CSEC Principles of Business cheat sheet

Business activity is organised around four factors of production: land (natural resources), labour (human effort), capital (man-made aids to production) and enterprise (the risk-taking organiser); each earns rent, wages, interest and profit respectively.

The three sectors of production run in sequence: primary extracts raw materials, secondary processes or manufactures them, tertiary supplies services such as transport, retail and banking.

Types of business organisation differ by liability: sole trader and partnership carry unlimited liability, while a private or public limited company carries limited liability and is a separate legal entity.

A public limited company (PLC) may offer shares to the general public and must publish accounts; a private limited company may not advertise shares to the public.

A cooperative is owned and democratically controlled by its members on a one-member-one-vote basis, with profits (surpluses) shared as dividends in proportion to patronage.

A franchise grants the franchisee the right to trade under the franchisor's brand and system in return for an initial fee plus a percentage royalty on sales.

Management functions follow the sequence planning, organising, directing (leading) and controlling; span of control is the number of subordinates reporting directly to one manager.

Organisational structures are classified as tall (many levels, narrow span) or flat (few levels, wide span); delegation assigns authority downward while accountability for the task remains with the delegator.

A business plan states objectives, market analysis, production and marketing plans and financial forecasts; it is used to attract finance and to measure actual performance against targets.

Production converts inputs into outputs; the three stages are input (resources), process (transformation) and output (finished goods or services), with productivity measured as output per unit of input.

Land, labour, capital and enterprise are combined in production; division of labour raises output per worker but creates interdependence and risk of worker alienation.

Methods of production: job (one-off, customised), batch (groups of identical items), and flow or mass production (continuous, high volume, high capital cost).

Economies of scale lower average cost as output rises (bulk buying, technical, financial, managerial); diseconomies of scale raise average cost beyond the optimum output level.

Location factors include proximity to raw materials, markets, labour supply, transport links, power, government incentives and availability of capital.

Stock control uses the reorder level = maximum usage x maximum lead time, and the economic order quantity balances ordering cost against holding cost.

Quality control inspects finished output against standards; quality assurance builds standards into every stage of the process; total quality management involves all employees in continuous improvement.

Break-even output = fixed costs / (selling price per unit - variable cost per unit); contribution per unit is selling price minus variable cost per unit.

The marketing mix comprises the 4 Ps: product (design, branding, packaging), price, place (channels of distribution) and promotion (advertising, sales promotion, personal selling, publicity).

Market research is primary (field, collected first-hand) or secondary (desk, from existing data); sampling methods include random, stratified and quota.

Market segmentation divides buyers by demographic, geographic, psychographic and behavioural criteria; a market niche is a small, specialised segment.

Pricing strategies include cost-plus (cost plus mark-up), penetration (low introductory price), skimming (high initial price), competitive and psychological pricing.

The product life cycle has four stages - introduction, growth, maturity, decline - with extension strategies such as rebranding, new markets or product modification used at maturity.

Sources of finance: short-term (overdraft, trade credit), medium-term (hire purchase, leasing, bank loan), long-term (share capital, debentures, retained profit, mortgage).

Cash flow forecast = opening balance + cash inflows - cash outflows; profit is revenue minus total costs, and cash flow differs from profit because it records timing of receipts and payments.

The balance sheet shows assets = liabilities + owner's equity; current ratio = current assets / current liabilities (a value near 2:1 is generally considered sound).

Gross profit = sales - cost of goods sold; net profit = gross profit - expenses; gross profit margin = gross profit / sales x 100.

The external environment is analysed with PEST: political, economic, social and technological factors; legal and environmental factors are often added (PESTLE).

Economic conditions affecting business include inflation, unemployment, interest rates, exchange rates and the stage of the business cycle (boom, recession, recovery).

A monopoly is a single dominant seller; an oligopoly is a market with a few large firms; perfect competition has many small firms selling identical products.

Government regulates business through legislation on consumer protection, employment, health and safety, and environmental standards, and through bodies such as fair trading and standards authorities.

Social responsibility means a business considers the impact of its activities on employees, consumers, the community and the environment, beyond legal minimum requirements.

Globalisation increases trade, competition and outsourcing; multinational corporations operate in several countries and may bring capital and jobs but can also dominate local markets.

Trade barriers include tariffs (taxes on imports), quotas (quantity limits) and embargoes; trading blocs such as CARICOM promote free trade among members.

A business's stakeholders include owners, employees, customers, suppliers, government and the community; their interests may conflict, so decisions involve trade-offs.

Technology changes business through e-commerce, automation and digital payment, altering cost structures, distribution channels and the skills required of workers.