 Definitions to learn  The primary sector of industry extracts and uses the

 A need is a good or service essential for living. natural resources of Earth to produce raw materials
 A want is a good or service which people would like to used by other businesses.
have, but which is not essential for living. People's  The secondary sector of industry manufactures goods
wants are unlimited. using the raw materials provided by the primary sector.
 The economic problem- there exist unlimited wants but  The tertiary sector of industry provides services to
limited resources to produce the goods and services to consumers and the other sectors of industry.
satisfy those wants. This creates scarcity.  De-industrialization occurs when there is a decline in
 Scarcity is the lack of sufficient products to fulfil the the importance of the secondary, manufacturing sector
total wants of the population. of industry in a country.
 Factors of production are those resources needed to  A mixed economy has both a private sector and a
produce goods or services. There are four factors of public (state) sector.
production and they are in limited supply.  ENTREPRENEURS:
 Opportunity cost is the next best alternative given up by  Entrepreneur is a person who organises, operates and
choosing another item. takes the risk for a new business venture.
 Specialization occurs when people and businesses  A business plan is a document containing the business
concentrate on what they are best at. objectives and important details about the operations,
 Division of Labour is when the production process is finance and owners of the new business.
split up into different tasks and each worker performs  Capital employed is the total value of capital used in
one of these tasks. It is a form of specialization. the business.
 Added value is the difference between the selling price  Internal growth occurs when a business expands its
of a product and the cost of bought-in materials and existing operations.
components.  External growth is when a business takes over or
 SECTORS: merges with another business. It is often called
 integration as one business is integrated into another they own. So if the business goes into debt the owners'
one. personal assets are at stake.
 A takeover or acquisition is when one business buys  Partnership is a form of business in which two or more
out the owners of another business, which then people agree to jointly own a business.
becomes part of the 'predator' business  A partnership agreement is the written and legal
 A merger is when the owners of two businesses agree agreement between business partners. It is not essential
to join their businesses together to make one business. for partners to have such an agreement but it is always
 Horizontal integration is when one business merges recommended.
with or takes over another one in the same industry at  An unincorporated business is one that does not have a
the same stage of production. separate legal identity. Sole traders and partnerships are
 Vertical integration is when one business merges with unincorporated businesses.
or takes over another one in the same industry but at a  Incorporated businesses are companies that have
different stage of production. Vertical integration can be separate legal status from their owners.
forward or backward.  Private limited companies are businesses owned by
 Conglomerate integration is when one business merges shareholders but they cannot sell shares to the public.
with or takes over a business in a completely different  Public limited companies are businesses owned by
industry. This is also known as diversification. shareholders but they can sell shares to the public and
 their shares are tradable on the Stock Exchange.
 TYPES OF BUSINESS ORGANISATIONS:  An Annual General Meeting is a legal requirement for
 Sole trader is a business owned by one person who has all companies. Shareholders may attend and vote on
unlimited liability. who they want to be on the Board of Directors for the
 Limited liability means that the shareholders in a coming year.
company are liable to only the amount they invested.  Dividends are payments made to shareholders from the
 Unlimited liability means that the owners of a business profits (after tax) of a company. They are the return to
can be held responsible for the debts of the business shareholders for investing in the company.
 A franchise is a business based upon the use of the  Time rate is the amount paid to an employee for one
brand names, promotional logos and trading methods hour of work. Piece rate is an amount paid for each unit
of an existing successful business. The franchisee buys of output.
the licence to operate this business from the franchisor.  A salary is payment for work, usually paid monthly.
 A joint venture is where two or more businesses start a  A bonus is an additional amount of payment above
new project together, sharing capital, risks and profits. basic pay as a reward for good work.
 A public corporation is a business in the public sector  Commission is payment relating to the number of sales
that is owned and controlled by the state (government). made. Profit sharing is a system whereby a proportion
 BUSINESS AND STAKEHOLDER OBJECTIVES: of the company's profits is paid out to employees.
 Business objectives are the aims or targets that a  Job satisfaction is the enjoyment derived from feeling
business works towards. that you have done a good job.
 Profit is the total income of a business (revenue) less  Job rotation involves workers swapping around and
total costs. doing each specific task for only a limited time and
 Market share is the percentage of total market sales then changing around again.
held by one brand or business.  Job enrichment involves looking at jobs and adding
 A social enterprise has social objectives as well as an tasks that require more skill and/or responsibility, but
aim to make a profit to reinvest back into the business. the tasks are not always interesting.
 A stakeholder is any person or group with a direct  Team Work involves using groups of workers and
interest in the performance and activities of a business. allocating specific tasks and responsibilities to them.
 MOTIVATION:  Training is the process of improving a worker's skills.
 Motivation is the reason why employees want to work Many businesses train their workers because it
hard and work effectively for the business. increases their employee’s productivity.
 A wage is payment for work, usually paid weekly.  Promotion is the advancement of an employee in an
organisation, for example, to a higher job/managerial
level.
 ORGANISATIONAL STRUCTURE:  Delegation means giving a subordinate the authority to
 Organisational structure refers to the levels of perform particular tasks.
management and division of responsibilities within an  Leadership styles are the different approaches to
organisation. dealing with people and making decisions when in a
 Organisational chart refers to a diagram that outlines position of authority - autocratic, democratic or laissez-
the internal management structure. faire.
 Hierarchy refers to the levels of management in any  Autocratic leadership is where the manager expects to
organisation, from the highest to the lowest. be in charge of the business and to have their orders
 A level of hierarchy refers to followed. It involves one way communication and this
managers/supervisors/other employees who are given a type of leadership style can demotivate the employee.
similar level of responsibility in an organisation.  Democratic leadership gets other employees involved
 Chain of command is the structure in an organisation in the decision-making process.This involves two way
which allows instructions to be passed down from communication and can be considered as a motivating
senior management to lower levels of management. leadership style.
 The span of control is the number of subordinates  Laissez-faire leadership makes the broad objectives of
working directly under a manager. the business known to employees, but then they are left
 Directors are senior managers who lead a particular to make their own decisions and organise their own
department or division of a business. work.
 Line managers have direct responsibility for people  A trade union is a group of employees who have joined
below them in the hierarchy of an organisation. together to ensure their interests are protected.
 Supervisors are junior managers who have direct  A closed shop is when all employees must be a
control over the employees below them in the member of the same trade union.
organisational structure.  RECRUITMENT:
 Staff managers are specialists who provide support,  Recruitment is the process of identifying that the
information and assistance to line managers. business needs to employ someone up to the point at
 which applications have arrived at the business. and procedures and introducing them to their fellow
Recruitment can be of two types, internal and external workers.
recruitment.  On-the-job training occurs by watching a more
 Employee selection is the process of evaluating experienced worker doing the job.
candidates for a specific job and selecting an individual  Off-the-job training involves being trained away from
for employment based on the needs of the organisation. the workplace, usually by specialist trainers.
 A job analysis identifies and records the responsibilities  Workforce planning is establishing the workforce
and tasks relating to a job. needed by the business for the foreseeable future in
 A job description outlines the responsibilities and duties terms of the number and skills of employees required.
to be carried out by someone employed to do a specific  Dismissal is when employment is ended against the
job. will of the employee, usually for not working in
 A job specification is a document which outlines the accordance with the employment contract.
requirements, qualifications, expertise, physical  Redundancy is when an employee is no longer needed
characteristics, etc., for a specified job. and so loses their job. It is not due to any aspect of their
 Internal recruitment is when a vacancy is filled by work being unsatisfactory.
someone who is an existing employee of the business.  A contract of employment is a legal agreement between
 External recruitment is when a vacancy is filled by an employer and employee, listing the rights and
someone who is not an existing employee and will be responsibilities of workers.
new to the business.  An industrial tribunal is a type of law court (or in some
 Part-time employment is often considered to be countries, a legal meeting) that makes judgments on
between 1 and 30- 35 hours a week. disagreements between companies and their
 Full-time employees will usually work 35 hours or employees, for example, workers' complaints of unfair
more a week. dismissal or discrimination at work.
 Induction training is an introduction given to a new
employee, explaining the business's activities, customs
 An ethical decision is a decision taken by a manager or  Two-way communication is when the receiver gives a
a company because of the moral code observed by the response to the message and there is a discussion about
firm. it.
 COMMUNICATION:  Formal communication is when messages are sent
 Communication is the transferring of a message from through established channels using professional
the sender to the receiver, who understands the language.
message.  Informal communication is when information is sent
 A message is the information or instructions being and received, casually using everyday language.
passed by the sender to the receiver.  Communication barriers are factors that stop effective
 Internal communication is between members of the communication of messages.
same organisation.  Marketing:
 External communication is between the organisation  Marketing- identifying customer wants and satisfying
and other organisations or individuals. them profitably
 The transmitter or sender of the message is the person  Customer- a person, business or organisation which
starting off the process by sending the message. buys good or services from a business
 The medium of communication is the method used to  Customer loyalty- existing customers continually buy
send a message, for example, a letter is a method of products from the same business
written communication and a meeting is a method of  Customer relationships- communicating with
verbal communication. customers to encourage them to be loyal
 The receiver is the person who receives the message.  Market share- percentage of total market sales held by a
 Feedback is the reply from the receiver which shows business
whether the message has arrived, been understood and,  Niche market- small, usually specialised, segment of a
if necessary, acted upon. much larger market
 One-way communication involves a message which
does not call for or require a response.
 Market segment- and identifiable sub-group of a whole  Online surveys- requires target sample to answer a
market in which the consumers have similar series of questions
preferences  Interviews-asking individuals a series of questions,
 Mass market-a market where there are very large often face-to-face or over the phone.
number of sales of a product  focus group is a group of people who are representative
 of the target market
 Market research – process of gathering, analyzing, and  sample is the group of people who are selected to
interpreting information about a market respond to a market research exercise, such as a
 Product oriented- a business whose main focus of questionnaire.
activity is on the product itself  random sample is when people are selected at random
 Market oriented- one which carries out market research as a source of information for market research.
to find out about customer wants before the product is  quota sample is when people are selected on the basis
developed of certain characteristics (such as age, gender or
 Marketing budget- a financial plan for the marketing of income)
a product for some specified period of time. It specifies
how much money is available to market the product, so  The marketing mix is a term which is used to describe
that the Marketing department knows how much it may all the
spend.  activities which go into marketing a product or service.
 Primary research - the collection and collation of  The USP is the special feature of a product that
original data via direct contact with potential or existing differentiates it from the products of competitors.
customers.  The brand name is the unique name of a product that
 Secondary research- info that has already been distinguishes it from other brands.
collected and is available for use  Brand loyalty is when consumers keep buying the same
 Questionnaire- a set of questions to be answered as a brand again and again instead of choosing a
means of collecting data competitor’s brand.
 Brand image is an image or identity given to a product  Dynamic pricing is when businesses change product
which gives it a personality of its own and distinguishes prices, usually when selling online, depending on the
it from its competitors’ brands. level of demand.
 Packaging is the physical container or wrapping for a  Price elastic demand is where consumers are very
product. It is also used for promotion and selling sensitive to changes in price.
appeal.  Price inelastic demand is where consumers are not
The product life cycle describes the stages a product will sensitive to changes in price.
pass through from its introduction, through its growth
until it is mature and then finally its decline.  A distribution channel is the means by which a product
 Extension strategy is a way of keeping a product at the is passed from the place of production to the customer.
maturity stage of the life cycle and extending the cycle.  An agent is an independent person or business that is
 Cost-plus pricing is the cost of manufacturing the appointed to deal with the sales
product plus a profit mark-up.  Promotion is where marketing activities aim to raise
 Competitive pricing is when the product is priced in customer awareness of a product or brand, generating
line with or just below competitors’ prices to try to sales and helping to create brand loyalty.
capture more of the market.  Advertising paid for communication with potential
 Penetration pricing is when the price is set lower than customers about a product to encourage them to buy it.
the competitors’ prices in order to be able to enter a  Informative advertising is where the emphasis of
new market. advertising is to give the full information of the product
 Price skimming is where a high price is set for a new  Persuasive advertising is advertising or promotion
product on the market. which is trying to persuade the consumer that they
 Promotional pricing is when a product is sold at a very really need the product
low price for a short period of time.  target audience refers to people who are potential
buyers
 Sales promotions are incentives such as special offers  Revenue expenditure is money spent on day-to-day
or special deals aimed at consumers to achieve short- expenses which do not involve the purchase of a long-
term increases in sales term asset.
 Social media marketing is a form of internet marketing  Internal finance is obtained from within the business
that involves creating and sharing content on social itself
media networks in order to achieve marketing and  External finance is obtained from sources outside of
branding goals and separate from the business.
 Viral marketing is when consumers are encouraged to  Micro-finance is providing financial services –
share information online about the products including small loans – to poor people not served by
 e-commerce is the ‘online’ buying and selling of goods traditional banks.
and services using computer systems linked to the  Crowdfunding is funding a project or venture by raising
internet money from a large number of people
 A marketing strategy is a plan to combine the right CASHFLOW
combination of the four elements of the marketing mix  cash flow of a business is the cash inflows and outflows
for a product or service to achieve a particular over a period of time.
marketing objective(s).  Cash inflows are the sums of money received by a
FINANCE: - business
 Start-up capital is the finance needed by a new business  Cash outflows are the sums of money paid out by a
to pay for essential non-current (fixed) and current business
assets  A cash flow cycle shows the stages between paying out
 Working capital is the finance needed by a business to cash for Labour, materials, and so on, and receiving
pay its day-to-day costs. cash from the sale of goods
 Capital expenditure is money spent on non-current  Profit is the surplus after total costs have been
(fixed) assets which will last for more than one year. subtracted from revenue.
 A cash flow forecast is an estimate of future cash  An income statement is a financial statement that
inflows and outflows of a business, usually on a month- records the income of a business and all costs incurred
by-month basis to earn that income over a period of time (for example,
 Net cash flow is the difference, each month, between one year). It is also known as a profit and loss account.
inflows and outflows.  The revenue is the income to a business during a period
 Closing cash (or bank) balance is the amount of cash of time from the sale of goods or services.
held by the business at the end of each month. Becomes  The cost of sales is the cost of producing or buying in
next month’s opening balance the goods actually sold by the business during a time
 Opening cash (or bank) balance is the amount of cash period.
held by the business at the start of the month.  A gross profit is made when revenue is greater than the
 Working capital is the capital available to a business in cost of sales.
the short term to pay for day-to-day expenses. Current  A trading account shows how the gross profit of a
assets- current liabilities business is calculated.
INCOME STATEMENTS:  Net profit is the profit made by a business after all costs
 Accounts are the financial records of a firm’s have been deducted from revenue. It is calculated by
transactions. subtracting overhead costs from gross profits.
 Accountants are the professionally qualified people  Depreciation is the fall in the value of a fixed asset over
who have time.
 responsibility for keeping accurate accounts and for  Retained profit is the net profit reinvested back into a
producing the final accounts. company, after deducting tax and payments to owners,
 Final accounts are produced at the end of the financial such as dividends.
year and  Current liabilities are debts owed by the business that
 give details of the profit or loss made over the year and have to be repaid in less than one year
the worth of the business.  The statement of financial position shows the value of a
business's assets and liabilities at a particular time
 Assets are those items of value which are owned by the
business. They may be non- current (fixed) assets or
currents assets
 Liabilities are debts owed by the business. They may be
non-current liabilities or currents liabilities
 Non-current assets are items owned by the business for
more than one year
 Current assets are owned by the business and used
within one year
 Non-current liabilities are long-term debts owed by the
business, repaid over more than one year
 Current liabilities are short-term debts owed by the
business, repaid in less than one year
 Capital employed is shareholders' equity + non-current
liabilities and is the total long-term and permanent
capital invested in a business
 Liquidity is the ability of a business to pay back its
short-term debts
 Profitability is the measurement of the profit made
relative to either the value of sales achieved or the
capital invested in the business
 Illiquid means that assets are not easily convertible into
cash
