3.1.1 Understanding the nature
and purpose of business (Chapter
1)
Why do businesses exist?
- ANSWER - - there is a gap in the market that needs to be filled
- To create a living for the entrepreneur
- The entrepreneur has a passion for what they are doing
- To improve lives e.g. TOMS - sell 1, donate 1
What are a business’s aims? In order
- ANSWER - 1. Survival - if economy declines, businesses often come back to this stage
2. Cash flow (liquidity) - a business can meet its debts
3. Profit
4. Growth
5. Social & ethical objectives
Do the aims complement each other or could there be a conflict between them? - ANSWER - does social
and ethical objectives get in the way of profit being collected
In the example of TOMS it does, they are reducing revenue and increasing costs by sending free pairs of
shoes to people.
However, does their ethical standpoint provide a USP?
What is a mission statement? - ANSWER - a qualitative statement of an organization’s overall mission or
purpose
Examples of 2 mission statements of large companies - ANSWER - TED - spreading ideas
Tesco - serving British shoppers a little better every day
Why does a business need mission statements? - ANSWER - - to provide a clear goal, purpose and sense
of direction
- To communicate this to their stakeholders, staff & customers
- To create a sense of identity & a USP
- To enable a business to set clear goals to help it achieve its mission
- review if the business has achieved its goals
What are corporate aims? - ANSWER - the medium to long term goals that will enable a business to
achieve its mission
What are corporate objectives? - ANSWER - short term goals that will enable the company to achieve
their aims
What are functional objectives? - ANSWER - specific targets set for each functional area
, What is the relationship between mission and objectives? - ANSWER - mission is the big picture,
objectives are the steps that allow a business to get there
Why do businesses set objectives? - ANSWER - - businesses and employees can check how well they are
doing against their targets & can judge their progress
- can provide targets for the workforce, cash-flow, supplies, output & marketing
- Motivational - it provides the employees with something to aim for
What are SMART objectives? - ANSWER - Specific - applies to the business
Measurable - can it be quantified?
Agreed - do the people involved agree with it?
Realistic - is it achievable in the time frame?
Timely - is there a time frame?
Why is profit important? - ANSWER - - Reward for enterprise
- A motivator to staff e.g. profit-sharing schemes like the one used at Ford
- Source of finance for growth, savings etc...
- Indicator of success
- used for ethical/social purposes e.g. TOMS
- contributes towards the long term success of the business
How do you measure profit? - ANSWER - revenue - costs
What is revenue? - ANSWER - the amount (value) of a product that customers actually buy from a
business
How do you work out revenue? - ANSWER - volume sold x average selling price
What are two ways to increase revenue? - ANSWER - 1. Increase the amount sold: this is done by cutting
the price or volume-related incentives e.g. 2 for 1
2. Achieve a higher selling price: this is done by adding value to the product whilst also increasing price
What are the two types of costs? - ANSWER - fixed and variable
What is the definition of costs? - ANSWER - the amount that a business incurs in order to make goods
and/or provide services
What is the formula for total variable costs? - ANSWER - variable cost per unit x output
What are variable costs? - ANSWER - costs that directly change as output varies
What are fixed costs? - ANSWER - costs that do not vary with the quantity of output produced. They can
change just not due to output
Examples of variable costs? - ANSWER - - wages based on hours worked or output produced
- Energy, utilities
- Raw materials
and purpose of business (Chapter
1)
Why do businesses exist?
- ANSWER - - there is a gap in the market that needs to be filled
- To create a living for the entrepreneur
- The entrepreneur has a passion for what they are doing
- To improve lives e.g. TOMS - sell 1, donate 1
What are a business’s aims? In order
- ANSWER - 1. Survival - if economy declines, businesses often come back to this stage
2. Cash flow (liquidity) - a business can meet its debts
3. Profit
4. Growth
5. Social & ethical objectives
Do the aims complement each other or could there be a conflict between them? - ANSWER - does social
and ethical objectives get in the way of profit being collected
In the example of TOMS it does, they are reducing revenue and increasing costs by sending free pairs of
shoes to people.
However, does their ethical standpoint provide a USP?
What is a mission statement? - ANSWER - a qualitative statement of an organization’s overall mission or
purpose
Examples of 2 mission statements of large companies - ANSWER - TED - spreading ideas
Tesco - serving British shoppers a little better every day
Why does a business need mission statements? - ANSWER - - to provide a clear goal, purpose and sense
of direction
- To communicate this to their stakeholders, staff & customers
- To create a sense of identity & a USP
- To enable a business to set clear goals to help it achieve its mission
- review if the business has achieved its goals
What are corporate aims? - ANSWER - the medium to long term goals that will enable a business to
achieve its mission
What are corporate objectives? - ANSWER - short term goals that will enable the company to achieve
their aims
What are functional objectives? - ANSWER - specific targets set for each functional area
, What is the relationship between mission and objectives? - ANSWER - mission is the big picture,
objectives are the steps that allow a business to get there
Why do businesses set objectives? - ANSWER - - businesses and employees can check how well they are
doing against their targets & can judge their progress
- can provide targets for the workforce, cash-flow, supplies, output & marketing
- Motivational - it provides the employees with something to aim for
What are SMART objectives? - ANSWER - Specific - applies to the business
Measurable - can it be quantified?
Agreed - do the people involved agree with it?
Realistic - is it achievable in the time frame?
Timely - is there a time frame?
Why is profit important? - ANSWER - - Reward for enterprise
- A motivator to staff e.g. profit-sharing schemes like the one used at Ford
- Source of finance for growth, savings etc...
- Indicator of success
- used for ethical/social purposes e.g. TOMS
- contributes towards the long term success of the business
How do you measure profit? - ANSWER - revenue - costs
What is revenue? - ANSWER - the amount (value) of a product that customers actually buy from a
business
How do you work out revenue? - ANSWER - volume sold x average selling price
What are two ways to increase revenue? - ANSWER - 1. Increase the amount sold: this is done by cutting
the price or volume-related incentives e.g. 2 for 1
2. Achieve a higher selling price: this is done by adding value to the product whilst also increasing price
What are the two types of costs? - ANSWER - fixed and variable
What is the definition of costs? - ANSWER - the amount that a business incurs in order to make goods
and/or provide services
What is the formula for total variable costs? - ANSWER - variable cost per unit x output
What are variable costs? - ANSWER - costs that directly change as output varies
What are fixed costs? - ANSWER - costs that do not vary with the quantity of output produced. They can
change just not due to output
Examples of variable costs? - ANSWER - - wages based on hours worked or output produced
- Energy, utilities
- Raw materials
