Business Activity Key Definitions

Definitions of Business Activity

• A need is a good or service essential for survival.
• A want is a good or service desired but not essential. Wants are unlimited.
• The economic problem arises from unlimited wants and limited resources, creating scarcity.
• Factors of production are the limited resources used to produce goods and services which include, land, labor, capital and enterprise.
• Scarcity is the insufficiency of products to satisfy a population's total wants.
• Opportunity cost is the next best alternative forgone when making a choice.
• Specialization is when individuals or businesses concentrate on their area of expertise.
• Division of labor splits production into separate tasks done by different workers and is a form of specialization.
• Businesses combine factors of production to create goods and services that meet consumer wants.
• Added value is the difference between a product's selling price and the cost of its inputs.

Industry Sectors

• The primary sector extracts raw materials from the earth.
• The secondary sector manufactures goods using raw materials.
• The tertiary sector provides various services to consumers and other businesses.
• De-industrialization is the decline in the manufacturing sector's importance in a country.
• A mixed economy includes both private and public sectors.

Business Growth and Types

• Capital is the money invested into a business by its owners.
• An entrepreneur organizes, operates, and takes risks for a new business.
• Capital employed is the total value of capital used in a business.
• Internal growth occurs when a business expands its current operations.
• External growth involves takeovers or mergers with other businesses.
• A takeover (acquisition) is when one business buys another, incorporating it into the 'predator' business.
• A merger is when owners of two businesses agree to combine their companies.
• Horizontal integration is when businesses in the same industry and production stage merge.
• Vertical integration is when businesses in the same industry but different production stages merge and can be forward or backward.
• Conglomerate integration (diversification) is when businesses in unrelated industries merge.

Business Structures

• A sole trader is a business owned by one person.
• Limited liability means shareholders are only liable up to their investment amount.
• Unlimited liability means business owners are responsible for all business debts, even beyond their investment.
• A partnership is a business jointly owned by two or more people.
• Unincorporated businesses (sole traders, partnerships) do not have a separate legal identity from their owners.
• Incorporated businesses (companies) have a separate legal status from their owners.
• Shareholders are the owners of a limited company, with shares representing ownership.
• Private limited companies are owned by shareholders but cannot sell shares to the public.
• Public limited companies can sell shares to the public, and their shares are tradable on the stock exchange.
• Dividends are payments made to shareholders from company profits.
• A franchise is a business using the brand and methods of an existing successful business through a license.
• A joint venture is when two or more businesses collaborate on a new project, sharing resources and risks.
• A public corporation is a state-owned and controlled business.

Business Objectives and Stakeholders

• Business objectives are the aims or targets a business works towards.
• Profit is a business's total income (revenue) minus total costs.
• Market share is a brand or business's percentage of total market sales.
• A social enterprise aims to generate profit and have social objectives and reinvest back into the business.
• A stakeholder is anyone with a direct interest in a business's performance and activities.

People in Business - Motivation and Pay

• Motivation is the reason why employees want to work hard and effectively.
• A wage is a payment for work, typically paid weekly.
• Time rate is payment based on hours worked.
• Piece rate is payment based on the number of units produced.
• Salary is a fixed payment for work, usually paid monthly.
• A bonus is an extra payment for good performance.
• Commission is payment based on sales made.
• Profit-sharing distributes a portion of company profits to employees.
• Job satisfaction is the positive feeling of having done a good job.
• Job rotation involves employees switching tasks to avoid monotony.
• Job enrichment adds tasks that require more skill and responsibility to a job.
• Team-working assigns specific tasks and responsibilities to groups of workers.
• Training improves a worker's skills.
• Promotion is an employee's advancement to a higher position.

Organizational Structure and Management

• Organizational structure defines management levels and responsibilities.
• An organizational chart visually represents the internal management structure.
• Hierarchy refers to the levels of management in an organization.
• A level of hierarchy consists of employees with a similar level of responsibility.
• The chain of command allows instructions to flow from senior to lower management.
• The span of control is the number of subordinates managed by one manager.
• Directors are senior managers who lead departments or divisions.
• Line managers have direct authority over subordinates in the hierarchy.
• Supervisors are junior managers who directly control employees.
• Staff managers are specialists who provide support to line managers.
• Delegation is assigning authority to a subordinate to perform tasks.

Leadership Styles

• Leadership styles are approaches to managing and decision-making:
• Autocratic leadership: The manager expects to be in charge and have their orders followed.
• Democratic leadership involves employees in decision-making.
• Laissez-faire leadership gives employees broad objectives and freedom to make their own decisions.

Recruitment and Training

• Recruitment is the process from identifying a need for an employee to receiving applications.
• Job analysis identifies and records job responsibilities and tasks.
• A job description outlines the duties and responsibilities of a specific job.
• A job specification outlines the requirements, qualifications, and expertise needed for a job.
• Internal recruitment fills a vacancy with an existing employee.
• External recruitment fills a vacancy with someone new to the business.
• Induction training introduces a new employee to the business's activities and procedures.
• On-the-job training involves learning by watching an experienced worker.
• Off-the-job training involves being trained away from the workplace by specialists.
• Workforce planning determines the number and skills of employees needed in the future.
• Dismissal is termination of employment against the employee's will, usually for poor performance.
• Redundancy is job loss because the employee is no longer needed, not due to poor performance.
• A contract of employment is a legal agreement outlining the rights and responsibilities of employer and employee.

Communication in Business

• Communication is the transfer of a message from sender to receiver with understanding.
• A message is the information being conveyed.
• Internal communication is between members of the same organization.
• External communication is between the organization and outside entities.
• The transmitter (sender) initiates communication by sending the message.
• The medium is the method used to send a message (e.g., letter, meeting).
• The receiver is the person who receives the message.
• Feedback confirms the message was received and understood.
• One-way communication does not require a response.
• Two-way communication involves a response and discussion.
• Formal communication uses established channels and professional language.
• Informal communication is casual and uses everyday language.
• Communication barriers hinder effective message transfer.

Marketing Basics

• Marketing identifies and satisfies customer wants profitably.
• A customer is an individual or business that buys goods or services.
• Customer loyalty is when customers repeatedly buy from the same business.
• Customer relationships involve communication to foster loyalty.
• Market share is the percentage of total market sales held by a business or brand.
• A consumer buys for personal use, not for resale.
• A mass market involves a large volume of sales for a product.
• A niche market is a small, specialized segment of a larger market.
• A market segment is a sub-group within a market with similar characteristics or preferences.
• Market research collects and analyzes information about a market.
• A product-oriented business focuses on the product itself.
• A market-oriented business researches consumer wants before developing a product.
• A marketing budget is a financial plan for marketing a product over a specific period.

Market Research Methods

• Primary research collects original data directly from potential or existing customers.
• Secondary research uses existing, publicly available information.
• A questionnaire is a set of questions used to gather data.
• Online surveys collect responses to questions over the internet.
• Interviews involve asking individuals questions in person or by phone.
• A focus group is a representative group of people from the target market.
• A sample is a group of people selected to participate in market research.
• A random sample selects participants randomly.
• A quota sample selects participants based on specific characteristics.

The Marketing Mix (4 Ps)

• The marketing mix includes all activities involved in marketing a product, summarized as:
• Product: Features, benefits, and quality.
• Price: Pricing strategy.
• Place: Distribution channels.
• Promotion: Advertising and sales tactics.
• The USP (unique selling proposition) is a product's special feature that differentiates it.
• A brand name is a unique name that distinguishes a product.
• Brand loyalty exists when consumers repeatedly purchase the same brand.
• Brand image is the identity or personality given to a product to differentiate it.
• Packaging is the physical container for a product, used for promotion and appeal.
• The product life cycle describes the stages a product goes through: introduction, growth, maturity, and decline.
• An extension strategy prolongs the maturity stage of the product life cycle.

Pricing Strategies

• Cost-plus pricing covers manufacturing costs plus a profit markup.
• Competitive pricing sets the product at or below competitors' prices.
• Penetration pricing sets a low price to enter a new market.
• Price skimming sets a high price for a new product. Promotional pricing offers very low prices for a short time.
• Dynamic pricing adjusts prices based on demand, often online.
• Price elastic demand means consumers are highly sensitive to price changes.
• Price inelastic demand means consumers are not sensitive to price changes.

Distribution and Promotion

• A distribution channel is how a product reaches the consumer.
• An agent is an independent entity that handles sales and distribution.
• Promotion aims to raise customer awareness and generate sales.
• Advertising is paid communication to potential customers.
• Informative advertising provides detailed product information.
• Persuasive advertising tries to convince consumers they need the product.
• The target audience is the specific group of potential buyers.
• Sales promotions are incentives to increase short-term sales.
• A marketing budget is a financial plan for marketing activities over a period.
• Social media marketing uses social networks to achieve marketing goals.
• Viral marketing encourages consumers to share product information online.
• E-commerce involves online buying and selling of goods and services.
• A marketing strategy combines the elements of the marketing mix to achieve specific objectives.

Operations Management: Productivity and Lean Production

• Productivity is the ratio of output to input.
• The buffer inventory level is maintained to handle demand and supply uncertainties.
• Lean production techniques reduce waste and increase efficiency.
• Kaizen is the Japanese philosophy of continuous improvement through waste elimination.
• Just-in-time (JIT) production minimizes inventory by receiving materials just when needed.

Production Methods

• Job production involves making one product at a time.
• Batch production involves producing a quantity of one product before switching to another.
• Flow production (mass production) produces large quantities in a continuous process.

Costs and Economies of Scale

• Fixed costs do not change with production levels in the short term.
• Variable costs change directly with the number of items produced.
• Total costs are the sum of fixed and variable costs.
• Average cost per unit is the total production cost divided by total output.
• Economies of scale reduce average costs as a business grows.
• Diseconomies of scale increase average costs as a business grows too large.
• The break-even point is where total costs equal total revenue.
• Revenue is income from the sale of goods or services.

Quality Management

• Quality means meeting customer expectations with a good or service.
• Quality control checks for quality at the end of the production process.
• Quality assurance checks for quality standards throughout the production process.

Financial Information: Start-up and Working Capital

• Start-up capital is the initial funding needed for essential assets.
• Working capital is the finance for day-to-day expenses.
• Capital expenditure is spending on long-term assets.
• Revenue expenditure is spending on daily expenses, not long-term assets.
• Internal finance comes from within the business.
• External finance comes from outside the business.
• Micro-finance provides small loans to people not served by traditional banks.
• Crowdfunding raises money from many people, typically online.

Cash Flow Management

• Cash flow is the movement of cash inflows and outflows over time.
• Cash inflows are receipts of money.
• Cash outflows are payments of money.
• A cash flow cycle shows the stages between cash outflow and cash inflow.
• Profit is revenue minus total costs.
• A cash flow forecast estimates future cash inflows and outflows.
• Net cash flow is the difference between inflows and outflows.
• Closing cash balance is the cash held at the end of a month. This becomes next month's opening balance.
• Opening cash balance is the cash held at the start of a month.
• Working capital is used for daily expenses.

Financial Statements

• Accounts are financial records of a business's transactions.
• Final accounts are produced at year-end.
• An income statement (profit and loss account) records income and costs over a period.
• Revenue is income from sales.
• The cost of sales is the cost of producing or buying goods sold.
• Gross profit is revenue minus the cost of sales.
• A trading account calculates gross profit.
• Net profit is the profit after all costs are deducted from revenue.
• Depreciation is the decrease in an asset's value over time.
• Retained profit is net profit reinvested in the company.
• The statement of financial position (balance sheet) shows assets and liabilities at a point in time.
• Assets are items of value owned by the business.
• Liabilities are debts owed by the business.
• Non-current (fixed) assets are owned for more than one year.
• Current assets are used within one year.
• Non-current liabilities are long-term debts.
• Current liabilities are short-term debts.
• Capital employed is shareholders' equity + non-current liabilities.
• Liquidity is the ability to pay short-term debts.
• Profitability measures profit relative to sales or capital invested.
• Illiquid means assets are not easily converted to cash.

External Influences: Economic Factors

• Gross Domestic Product (GDP) is the total value of goods and services produced in a country in one year.
• A recession is a period of falling GDP.
• Inflation is the increase in the average price level over time.
• Unemployment exists when people willing and able to work cannot find jobs.
• Economic growth is an increase in a country's GDP.
• The balance of payments records the difference between exports and imports.
• Real income is the value of income adjusted for inflation.
• Exports are goods and services sold to other countries.
• Imports are goods and services bought from other countries.
• The exchange rate is the value of one currency in terms of another.
• Exchange rate appreciation is an increase in a currency's value.
• Exchange rate depreciation is a decrease in a currency's value.

Government Policies

• Fiscal policy is government changes in tax rates or public spending.
• Direct taxes are paid directly from income.
• Indirect taxes are added to the prices of goods.
• Disposable income is income after paying income tax.
• An import tariff is a tax on imported products.
• Monetary policy is a change in interest rates by the government or central bank.
• Supply-side policies aim to increase supply and make the economy more efficient.

Costs and Benefits: Private vs. External vs. Social

• Private costs are paid by a business or consumer.
• Private benefits are gains to a business or consumer.
• External costs are costs paid by society due to business activity.
• External benefits are gains to society due to business activity.
• Social cost = external costs + private costs
• Social benefit = external benefits + private benefits

Globalization and Trade

• Globalization is the increase in worldwide trade and movement of people and capital.
• Sustainable development meets present needs without compromising future generations.
• Free trade agreements eliminate trade barriers between countries.
• An import quota limits the quantity of a product that can be imported.
• Protectionism protects domestic businesses from foreign competition using tariffs and quotas.
• Multinational businesses operate in multiple countries..