3.1 What is business?

3.1.1 Understanding the nature and purpose of business

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Why businesses exist

Business objectives such as profit, growth, survival, cash flow, social and ethical objectives

The relationship between mission and objectives

 

Common business objectives

 

Why businesses set objectives

 

The measurement and importance of profit

The measurement of profit should include:

  • revenue (also turnover and sales)
  • fixed costs
  • variable costs
  • total costs.

3.1.2 Understanding different business forms

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Reasons for choosing different forms of business and for changing business form

Different forms of business include:

  • sole traders
  • private limited companies and public limited companies
  • private sector and public sector organisations
  • non-profit organisations such as charities and mutuals.

Issues with different forms of business include:

  • unlimited and limited liability
  • ordinary share capital
  • market capitalisation
  • dividends.

The role of shareholders and why they invest

 

Influences on share price and the significance of share price changes

 

The effects of ownership on mission, objectives, decisions and performance

 

3.1.3 Understanding that businesses operate within an external environment

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How the external environment can affect costs and demand

Factors influencing costs and demand to include the effect of:

  • competition
  • market conditions
  • incomes
  • interest rates
  • demographic factors
  • environmental issues and fair trade.