Classifying Business

What are the internal and external economies of scale?

Internal Economies of Scale

• Technical (machines)
• Managerial (specialist managers)
• Financial (cheaper loans, less risk)
• Purchasing (buy raw materials and sell them cheap)
• Marketing (more adverts in places)
• Risk bearing (spreading costs over the market)

External Economies of Scale

• A skilled labour force can be created in certain areas.
• Specialist areas can be developed to lower costs.

NOTE: is not always good to expand as they become harder to control. These are called diseconomies of scale.

What are the seven ways to measure the size of a business and why is it important?

• Sales revenue: total sales of a firm over a period of time.
• Profit: Has to be subtracted from the sales revenue to give size.
• Number of employees: may need to look how many are part time.
• Market Capitalisation: No. of shares x share price
• Market Share: (sales of firm/total market shares)x100
• Volume: Quantity made or sold.
• Capital Employed: how much is tied up in assets (ie machinery)

It is important because customers may be attracted to big names.

What are the three ways of classifying business by activity?

• Primary sector - raw materials
• Secondary sector - manufacturing
• Teritary - services

What are the two ways we can classify businesses by ownership? Define, state key features and give examples.

Private sector are businesses run and owned by individuals. ie. sole trader, partnership, private limited and public limited companies.

Public sector businesses are owned and run by government. ie. corporations, bank of england, local authority services.

What are the two different types of unincorporated businesses and what is one?

Sole Trader and Partnerships.

Unincorporated businesses have no seperate legal identity and have unlimited liability.

Define the term liability

This is whos responsability it is for the debt of the business. The two types are limited and unlimited.

Unlimited - can take everything they own (sole trader/partnership)

Limited - they can only take whatever they have put into the business.

Define the term "legal personality"

The business is treated as a person therefore all transactions and agreements are in it's name. Owners are still responsable and is rejestered.

Define the term "continuity"

This is when the business can continue trading after a person leaves or dies. Other companies have to be dissolved and restarted.

Define: corporations

Define: Quangos

Define: Executive agencies

Corporations: organisations set up by the law to run services.

Quangos: (quasi autonomous non-governmental organisations) specialized bodies which government does not have the expertise to carry out.

Executive agencies: responsable for the supply of services previously provided by the government.

Which sector do private LTD's and public LTD's belong to?

State key points about them that are the same and one different point.

PRIVATE SECTOR

• Limited liability.
• Can raise finance from selling shares.
• Are perceived as being more estabilished.
• Has to publish information.

A private LTD must have £50,000 of share capital and are avaiable on the stock market.

A public LTD must only sell shares to family.

What two documents are needed to set up a business?

Memorandum (company name, office, capital and if it's a plc)

Articals of association (secretary of the company, rejestered office and capital)

The company will then be given a certificate of incorportation.

What document is needed in a partnership?

Deed of partnership

What are the six factors which influence are choosing of an appropriate business structure?

Nature of business - types of business

Liability owners may be able to protect any financial decisions.

Need for finance

Size

Degree of control - more owners may mean less control.

Age: sole trader partnership- private ltd- public ltd.