Business Activity

Needs Goods or services we need to survive

Opportunity Cost the potential benefits a business misses out on when

choosing one alternative over another.

Purpose of Business satisfies peoples (consumers) wants.

Business Activity

Scarcity Not enough resources, goods or services to provide for

peoples’ (consumers) unlimited wants.

Specialisation People in business focus on what they do best.

Value Added Selling price – cost of bought-in materials.

Wants Good or service people want but aren’t essential for

survival.

Primary Sector Using natural resources to make raw materials for

business

Private Sector Part of the economy owned and controlled by private

individuals

Secondary Manufacturing goods from raw materials.

Sector

Tertiary Sector A business that provides services to consumers and

other businesses.

Business Plan A document setting out a businesses objectives and how

it will achieve them.

Entrepreneur Someone who invests capital, takes a risk and starts up

and operates a new business venture.

External Growth Business expansion, taking over or merging with another

 business.

Grant Capital given by a government to a business to assist

with start-up costs, innovation or business growth.

Internal Growth Business expansion without taking over or merging with

another business (organic growth).

Franchise Buying the license to use another companies logo and

sell their products.

Incorporated Business is a separate legal entity – separation between

Business owners and the company.

Joint Venture Two companies share capital and expertise on a project.

They share risks and profits.

Limited Liability Owners responsibility for company debts restricted to

what they have invested in the business.

Partnership Two or more people join to set up a business. Shared

decision making, capital invested and risk.

Private Limited Incorporated business with shares sold to friends and

Company family. Limited liability.

Public Government-owned organisation set up to provide

Corporation service to the public

Public Limited Incorporated business with shares sold to the general

Company public, limited liability.

Public Sector Part of the economy owned and controlled by the

government.

Sole Trader A business owned by one person who is responsible for

all decisions, capital invested and risk.

Unincorporated No separation between the company and the owners in

Business law.

Business Aims or targets a business sets out to achieve.

Objectives

External Individual or group outside the business impacted by the

Stakeholders business activity (owners/shareholders, managers,
employees).

Internal Individual or group inside the business impacted by the

Stakeholders business activity (owners/shareholders, managers,
employees).

Social Enterprise A private enterprise which uses profits to pursue

environmental or social objectives.

Unlimited Owners personal assets may be taken to pay for debts

Liability of the company.
 People in Business

Bonus An extra reward given to employees for reaching a

certain target.

Commission Salespeople are given a % of the selling price if they

make a sale.

Herzberg’s Basic employee needs which must be fulfilled before

Hygiene Factors employees can be motivated

Job enrichment Employees are given additional responsibility in their

day to day tasks, which often involves more training or
development.

Job rotation Employees switch simple tasks for a short time.

Labour turnover The number of employees leaving a business in a year

and is calculated as a share of the total workforce.

Maslow’s Ranks human needs in order from survival needs to self-

hierarchy of actualisation.
needs

Motivation Motivation is the reason why employees work hard and

effectively for a business.

Opportunities for Rewarding employees with positions of higher status or

promotion responsibility in the business.

Profit Sharing Employees get rewarded with a % of the firm’s profits

annually

Salary Fixed payment usually paid monthly

Taylor’s Viewed workers as machines, the more you pay they
Motivational harder they will work.
Theory

Team working Groups of employees are given responsibility for a

specific project, department or unit of work.

Wages Payment for work usually paid weekly.

Autocratic The leader makes all decisions, one-way

Leadership communication.

Chain of The path through which authority is passed down

command through an organisation.

Delegation Passing responsibility to subordinates to complete

tasks.

Democratic Leader consults with employees before making a

leadership decision, two-way communication.

Lassez-Faire A “hand’s off” approach to leadership where most

Leadership decisions and responsibility are delegated to
employees.

Span of control No of subordinates who report to each

manager/supervisor

Functions of Planning, commanding, controlling, organising and co-

management ordinating.

Discrimination Treating an employee differently because of age,

ethnicity, gender or disability.

Dismissal End of employment due to underperformance or

breaking company regulations.
External Hiring an employee for a post not currently employed
recruitment by the business.

Healthy and Responsibility to ensure the workplace is safe and no

safety accidents occur.

Induction training Training to familiarise new employees with the

workplace, co-workers and procedures.

Internal Hiring an employee for a post currently employed by

recruitment the business in another post.

Job Tells potential applicants about the job, what the

Advertisement requirements are and how to apply.

Job description Duties and responsibilities of a position.

Legal minimum Government sets the minimum pay rate for workers
wage within a country.

Off the job Training off-site at a college or specialist training

training location.

On the job Training at the workplace under the direction of an

training experienced employee.

Recruitment and Finding and choosing the correct candidate for the
Selection vacant job post.

Short-listing Choosing the most suitable candidates to invite to

interview.

Trade Union An organisation of employees who aim to improve the

pay and conditions of their members

Training Improving the knowledge and skills of employees so

they perform their jobs more effectively.

Unfair dismissal Ending a work contract without proper or legal

 justification.

Interview Employers ask potential employees questions to decide

if they are suitable for the job.

Redundancy Losing employment as the position no longer exists, for

example after a factory is closed

Communication The message is passed to intended recipients and

(effective) understood with feedback to confirm understanding.

Communication Anything that prevents receiving and understanding

barriers messages.

Marketing

Brand A name image or logo which distinguishes a product or

service from competitors.

Brand image The general impression that a brand presents to

consumers.

Building Building strong relationships to ensure customer loyalty.

customer
relationships

Customer Consumers who make repeated purchases of a specific

loyalty product or brand.

Market Where businesses sell, and consumers buy.

Market Products or services developed in response to market

orientated research data.

Market Splitting a market into smaller parts based on consumer

segmentation characteristics.

Market Share Revenue of a business as a % of the total market

 revenue.

Marketing The process a business undertakes to promote the

buying or selling of a product or service.

Mass marketing Selling the same product to a whole market.

Niche Developing product for a small market segment.

marketing

Product A business decides what to produce, then finds buyers for

oriented the product.

Target Market All potential consumers who have an interest in buying a

product and the money to do so.

Cost plus Adding a fixed price to the cost of making or buying a

pricing product.

Focus groups A small group of potential consumers discuss a product or

service led by a market researcher.

Market Collecting and analysing data about customers,

research competitors and the market for a product or service.

Primary First-hand data collected specifically for a business needs.

research

Sampling Taking a representative sample from the target market to

complete market research.

Secondary Collection of data from second hand resources.

research

Advertising Influencing the buying behaviour of consumers with a

persuasive selling message about products.
Competitive Setting a price close to competitors’ products in the same
pricing market.

Distribution The path a product takes from producer to consumer.

channels

E-commerce Selling products and services over the internet.

Extension Strategies to lengthen the maturity stage of a product.

strategies

Marketing Mix Four marketing decisions required for the successful

marketing of a product or service (4p’s or 4c’s).

Packaging The wrapping material around a consumer item that

serves to contain, identify, describe, protect, display,
promote and otherwise make the product marketable and
keep it clean.

Penetration Setting a low price to attract consumers to buy a new

pricing product.

Personal Selling Salesperson aims to convince the customer in buy a

product.

Price elasticity How much demand is affected by a change in price.

Price skimming Setting a high price for a new unique product which has
no direct competitor in the market.

Product The creation of products with new or different

development characteristics that offer new or additional benefits to the
customer.

Product life Pattern of sales from introduction to withdrawl from the

cycle market.
Promotional Reducing the price of a product or services in short-term
pricing to attract more customers & increase the sales volume.

Sales Incentives used to encourage short-term increases in

Promotion sales or repeat purchases.

Social media Using social media websites and social networks to

marketing market a company’s products and services.

Sponsorship A business pays to have its name linked to an event or

sporting team.

Licensing An agreement in which one company gives another

company permission to manufacture its product for a
payment.

Marketing Plan to achieve marketing targets with set resources.

Strategy

Operations

Batch production Producing goods in batches where all products must

pass through one stage of production before moving
onto the next.

Efficiency Making the best possible use of resources.

 Maximising outputs from inputs.

Flow production Constantly producing large quantities of identical

goods.

Inventory Stock of work in progress, raw materials, and finished

products held by a business.

Job production Producing a unique product, one at a time.

Just in time Inventory management method where supplies

(inventory arrive exactly when needed in the production
management), process.

Kaizen Constantly introducing small changes in a business

in order to improve quality and/or efficiency.

Labour productivity How efficiently workers produce output, calculated by

output/no of workers.

Lean Production Production of goods and services with maximum

efficiency and minimum waste.

Operations The process of production of goods and services.

management

Production The process of converting inputs like (raw materials

and components) into finished products.

Productivity Measure of efficiency calculated by dividing outputs

by inputs.

Average costs Cost of producing a single unit of output.

Break even Achieving quality production by designing every

process to get the product ‘right first time’ and
preventing mistakes.

Diseconomies of Factors that result in the average price of production

scale increasing as output increases.

Economies of scale Factors that result in the average price of production

decreasing as output increases.

Fixed costs Costs that don’t change with output.

Margin of safety Difference between the current level of output and

break-even point.

Total Costs Fixed costs plus variable costs.

Variable costs Costs that change with output.

Quality assurance Achieving quality production by designing every

process to get the product ‘right first time’ and
preventing mistakes.

Quality control Checking quality through inspection at the end of the

production process.

Financial Information and Decisions

Debt Finance Borrowing money from a bank which must be repaid with
 interest.

Equity Finance Selling shares in the business to raise finance rather than
borrowing.

Internal Finance sourced from inside the business, for example,

Sources of owner’s funds, sale of assets and retained profit.
Finance

Loan Bank lends a fixed amount for an agreed time period,

which must be repaid with interest.

Long term Finance required for periods usually longer than one year.
finance

Micro Finance Lending small amounts of finance small business people to

those who can’t access finance from another source.

Overdraft Banks allow businesses to take additional money out of

their account up to a certain limit.

Owners Using owners’ own savings to finance the business.

savings

Sale of assets Selling equipment /machinery/inventory to raise finance for

a business.

Short-term Finance required for short periods usually less than one
Finance year.

Start Up Money required to set up a business and keep the business

Capital operating until the business breaks even.

Trade Credit Delaying payment to suppliers for an agreed time period.

Cash flow Cash flow in and out of the business over a period of time.

Cash flow Estimate of future cash inflows and outflows usually

forecast calculated month by month to ensure there is enough cash
 to pay short-term debts.

Cash Inflow Cash going into a business.

Cash outflow Cash going out of the business.

Crowd Raising finance by raising small amounts of money from

Funding many people, usually via the Internet.

Net cash flow Cash inflows – cash outflows

Trade Sales made by a business, but still awaiting payment

receivables (current asset).

Working Capital available to a business day to day to pay short-

Capital term debts. (Current Assets – current liabilities)

Profit Sales revenue minus total costs of making a

product/service

Retained Profit Reinvesting profits back into the business.

Account Unpaid bills or payment owed by a business which must be

Payable paid (current liability).

Assets Items of value owned by the business like buildings,

vehicles, equipment, machinery.

Capital Money invested in a business (buildings, machinery).

Employed

Current Assets Items of value that the business won’t keep for longer than
a year, like cash or inventory

Liabilities Debts owed by the business, for example, bank loans.

Non current Items of value the business will keep longer than one year,
assets for example land, buildings, equipment and vehicles.

Non-current Debts which will last longer than one year, like a long-term
liabilities loan for new production machinery.

External Influences on Business Activity

Business cycle The business cycle tracks the size of the economy as it
increases and decreases and goes through four phases –
growth, boom decline and slump.

Economy Everything which is produced and consumed within a

country.

Globalisation Increased interconnectedness and worldwide movement

of goods, services, capital and people.

Government Government investment on infrastructure or spending

Spending on welfare payments.

Gross Domestic Gross Domestic Product measures the size of the

Product economy. Calculated by adding up the value of all the
goods and services produced in one country in on year.

Inflation Prices and salaries rise so the value of money – what you
can buy – decreases.

Quotas A limit on imports.

Recession Economy is decreasing in size.

Business ethics “Doing the right thing”. Basing business decisions on

what is morally right.

External benefits The positive impact of business activity which doesn’t

benefit the business but positively affects the rest of
society.
External costs The costs of business activity which aren’t paid by the
business but by society.

Multinational Businesses that sell goods/services or have production

corporations in more than one country.
(MNC)

Pressure Groups Group that tries to influence business or consumer

activity in the interest of a particular cause.

Repatriating Taking profits earned in a foreign market and

profits transferring to the home country of the business.

Sustainable Achieving development (growth) without negatively

development impacting the environment.

Currency Value of a currency rises .

appreciation

Currency Value of a currency falls.

depreciation

Exchange rate The price of one currency for another, for example 1
euro = $2.

Interest Rates The cost of borrowing money. Lower interest rates

means higher spending and greater economic activity.

Tariffs A tax on imports.