Customer

An individual consumer or organisation that purchases goods or services from a business.

Consumer

An individual who purchases goods and services for personal use

Consumer goods

The physical and tangible goods sold to consumers that are not intended for resale. These include durable consumer goods, such as cars and washing machines, and non-durable consumer goods, such as food, drinks and sweets, that can only be used once

Consumer Services

The non-tangible products sold to consumers that are not intended for resale. These include hotel accommodation, insurance services and train journeys

Capital Goods

The physical goods used by industry to aid in the production of other goods and services, such as machines and commercial vehicles

Enterprise

The action of showing initiative to take the risk to set up a business

Branding

The process of differentiating a product by developing a symbol, name, image or trademark for it.

Mixed Economy

Economic resources are owned and controlled by both private and public sectors

Free-Market Economy

Economic resources are owned largely by the private sector with very little state intervention

Command Economy

Economic resources are owned, planned and controlled by the state

Adv. of Public Corporations

• Managed with social objectives rather than solely with profit objectives
• Loss-making services might still be kept operating if the social benefit is great enough
• Finance is raised mainly from the government

Disadv. of Public Corporations

• inefficiency due to lack of strict profit targets
• Subsidies = encouraged inefficiencies
• Government interference in business decisions = political reasons

Adv. of Sole Traders

• Easy to set up (no legal formalities)
• Owner has complete control
• Owner keeps all profits
• Owner can choose times and patterns of working
• Owner can establish close relationships with staff and customers
• Business can be based on the interests or skills of the owner

Disadv. of Sole Traders

• Unlimited liability
• Intense competition
• Owner is unable to specialise in areas of the business that are most interesting
• Difficult to raise additional capital
• Long hours are often necessary to make the business pay
• lack of continuity

Continuity

Process-driven approach to maintaining operations in the event of an unplanned disruption such as cyber attack or natural disaster.

Adv. of Partnerships

• Partners may specialise in different aspects of a business
• Share decision-making
• Additional capital is given by each partner
• Business losses are shared
• Greater privacy
• Fewer legal formalities

Disadv. of Partnerships

• Unlimited liability
• Profits are shared
• No continuity
• All partners are bound by the decisions of any one of them
• It is not possible to raise capital from selling shares
• A sole trader, taking on partners, will lose decision-making independence

Share

A certificate confirming part-ownership of a company and entitling the shareholder owner to dividends and certain shareholders

Shareholder

A person or institution owning shares in a limited company

Adv. of Private Limited Companies

• Limited liability
• Company has a separate legal personality
• continuity (event of a death)
• Original owner is able to retain control
• company is able to raise capital from the sales of shares to family, friends and employees
• company has greater status than an unincorporated business

Disadv. of Private Limited Companies

• Legal formalities
• Capital cannot be raised by the sale of shares to the general public
• Difficult for shareholders to sell shares
• End-of-year accounts must be sent to the government office responsible for companies
• Available for public inspection

Adv. of Public Limited Companies

• Limited liability
• Company has separate legal identity
• Continuity
• Easy for shareholders to buy and sell shares
• Substantial capital sources can be accessed

Disadv. of Public Limited Companies

• Legal formalities
• High cost of paying for advice from business consultants when creating a plc.

Franchiser

A person or business that sells the right to open stores and sell products or services, using the brand name and brand identity

Franchisee

A person or business that buys the right from the franchiser to operate the franchise

Adv. of Franchises

• Fewer chances of a new business failing as it is using an established brand name and product
• Advice + training are offered by the franchiser
• The franchiser plays for national advertising
• Supplies are obtained from established and quality-checked suppliers
• The franchiser agrees not to open another branch in local area

Disadv. of Franchises

• A share of profits or revenue has to be paid to the franchiser each year
• Initial franchise license fee can be expensive
• Local promotions may still have to be paid for the franchisee
• The franchisee cannot choose which supplies or suppliers to use
• Strict rules over pricing and layout of the outlet reduce the franchisee’s control over their own business

Revenue

The total value of sales made during the trading period = selling price x quantity sold

Capital Employed

The total value of all long-term finance invested in the business

Market Capitalisation

Shows how much a company is worth as determined by the total market value.

The total value of a company’s issued shares

Market Share

Sales of the business as a proportion of total market shares

Market share provides a general idea of the size of a company in relation to its market and competitors.

Adv. of Small Businesses

• Managed + controlled by the owner(s) - little risk of losing control
• Adapt quickly to meet changing customer needs
• Personal service to customers to help build company loyalty
• Less workers, easier to get to know each other
• Family business = business culture is informal, employees are well motivated + family members perform multiple roles
• started and operated with low capital investment

Disadv. of Small Businesses

• Limited access to source of finance
• Owner has to carry a large burden of responsibility
• Owners are usually unable to afford to employ specialist managers
• Not every worker may be multi-skilled
• May not be diversified, so there is a greater risk of external change having a negative impact
• Few opportunities for economies of scale (less workers = lower production > cannot buy bulk)

External Growth

Business expansion achieved by integrating with another business by either merger or takeover

Conglomerate Integration

Integration with a business in a different industry

i.e. wine farm x supermarket

Horizontal Integration

Integration with a business in the same industry and at the same stage of production

i.e. donut x donut shops

Vertical integration

Integration with a business in the same industry

i.e. Apple designs its own hardware and software, and sells its products directly to consumers through its own retail stores.

Forward (vertical) Integration

Vertical integration with a customer business

i.e. primary x secondary, a factory purchasing materials from a farm.

Backward (vertical) Integration

Vertical integration with a supplier business

i.e. A bakery that purchases a wheat processor or a wheat farm

Adv. of Horizontal Integration

• Eliminates one competitor
• increases market share
• Potential economies of scale
• Scope for rationalising production, concentrating all output on one site as opposed to two
• Increased power over supplies to obtain lower prices

Disadv. of Horizontal Integration

• Rationalisation may bring bad publicity and redundancies
• There may be customer opposition to less competition + less choice
• May lead to monopoly investigation if combined business exceeds certain market share limits

Adv. of Forward (vertical) Integration

• Business is now able to control promotion and pricing of its own products
• Gives a secure outlet for the products of the business
• May now exclude competitors’ products from retail outlets

Disadv. of Forward (vertical) Integration

• Consumers may suspect an attempt to act uncompetitively + react negatively
• Business may lack experience in this sector of the industry (successful manufacturer does not necessarily make a good retailer

Adv. of Backward (vertical) Integration

• Gives control over quality, price + delivery times of supplies
• Encourages joint research + development into improved quality of components
• Business may not control supplies of materials to competitors

Disadv. of Backward (vertical) Integration

• Business may lack experience of managing a supplying company
• Supplying business may become complacent due to having a guaranteed customer

Adv. of Conglomerate Integration

• It diversifies the business away from its original industry and markets
• Should spread risk and may take the the business into a faster-growing market

Disadv. of Conglomerate Integration

• May be lack of management experience in the acquired business sector
• lack of clear focus and direction now that the business is spread across more than one industry

Synergy

‘The whole is greater than the sum of parts’ - it is often assumed that the new business will be more successful than the original separate businesses.

Pressure Groups

Organisations created by people with a common interest or aim, who put pressure on businesses and governments to change policies so that an objective is reached.

Business Aims

A long-term goal that a business hopes to achieve

Mission Statement

A brief statement of the business’s core aims, phrased in a way to motivate employees and to stimulate interest from outside groups

Business Strategy

A long term plan of action for a business, designed to achieve a particular objective

Tactic

A short-term action as part of an overall strategy

Target

A short-term goal that must be reached before an overall objective can be achieved

Budget

A detailed financial plan for the future

Stakeholders

Individuals or groups who can be affected by and have an interest in, any action taken by an organisation

External Stakeholders

Individuals or groups who are separate from the business but are affected by or interested in its operations

Internal Stakeholders

Individuals or groups who work within the business, or own it, and are affected by the operations of the business

Trade Union

An organisation of working people with the objective of improving the pay and working conditions of its members and providing them with support and legal services

Stakeholder Concept

The view that businesses and their managers have responsibilities to a wide range of groups, not just shareholders

Unincorporated business

A business that hasn’t been registered as a legal entity separate from its owner