What is business?

HideShow resource information
View mindmap
  • What is business?
    • The nature and purpose of business
      • The measurement and importance of profit
        • Profit - the reward the owners of a business receive for taking the risk of setting up a business
        • Profit = revenue - no. of units sold
        • Fixed costs are those which do not change
        • Variable costs are those that vary with output, raw materials etc.
      • The relationship between mission and objectives
        • The mission statement
          • Gives the big picture of the business
          • Represents its vision, core purpose and values
          • Seen as the philosophy
          • Guides how the business operates
        • Business objectives
          • These are targets or goals
          • They enable the business to achieve its overall mission
          • Each functional area of the business has its own objectives
          • All objectives must be SMART
            • Specific - each objective must be clear
            • Measurable - it must be possible to determine when an objective has be achieved
            • Achievable -  objectives must be within the business's capabilities and have sufficient resources
            • Realistic - each objective must be challenging but possible to achieve
            • Time-based -  there must be a deadline to work to
          • Common business objectives
            • Profit
              • Vital for the long term health and security of a business
            • Growth
              • This could be in terms or market share or sales turnover
            • Survival
              • Important in times of economic uncertainty and new businesses
            • Cash flow
              • For many smaller businesses this may be more important than profit
            • Customer service
              • To gain loyal customers in a competitive market
          • Why businesses set objectives
            • They give meaning to planning and enable the business to remain focussed
            • To allow the business the ability to measure and review performance
            • They provide motivation for those responsible in implementing plans
    • Different business forms
      • Different sectors
        • Private sector
          • Where a business is owned and controlled by an individual or a group of individuals
        • Public sector
          • These are owned by the local or national government
            • NHS
            • BBC
      • Sole traders and partnerships
        • These are unincorporated companies
        • They have unlimited liability
        • e.g. plumbers, electricians
        • Advantages
          • They are easy to set up
          • The owner takes all the profit
          • They have financial privacy - their financials don't have to be published
          • Greater independence
        • Disadvantages
          • Unlimited liability - the owners assets may be used to pay off any debts
          • They have limited capital
          • Their business skills may be limited
          • Problems may arise if the owner becomes ill
      • Private limited companies
        • Ltd
        • These are incorporated companies
        • They have limited liability
          • The personal assets of the owners can't be taken
        • Shares do not trade on the stock exchange
        • e.g. clarks shoes, baxters
        • Advantages
          • The  owners have limited liability
          • Access to a greater amount of capital
          • Greater privacy than public limited comapnies
          • Greater flexibility
          • less pressure from outside investors
          • Greater flexibility
        • Disadvantages
          • More difficulty to set up than unincoporated companies
          • More access to capital
          • Financial information is available to outsiders
      • Public limited companies
        • Owned by shareholders who have limited liability
        • Anyone can buy shares on the stockmarket
        • e.g. BP, Shell, M&S, Next
        • Advantages
          • The shareholders have limited liability so thier personal assets cannot be used if the business fails
          • They have access to greater amounts of capital
          • They have greater power over suppliers regarding credit terms
        • Disadvantages
          • They have to publish greater amounts of financial data leading to more scrutiny of their affairs
          • The original owners are likely to lose control of the business
          • Pressure from investors may result in a greater emphasis on short term profit rather than long-term peorformance
      • Non-profit organisations
        • e.g. charites
        • Mutuals e.g. small insurance firms
      • Reasons for choosing different business forms
        • Business owners need to choose the business type that will best suit their needs
        • The potential business risks and liabilities
        • The product or service being offered
        • The formalities and expenses of setting up
      • Reasons for changing business form
        • A change in circumstancee.g. growth of a business
        • The owner may find it easier to get funds by becoming incorporated
        • Acquisition or takeover may change the structure of a business
        • A business may move from being public limited to private limited as this will remove them from the scrutiny of the city
      • The role of shareholders
        • Major decisions that affect the shareholders will have to be decided by the shareholders in a meeting called by the directors
        • The removal of directors can only be done by shareholders
        • They gain a share of the business called a dividend
        • People invest in shares because:
          • Income - they gain a dividend of the profits
          • Capital growth - they hope the value of the shares will grow over time
      • Influences on share price and significance of share price changes
        • Performance - better or worse than expected profits
        • Expectation - of better or worst profit performance
        • Changes - within the market or competitive environement
        • World uncertainty - such as conflict in the middle east
        • Market capitalization = share price x mo.of share issued
          • Changes in the share price change the net worth of the business
    • Understanding the businesses operate within an external environment
      • External influences
        • Competition
          • Monopolies are illegal in the UK
          • USP's are used to increase demand over a competitor
          • if the products are relatively the same, companies will reduce prices in order to attract customers
        • Market conditions
          • A market with high market growth and low competitiveness is likely to offer large opportuinities
        • Economic factors
          • Interest rates
            • If a business has borrowed money it is likely that this amount could go up if rates rise
            • A rise in interest rates is likely to cause a rise in costs
            • The level of interest rates will affect demand as people will have less to spend
            • If the company has stores of cash it would benefit from interest rates going up
          • Inflation
          • Exchange rates
        • Demographic factors
          • Age
          • Income
          • Sex
          • All of these factors can affect what a business can sell in a certain location
        • Environmental issues
          • Pressure groups are a large influence on this
          • Global warming
          • Concerns that resources are running out
        • Fairtrade
          • This could mean higher prices for a business
          • Its about protecting farmers in poor countries
          • It could also lead to increased demand and a better reputation

Comments

No comments have yet been made

Similar Business Studies resources:

See all Business Studies resources »See all What is business? resources »