them clicking on the appropriate answer and/or typing in comments.
HALL TEST = Involves a product being given to customers to try and then asking for their feedback on it.
OBSERVATION = Involves watching something and recording what happens. The observer might have to count how many times something happens, or someone does something, or someone's reaction to a situation.
ELECTRONIC POINT OF SALE (EPOS) = Gather information when consumers are making a purchase at the checkout.
SOCIAL NETWORKING WEBSITE = Can be used to gain feedback from people on goods and services. Used to interact with customers and find out their reactions and opinions on different issues.


Market Research - Advantages and Disadvantages

PERSONAL INTERVIEW - (Advantages) - The interviewer can encourage the respondent to answer questions - The interviewer can ask the person being interviewed to clarify a point if they are unsure of something. (Disadvantages) - It is time consuming and expensive to carry out. - The interviewer will need training in interview skills.
FOCUS GROUP - (Advantages) - The feelings + views of people can be observed as can their body language - Points that are not understood can be claimed. (Disadvantages) - Info can be difficult to analyse - The sample of people used in the focus group might not represent the views of the whole population.
POSTAL SURVEY - (Advantages) - It is fairly cheap to send the survey to large numbers of people spread over a wide geographical area. (Disadvantages) - Can take time to get the information back. - The survey must be designed carefully so that it is not misinterpreted.
TELEPHONE SURVEY - (Advantages) - Points can be clarified. - Don not need to spend money on printing surveys. (Disadvantages) - People might not want to participate in a telephone survey; especially if called at unsuitable time. - Unsuitable for large surveys as people are often only willing to answer a short survey over the telephone because of time issues.
ONLINE SURVEY - (Advantages) -


Market Segments

Where the market for goods/services can be divided into groups of people who have common characteristics:
Socio-economic group
Income/Social Class
Geographical Location
Family Structure


Pricing Strategies

Low Price
Market Price
High Price
Skimming Pricing
Penetration Pricing
Destroyer Pricing
Promotional Pricing
Loss Leaders


Production Methods

Involves making a product one at a time, from start to finish, before another is begun. The products made are usually hand crafted by skilled workers using very little machinery.
Involves making a specific number of identical products in a batch, from start to finish, before a batch of a different product is then made. The products are made using a mixture of machines and people.
Involves passing an identical product down line of production. At each stage on the line a different operation is carried out until the product reaches the end and it is completed. Products made using line production are mass produced by machines operated by a very few people or computers (e.g. car manufacture, soft drink manufacture).


Labour or Capital Intensive

This is when the product is made using mainly employees.
This is when a product is made using mainly machines or robots.


Factors To Consider When Choosing a Supplier

Cost of Raw Materials
Quality of Raw Materials
Lead Time/ Delivery Time
Quantity of Raw Materials
Location of Supplier
Reliability and Reputation of Supplier
Storage Space Available


Problems With Over-stocking and Under-stocking

-High costs of storage
-High insurance costs
-High security costs
-The business will have a lot of money tied up in stock
-Stock may go out of fashion and have to be thrown away
-Stock may deteriorate
-The business may run out of stock to sell
-Unexpected changes in demand are hard to deal with
-If orders are delayed, shelves may be left empty
-If customer cannot get the stock they want, they may go elsewhere
-High administration costs caused by re-ordering stock all the time


Sources of Finance

-OWNERS FUNDS = savings of the owner

-RETAINED PROFITS= Profits kept back from previous years

-LOANS = from a bank or other financial institution

-GOVERNMENT GRANTS= Available for specific reasons e.g. expanding

- HIRING AND LEASING = This saves having to buy expensive items outright as payments are made in regular instalments

-SHARE ISSUE = Only applies to Public Limited Companies who's shares are bought and sold on the Stock Exchange or Private Limited Companies who may offer shares privately

-SELLING ASSETS = Such as unwanted buildings, unused equipment etc..

-VENTURE CAPITAL = Finance from a company which specialises in lending to successful small business - often in exchange for shares

-FACTORING = Selling debts to a debt collecting company for less than their value

-TRADE CREDIT = Suppliers allow credit at a later date


Role of Finance Department

It's role is to manage the finances of the business and to make sure that the business meets its financial objectives.


Advantages and Disadvantages of Sources of Finance

OWNERS CAPITAL= Advantage - the money does not have to be repaid. Disadvantage - May not have enough money

BANK LOAN = Advantage - The money can be obtained in one lump sum. Disadvantage - The loan must be repaid.

OVERDRAFT= Advantage - Useful as a short term source of finance to overcome cash flow problems. Disadvantage - An expensive form of borrowing with high interest charges and costs especially if the facility id not arranged in advance.

MORTGAGE = Advantage - amount can be repaid over many years. Disadvantage - Repayments may be high due to high interest rates.

GRANT = Advantage -


The Role of Human Resource Management

The role of Human Resource Management (HRM) in a business is to manage the WORKFORCE so that a business has enough suitable staff to carry out all necessary tasks in an EFFECTIVE and EFFICIENT way.
The main activities that are involved in this work by HRM staff are as follows:
-Staff recruitment
-Staff selection
-Staff training
-Staff motivation and retention
-Compliance with legislation

It can bring the following benefits:
- Increase in the motivation of staff (as they are happy)
-Increase in staff retention rates (amount of staff that want to stay with the business)
-Increase in amount of work being completed
-Positive business image (from high quality products)
-Better quality of work (as staff are motivated and well skilled from long service)


Types of Workers HRM Deals With

MANUAL WORKER - Manual workers usually do physical jobs which will not require many skills. These staff are also known as UNSKILLED workers. For example...Labourers (e.g. fruit pickers) and packers in a factory.

BLUE COLLAR WORKER - Blue collar worker usually do physical jobs which require SOME specific skills to complete what can often be repetitive tasks. These workers are also known as SEMI-SKILLED workers. For example...Bricklayers, Joiners, Machine operators.

WHITE COLLAR WORKER - White collar workers usually do non-physical jobs which require SEVERAL skills and qualifications. These workers are also known as SKILLED workers. For example...Office Workers, Bank workers.

PROFESSIONAL WORKER - Professional workers require MANY skills and qualifications, and their jobs involve decisions making and responsibility. For example...Accountants, Lawyers, Doctors.


Sources of Finance

OWNER'S FUNDS - Savings of the owner - or an additional mortgage taken out on their house.

RETAINED PROFITS - Profits which have been kept back from previous years.

BANK OVERDRAFT - Short-term allowance given by bank to cover cash-flow problem.

LOANS - From a bank or other financial institution.

GOVERNMENT GRANTS - Available for specific reasons e.g. expanding in a deprived area.

HIRING AND LEASING - This saves having to but expensive items outright as payment are made in regular instalments.

SHARE ISSUE - Only applies to Public Limited Companies whose shares are bought and sold on the Stock Exchange or Private Limited Companies who may offer shares privately.

SELLING ASSETS - Such as unwanted buildings, unused equipment etc..

VENTURE CAPITAL - Finance from a company which specialises in lending to successful small businesses - often in exchange for shares.

FACTORING - Selling debts to a debt collecting company for less than their value.

TRADE CREDIT - Suppliers allow payment at a later date.


Sources of Finance -
Advantages and Disadvantages

OWNER'S CAPITAL = Advantages - The money does not have to b repaid - No interest has to be paid. Disadvantages - May not have enough money.

BANK LOAN = Advantages - The money can be obtained in one lump sum - Repayments can be spread over several years. Disadvantages - The loan must be repaid, with interest.

OVERDRAFT = Advantages - Useful as a short term source of finance to overcome cash flow problems - You are not tied into an agreement which requires payment over several years. Disadvantages - An expensive form of borrowing with high interest charges and costs especially if the facility is not arranged in advance.

MORTGAGE = Advantages - Amount can be repaid over many years e.g. 25. Disadvantages - Repayments may be high due to high interest rates - If repayments are not made then the property may be repossessed.

GRANT = Advantages - The money does not have to be repaid - A large amount of money can be received at one time. Disadvantages - There may be certain restrictions as to what the money can be used for.

RE-INVESTED PROFITS = Advantages - There are no extra costs e.g. interest to be paid. Disadvantages - There may be insufficient money to fund the business.

HIRE PURCHASE = Advantages - Allows businesses to buy assets with only a small initial payments - Once full payments have been made the asset it owned. Disadvantages - The asset is not fully owned until the last payment is made - The total paid is more than the price of the asset.


Sources of Finance -
Advantages and Disadvantages

LEASING = Advantages - Can obtain the asset without a large financial outlay - Repairs are carried out by the leasing company free of charge - Upgrades can be obtained when the lease runs out. Disadvantages - You never own the asset.

TRADE CREDIT = Advantages - Can buy goods and sell them on before payments is required - Provided payments is made within the agreed number of months then no interest is charged. Disadvantages - May lose out on prompt payment discounts - May gain a reputation as a slow payer.

FACTORING = Advantages - Allows the business to receive cash immediately - Removes the inconvenience of chasing up late payments. Disadvantages - The service of the factor has to be paid for. The full values of the debts are never received.

ISSUE SHARES = Advantages - Large amounts of money can be raised quickly. Disadvantages - Dividends have to be paid to shareholders which reduces the retained profits of the business.


Sources of Finance -

OWNER'S CAPITAL - This is the amount of money invested by the owner/partner in the business.

BANK LOAN - Money obtained from a bank which has to be repaid with interest over an agreed number of years.

OVERDRAFT - This is when you have insufficient funds in your bank account to pay your bills and are therefore using the bank's money. This should be arranged in advance otherwise additional costs will be incurred. Interest is charged daily on the overdrawn amount.

MORTGAGE - A loan specifically for the purchase of a property.

GRANT - An amount received from the Local Council, Government or EU for a specific purpose.

RE-INVESTED PROFTIS - These are left over profits which are kept within the business i.e. the Sole Trader/Partners have not taken them out for their own use (Drawings) or Shareholders have not received them as dividends.

HIRE PURCHASE - This allows a business to buy an asset e.g. delivery van and pay it back over several months e.g. 48. An initial down payment is normally required.

LEASING - Often used to obtain equipment or cars and is similar to renting.

TRADE CREDIT - When goods/materials can be bought from suppliers but are not paid for until the following month etc. (buy now pay later).

FACTORING - This is when a business employs the service of a factor. The factor takes on the responsibility of collecting the business debts and will pay an amount immediately.

ISSUE SHARES - This is when someone buys a share in the business (plc) or is invited to invest in the business (ltd). The shareholders may receive dividends when profits are made.


What Is Happening To Workers That Human Resource Management Is Responsible For

INCREASE IN FEMALE WORKERS - There has been an increase in the percentage and number of all types of female workers in the UK today. This is due to:
-High levels of educational performance in many women.
-Women returning to work after children
-Need for the service skills women often have
-Increase in single parent families.

FEWER CORE STAFF - Core staff are workers that the business must have to operate properly. Therefore, these staff usually have permanent positions. In many business today, there are fewer core staff of all types in order to minimise commitments to wages and benefits (e.g. pensions) and so help keep the costs of running the business down.

MORE CASUAL WORKERS - Casual staff are workers that the business may only need fro time to time on a specific temporary basis. In many businesses today, there are more casual staff of all types in order to minimise commitments to wages and benefits (e.g. pensions) and so help keep the costs of the business down.

FEWER MANUFACTURING JOBS - In the UK many blue collar manufacturing (secondary sector) jobs have been lost to competition from other countries. This means that there are fewer manufacturing jobs for HRM to deal with in the UK today.

MORE SERVICE JOBS - In the UK many white collar and professional service (tertiary sector) jobs have been created due to expertise in these areas, e.g. finance, insurance, etc. This means that there are MORE service jobs for HRM to deal with in the UK today.

TECHNOLOGICAL REDUNDANCY - Increase use of computers and robotics means that more work can be completed in less time. This


Break Even Analysis

It is vital for any business that they cover their costs (rent, rates, materials, wages etc.), that is, the income from sales covers the costs of production. In order to find out how many units need to be sold to cover these costs an organisation will use Break Even Analysis.
When using Break Even analysis all costs are split into 2 main categories:

1. FIXED COSTS are costs which stay the same regardless of units produced or sold e.g. rent and rates. It doesn't matter if we produce 1 unit or 1000 units our rent and rates will remain the same amount.
2. VARIABLE COSTS are costs which change directly with production e.g. materials and labour. The more we produce the more materials we need hence our total bill for materials will increase with production.


Break Even Analysis -
Margin of Safety

Although a business can produce a certain number of units, the market may be such that it cannot sell all of its production. Where there is a difference between the break-even point and the sales level the business can achieve, this is called the margin of safety. It can be calculated in units and in sales revenue.