Business Definitions

Chapter 1

1. Need: A good or service essential for living.

2. Want: A good or service which people willl like to have but not which is essential for
living.

3. Economic Problem: There exist unlimited want but limited resources to produce
them to satisfy those wants.

4. Factors of production: Are those resources needed to produce goods or services.

These are four factors of production and they are in limited supply.

5. Scarcity: The lack of sufficient products to fulfill the total wants of the population.

6. Opportunity cost: The next best alternative given up by choosing another item.

7. Specialization: It occurs when people and businesses concentrate on what they

are best at.

8. Division of labour: When the production process is split in to different tasks and
each worker performs one of these tasks.

9. Businesses: Combine factors of production to make products which satisfy peoples

wants.

10. Added value: The difference b/w the selling price of a product and the cost of
bought in materials and components.

Chapter 2

11. Primary sector: The industry extracts and uses the natural resources of the earth
to produce raw materials used by other businesses.

12. Secondary sector: Industry manufactures goods using the raw materials provided
by the primary sector.

13. Tertiary sector: Industry provides services to consumers and the other sectors of
industry.

14. De-industrialisation: It occurs when there is a decline in the importance of the

secondary, manufacturing sector of industry in a country.

15. Mixed economy: It has both a private sector and public sector.
16. Capital: The money invested into a business by the owners.

Chapter 3

17. Entrepreneur: A person who organises, operates and takes the risk for a new
business venture.

18. Business plan: A document containing the business objectives and important
details about the operations, finance and owners of the new business.

19. Capital employed: The total value of capital used in the business.

20. Internal growth: Occurs when a business expands its existing operations.

21. External growth: When a business takes over or merges with another business.
Also, called integration.

22. Merger: When the owners of two businesses agree to join their firms together to
make one business.

23. Takeover: When one business buys out the owners of another business which
then becomes part of the predator business.

24. Horizontal integration: When one firm merges with or takes over another one in
the same industry at the same stage of production.

25. Vertical integration: When one firm merges with or takes over another one in the
same industry but at a different stage of production. It can be forward or backwards.

26. Conglomerate integration: When one firm merges with or takes over a firm in a
completely different industry. Also known as diversification.

Chapter 4

27. Sole Trader: A business owned by one person.

28. Limited liability: The liability of shareholders in a company is only limited to the
amount they invested.

29. Unlimited liability: The owners of a business can be held responsible for the
debts of a business they own.

30. Partnership: A form of business in which two or more people agree to jointly own
a business.

31. Partnership agreement: The written and legal agreement b/w business partners.
Not essential but recommended.
32. Unincorporated business: One that does not have a separate legal identity. i.e
sole trader and partnership.

33 Incorporated businesses: Companies that have separate legal status from their
owners.

34 Shareholders: The owners of a limited company.

35 Annual general meeting: A legal requirement for all companies. Shareholders

may attend or vote on who they want to be on the board of directors for the coming
year.

36 Dividends: Payments made to shareholders from the profits of a company. They

are the return to shareholders for investing in the company.

37 Franchise: A business based upon the use of the brand names, promotional logos
and trading methods of an existing successful business.

Chapter 5

38 Business objectives: The aims or targets that a business works towards.

39. Profit: Total income of a business (sales revenue) less total costs.

40. Market share: The proportion of total market sales achieved by one business.

41. Social enterprise: Social objectives as well as an aim to make a profit to reinvest
back into the business.

42. Stakeholder: Any person or group with a direct interest in the performance and
activities of a business.

Chapter 6

43. Motivation: The reason why employees want to work hard and effectively for a
business.

44. Wage: Payment for work, usually paid weekly.

45. Salary: Payment for work, usually paid monthly.

46. Commission: Payment relating to the number of sales made.

47. Profit sharing: A system whereby a proportion of the companys profits is paid out
to employees.

48. Bonus: Additional amount of payment above basic pay as a reward for good work.
49. Performance related pay: Pay related to the effectiveness of the employee where
their output can easily be measured.

50. Share ownership: Where shares in the company are given to employees so that
they become part owners in the company.

51. Appraisal: A method of assessing the effectiveness of an employee.

55. Job satisfaction: The enjoyment derived from feeling that you have done a good
job.

56. Job rotation: Involves workers swapping round and doing each specific task for
only a limited time and then changing round again.

57. Job enlargement: Where extra tasks of a similar level of work are added to a
workers job description.

58. Job enrichment: Involves looking at jobs and adding tasks that require more skill
and/or responsibility.

Chapter 7

59. organizational structure : refers to the level of management and division of

responsibilities within an organization.

60. chain of command : it is the structure in an organization which allows instructions

to be passed down from senior management to lower levels of management.

61. span of control : number of subordinates working directly under a manager

62. line managers ; they have direct responsibility over people below them in the
hierarchy of an organization.

63. staff managers : specialists who provide support, information and assistance to line
managers

64. delegation : giving subordinate the authority to perform a particular task

65. leadership styles : the different approaches to dealing with people when in a
position of authority – autocratic, laissez-faire, democratic

66. autocratic leadership style : the manager expects to be in charge of the business
and to have their orders followed

67. democratic leadership style : get others employees involved in the

decision-making process.
68. Laissez – faire : makes the broad objectives of business known to employees, but
then they are left to make their own decision and organize their own work.

69. trade union: is a group of workers who have joined together to ensure that their
interests are protected.

70. closed shop: all employees must be members of the same trade union.

Chapter 8

71. recruitment : the process from identifying that the business needs to employee
someone up to the point at which applications have arrived at the business.

72. job analysis : identifies and records the responsibilities and tasks relating to a job.

73. job description : outlines the responsibilities and duties to be carried out by
someone employed to do a specific job.

74. job specification : a document which outlines the requirements, qualifications,

expertise, physical characteristics, etc. for a specific job.

75. internal recruitment : is when a vacancy is filled by someone who is existing

employee of the business.

76. external recruitment: when a vacancy is filled by someone who is not an existing
employee and will be new to the business.

77. part-time : employment is often considered to be between one and thirty to

thirty-five hours a week.

78. full-time: employees will usually work thirty-five hours or more a week.

79. induction training : an introduction given to a new employee, explaining the firm’s
activities, customs and procedures and introducing them to their fellow workers.

80. on-the-job training: occurs by watching a more experienced worker doing the job.

81. off-the-job training: involves being trained away from the workplace, usually by
specialist trainers.

82. Workforce planning : establishing the work force needed by the business for the
foreseeable future in terms of the number and skills of employees required.

83.redundancy : when an employee is no longer needed and so loses their job. It is not
due to any aspect of their work being unsatisfactory.
84. ethical decisions: a decision taken by a manager or a company because of the
moral code observed by the firm.

85. An industrial tribunal : a legal meeting which considers workers’ complaints of

unfair dismissal or discrimination at work.

86. contract of employment : legal agreement between employer and employee listing
the rights and responsibilities of workers.

Chapter 9

87. communication : the transferring of a message from the sender to the receiver,
who understands the message.

88. message :The message is the information or instructions being passed by the
sender to the receiver.

89. internal communication : is between members of the same organization.

90.external communication : is between the organization and other organizations or

individuals.

91. transmitter or sender of the message : the person starting off the process by
sending the message.

92. the medium of communication: the method used to send a message, for example,
a letter is a method of written communication and a meeting is a method of verbal
communication.

93. the receiver : the person who receives the message

94. feedback : the reply from the receiver which shows whether the message has
arrived, been understood and if necessary, acted upon.

95. one –way communication : involves a message which does not call for or require
a response.

96. two-way communication : is when the receiver gives a response to the message
and there is a discussion about it.

97. formal communication : when messages are sent through established channels
using professional language.

98. informal communication : when information is sent and received casually with the
use of everyday language.
99. communication barriers: factors that stop effective communication of messages.

Chapter 10

100. market share: the percentage of total market sales held by one brand or business.

101. mass market: where there is a very large number of sales of a product.

102. niche market: a small usually specialised, segment of a much larger market

103. market segment : an identifiable sub-group of a whole market in which consumers

have similar characteristics or preferences.

Chapter 11

104. product-oriented business: a business whose main focus of activity is on the

product itself.

105. market-oriented business: a business which carries out market research to find
out consumer wants before a product is developed and produced

106. a marketing budget: a financial plan for the marketing of a product or product
range for some specified period of time.it specifies how much money is available to
market the product or range, so that the marketing department know how much they
may spend.

107. market research : the process of gathering, analysing and interpreting information
about a market.

108. primary research: the collection and collation of original data via direct contact
with potential or existing customers. Also called field research.

109. secondary research : information that has already been collected and is available
for use by others. also called desk research.

110. a questionnaire : a set of questions to be answered as a means of collecting data

for market research.

111. A sample : is the group of people who are selected to respond to a market
research exercise, Such as a questionnaire.

112. a random sample : is when people are selected at random as a source of

information for market research.

113. a quota sample : is when people are selected on the basis of certain
characteristics( such as age, gender or income)as a source of information for market
reseach.

114. a focus group: a group of people who are a representative of the target market.

Chapter 12

115. the marketing mix: a term used to describe all the activities which go into
marketing a product or service. These activities are often summarised as the four Ps-
product, price, place and promotion.

116. USP (Unique selling point) : the special feature of a product tht differentiates it
from the products of competitors.

117. the brand name: the unique name of a product that distinguishes it from other
brand.

118. brand loyalty: is when consumers keep buying the same brand again and again
instead of choosing a competitor’s brand.

119. brand image: an image or identity given to a product which gives it a personality of
its own and distinguishes it from its competitors’ brands.

120. packaging: is the physical container or wrapping for a product. It is used for
promotion and selling appeal.

121. the product life cycle: describes the stages a product will pass through from its
introduction, through its growth until it is mature and then finally its decline.

Chapter 13

122. cost –plus pricing : is the cost of manufacturing the product plus a profit mark-up.

123. competitive pricing: is when the product is priced in line with or just below
competitors’ prices to try to capture more of the market.

124. penetration pricing : is when the price is set lower than the competitors’ prices in
order to be able to enter a new market.

125. promotional skimming: is when a product is sold at a very low price for a short
period of time.

126. price skimming: is where a high price is set for a new product on the market.

127. price elasticity : is a measure of the responsiveness of demand to a change in

price.
Chapter 14

128. informative advertising: where the emphasis of advertising or sales promotion is

to give full information about the product.

129. persuasive advertising: advertising or promotion which is trying to persuade the

consumer that they really need the product and should buy it.

130. target audience : people who are potential buyers of a product or service.

131.sales promotion : incentives such as special offers or special deals aimed at

consumers to achieve short-term increases in sales.

132. marketing budget : check definition 106

Chapter 15

133. distribution channel : the means by which a product is passed from the place of
production to customer or retailer.

134. agent: an independent person or business that is appointed to deal with the sales
and distribution of a product or range of products

135. e-commerce : the buying and selling of goods and services using computer
systems linked to the internet.

Chapter 16

136. a marketing strategy : is a plan to combine the right combination of the four
elements of the marketing mix for a product or service to achieve a particular marketing
objectives.

Chapter 17

137. productivity : the output measured against the inputs used to create it.

138. buffer inventory level : inventory held to deal with uncertainty in customer
demand and deliveries of supplies.

139. lean production : a term for those techniques used by businesses to cut down on
waste and therefore increase efficiency, for example, by reducing the time it takes for a
product to be developed and become available for sale.

140. kaizen : a Japanese term meaning continuous improvement through the

elimination of waste.
141. just –in- time (JIT) : a production method that involves reducing or virtually
eliminating the need to hold inventories of raw materials or unsold materials of the
finished product. Supplies arrive just at the time they are needed.

142. flow production : where large quantities of a product are produced in a

continuous process. It is sometimes referred to as mass production.

143. batch production : where a quantity of one product is made, then a quantity of
another item will be produced.

Chapter 18

144. fixed costs: costs which do not vary with the number of items sold or produced in
the short run. They have to be paid whether the business is making any sales or not.
they are also known as the overhead costs.

145. variable costs : are costs which vary directly with the number of items sold or
produced.

146.total costs: are fixed and variable costs combined.

147. Average cost per unit: total cost of production divided by the total output. Also
referred to as unit cost.

148. economies of scale: the factors that lead to a reduction in average cost as a
business increases in size.

149. diseconomies of scale: are the factors that lead to an increase in average costs
as a business grows beyond a certain size.

150. break-even level of output : is the quantity that must be produced/sold for total
revenue to equal total costs. Also known as break-even point.

151. break-even charts : are graphs which show how costs and revenues of a
business change with sales. They show the level sales, the business must make in
order to break even.

152. revenue : is the income during a period of time from the sales of goods or
services. Total revenue = quantity sold x price.

153. break-even point : is the level of sales at which total costs = total revenue.

154. the contribution : of a product is its selling price less its variable cost.
Chapter 19

155. quality : to produce a good or a service which meets customer expectations.

156. quality control : the checking for quality at the end of the production process,
whether it is the production of a product or a service.

157. quality assurance : checking for the quality standards throughout the production
process, whether it is the production of a product or service.

158. total quality management (TQM) : is the continuous improvement of products

and processes by focusing on quality at each stage of production.

Chapter 20.No definitions

Chapter 21

159. working capital : is the finance needed by a business to pay its day to day costs.

160. capital expenditure: is money spent on fixed assets which will last for more than
one year.

161. revenue expenditure: is the money spent on day to day expenses which do not
involve the purchase of long term assets e.g. wages, rent.

162. start-up capital: the finance needed by a new business to pay for essential fixed
and current assets before it can begin trading.

163. internal finance: is obtained from within the business itself.

164. external finance: is obtained from sources outside of ans separate from the
business.

165. micro-finance: is providing financial services including small loans to poor people
not served by traditional banks.

Chapter 22

166. cash flow: the cash inflows and outflows over a period of time.

167. cash inflow: they are the sums of money received by a business during a period
of time.

168. cash outflow: the sums of money paid out by a business during a period of time.

169. cash flow cycle: shows the stages between paying out cash for labour and
materials etc. and receiving cash from the sales of goods.
170. profit: the surplus after total costs have been subtracted from sales revenue.

171. cash flow forecasts: it is an estimate of future cash inflows and outflows of a
business usually on a month by month basis. This then shows the expected cash
balance at the end of each month.

172. opening cash( or bank ) balance: the amount of cash held by the business at the
start of the month.

173. net cash flow : it is the difference, each month, between inflows and outflows.

174. closing cash ( bank) balance : the amount held by the business at the end of
each month. This becomes next month’s opening balance.

175. working balance: the capital available to a business in the short term to pay for
day to day expenses.

Chapter 23

176. accounts : the financial records of a firm’s transactions

177. accountants: professionally qualifies people who have responsibility for keeping
accurate accounts and for producing the final accounts.

178. final accounts: are produced at the end of the financial year and give details of
the profit or loss made over the year and the worth of the business.

179. an income statement: a document that records the income of a business and all
costs incurred to earn that income over a period of time( for example one year). Also
known as profit and loss account.

180. gross profit : is made when sales revenue is greater than than the cost of goods
sold. Gross profit = sales revenue – cost of goods sold

181. sales revenue : the income to a business during a period of time from the sale of
goods or services.

182. cost of goods sold: the cost of producing or buying in the goods actually sold by
the business during a time period.

183. trading account : shows how the gross profit of a business is calculated.

184. net profit : the profit made by a business after all costs have been deducted from
sales revenue. It is calculated by subtracting overhead costs from gross profits.

185. depreciation : is the fall in the value of a fixed asset over time.
186. retained profit : is the net profit reinvested back into a company, after deducting
tax and payments to owners,such as dividends.

Chapter 24

187. Balance sheet : shows the value of a business’s assets and liabilities at a
particular time. Sometimes referred to as statement of financial position.

188. Asset : those items of value which are owned by the business. They maybe fixed
(non-current), or short term current assets.

189. liabilities : are debts owed by the business.

190. non-current assets : are items owned by the business for more than one year.

191. current assets : are owned by a business and used within one year.

192. non-current liabilities : are long term debts owed by the business.

193. current liabilities : are short term debts owed by the business.

Chapter 25

194. liquidity : is the ability of a business to pay back its short term debts.

195. capital employed : is shareholders’ equity plus noncurrent liabilities and is the
total long term and permanent capital invested in a business.

196. illiquid : means that assets not easily convertible into cash.

Chapter 26

197. inflation :increase in the average price level of goods and services over time.

198. unemployment : when people who are willing and able to work cannot find a job.

199. economic growth : when a country’s gross domestic product increases – more
goods and services are produced than in the previous year.

200. balance of payment : record the difference between a country’s exports and
imports.

201. real income : value of income, and it falls when prices rise faster than money
income.

202. gross domestic product : the total value of output of goods and services in a
country in one year.
203. recession : a period of falling gross domestic product.

204. exports : goods and services sold from one country to other countries.

205. imports : goods and servives brought in by one country from other countries.

206. exchange rate: the price of one currency in terms of another.eg. £ 1 : $1.5.

207. exchange rate depreciation : the fall in the value of a currency compared with
other currencies.

208. fiscal policy : any change by the government in tax rates or public sector
spending.

209. direct taxes : are paid directly from incomes – for example income tax or profit tax.

210. indirect tax : are added to the prices of goods and taxpayers pay the tax as they
purchase the goods eg. VAT

211. disposable income : the level of income a taxpayer has after paying income tax.

212. import tariff : a tax on an imported product.

213. import quota : a physical limit to the quantity of a product that can be imported.

214. monetary policy : a change in interest rates by the government or central bank,
eg European central bank.

215. exchange rate appreciation : the rise in the value of a currency compared to
other currencies.

Chapter 27

216. social responsibility: when a business decision benefits stakeholders other than
shareholders, for example, a decision to protect the environment by reducing pollution
by using the latest and greenest production equipment.

217. environment: our natural world including for example, pure air, clean water and
undeveloped countryside.

218. private costs: [ of an activity] are the cost paid by business.

219. private benefits: (of an activity) are the gains to a business.

220. external costs: costs paid for by the rest of the society other than the business, as
a result of business activity.
221. external benefits: are the gains to the rest of society, other than the business,
resulting from business activity.

222. social costs = external costs + private costs

223. social benefits = external benefits + private benefits

224. sustainable development: development which does not put at risk the living
standards of future generations.

225. sustainable production methods : those that do minimum damage to the

environment

226. Pressure group : made up of people who want to change business (or
government) decisions and they take action such as organizing consumer boycotts.

227. consumer boycott: when consumers decide not to buy products from businesses
that do not act in a socially responsible way.

228. ethical decisions : are based on a moral code. Sometimes referred to as ‘doing
the right thing’.

Chapter 28

229. globalization : term widely used to describe increases in worldwide trade and
movement of people and capital between countries.

230. free trade agreements : exists when countries agree to trade imports/exports with
no barriers such as tariffs and quotas.

231. import quota : a restriction on the quantity of a product that can be imported.

232. protectionism: is when a government protects domestic firms from foreign

competition using tariffs and quotas.

233. multinational businesses: are those with factories, production or service

operations in more than one country. These are sometimes known as transnational
businesses.

234. currency appreciation :occurs when the value of currency rises – it buys more of
another currency than before.

235.currency depreciation : occurs when the value of a currency falls – it buys less of
another currency.