Business objectives and sources of finance
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Notas de aula
Business objectives
- Firms may pursue profit, survival, sales revenue, growth, market share, service or social purpose, with objectives changing over time. Profit maximisation seeks the largest feasible total revenue minus total cost under the relevant constraints, not simply the highest selling price.
- Survival can matter to a cash-constrained start-up but is not automatically every new business’s overriding aim. Explain how ownership, the audience, economic conditions and resources affect the choice and any trade-off between objectives.
Stakeholders
- Stakeholders include owners, managers, workers, customers, suppliers, government and communities. Shareholders are a subset, and a person can occupy several roles. Members of one stakeholder group need not have identical preferences.
- A pay rise can reduce profit if other factors are unchanged, but better retention or productivity may offset it. Workers and owners may share an interest in long-term viability. State the mechanism and context rather than treating conflict as inevitable.
Objectives can overlap or conflict
Types of business
- A sole trader has one owner and can employ people; an ordinary partnership has partners sharing the business. Companies are separate incorporated entities. A private company limited by shares cannot make a general public share offer; a plc can under the applicable rules but is not necessarily listed or public-sector.
- Franchising is a contractual format, co-operatives are member-owned and governed, and social enterprises trade for social or environmental purposes. These are not mutually exclusive legal forms. Some companies are limited by guarantee with guarantors rather than shareholders, and LLPs differ from ordinary partnerships.
Separate ownership and purpose
Sources of finance
- Retained profit and proceeds from existing asset sales are conventional internal sources; loans, overdrafts, new share issues, venture equity and suitable platform funding can be external. Owner savings classifications vary by stated boundary or board. State the mechanism and avoid treating the label as evidence of cost or availability.
- Retained profit avoids contractual borrowing interest but has opportunity costs and may be invested in stock, receivables or equipment. An agreed overdraft has terms and limits; trade credit is agreed later payment, not arbitrary lateness. Crowdfunding can involve donations, promised rewards, loans or equity, each with different obligations.
- Fictional oven: £5,000 purchase less £2,000 available cash after preserving £1,000 from a £3,000 balance leaves £3,000 additional funding needed. Assess amount, duration, repayment affordability, costs, risk and ownership rather than selecting a source solely by the size of the business.
Fictional oven cash requirement
Business growth
- Organic growth expands the firm’s own operations; external growth combines businesses through merger or takeover. Funding from outside the firm does not itself make the growth external: a bank loan can pay for a new internally developed outlet.
- Horizontal integration is same industry and production stage; vertical integration joins different stages in a supply chain. A takeover acquires control, not necessarily every share. Consider integration cost, demand, capacity and competition rather than assuming size always lowers costs.
Growth route is not its funding source
Limited liability
- In a company limited by shares, members’ liability as members is generally limited to amounts unpaid on their shares, while their investment can be lost. The company itself remains responsible for its debts; incorporation does not make creditors’ claims vanish.
- Other duties and obligations remain: separate personal guarantees or wrongdoing can create additional exposure. An ordinary sole trader is personally responsible for business debts. Explain the ownership form and scope rather than claiming blanket personal protection or applying share-company rules to every limited form.
What limited member liability means
Slides
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Questões de prática
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1.What is a stakeholder?
Easy- Aa person or group affected by a business
- Bonly the owner
- Conly customers
- Donly the government
2.What is profit maximisation?
Easy- Amaking losses
- Bsurviving only
- Cgrowing only
- Dmaking as much profit as possible
3.What is a sole trader?
Easy- Aowned by shareholders
- Bowned by the state
- Ca business owned by one person
- Downed by two or more
4.What is an ordinary business partnership?
Easy- Aowned by the state
- Ba business owned by two or more people
- Cowned by one
- Downed by shareholders
5.For a UK company limited by shares, what does limited member liability generally mean?
Easy- Amembers’ liability as members is limited to amounts unpaid on their shares
- Bowners are liable for all debts
- Cno liability
- Dthe state pays
6.Which describes a private company limited by shares?
Easy- Ashares are sold on the stock market
- Bone owner with unlimited liability
- Cowned by the government
- Dshares are privately held and cannot be offered to the general public
7.What is a public limited company?
Easy- Aone owner
- Bowned by the government
- Ca company able to offer shares to the public subject to the rules
- Dshares are private
8.What is a franchise?
Easy- Aa tax
- Ba business using another's brand and system
- Ca government firm
- Da charity
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