Business Studies, Chapter 1 - Chapter 19.

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Need

A good or service essential for living.

Want

A good or service which people would like to have, but which is not essential for living.

Economic Problem

There exist unlimited wants but limited resources to produce the goods and services to satisfy those wants.

Factors of Production

Resources needed to produce goods or services.

Scarcity

Lack of sufficient products to fulfill the total wants of the population.

Opportunity Cost

Next best alternative given up by choosing another item.

Specialisation

When people and businesses concentrate on what they are best at.

Division of Labour

When the production process is split up into different tasks and each worker performs one of these tasks. It is a form of specialisation.

Added Value

Difference between the selling price of a product and the cost of output.

How to increase added value?

Increase selling prices but keep costs of materials the same.
Reduce the cost of materials but keep the price the same.

De-industrialisation

A decline in the importance of the secondary sector of an industry in a country.

Mixed Economy

An economy that has both a private and public sector.

Private Sector

Businesses not owned by the government.

Public Sector

Government/state owned and controlled businesses and organisations.

Entrepreneur

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

Business Plan

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

What does a business plan usually contain?

Description of the business
Products and services
The market
Business location and how products will reach customers
Organisation structure and management
Financial information
Business strategy

Why is a business plan important?

Banks will usually ask for a business plan before agreeing to a loan/overdraft.

Why do governments support business start-ups?

To reduce unemployment
To increase competition
To increase output of economy
To benefit society
Business can be very large and important in future.

How do businesses support start-ups?

Business idea and help
Premises
Finance
Labour
Research, by encouraging universities to make their research facilities available to new business entrepreneurs.

Capital employed

Total value of capital used in business

Who finds it useful to compare the size of businesses?

Investors
Governments
Competitors
Workers
Banks

How is business size measured?

Number of people employed
Value of output
Value of sales
Value of capital employed

Internal growth

When a business expands its existing operations.

External growth

When a business takes over or merges with another business.

Takeover/acquisition

When one business buys out the owners of another business, which then becomes part of the business that has brought it.

Merger

When the owners of two businesses agree to join their businesses together.

Horizontal integration

When one business merges with/takes over another one in the same industry and stage of production.

Vertical integration

When one business merges with/takes over another one in the same industry but at a different stage of production.

Forward vertical integration

When a business integrates with another business that is at a later stage of production.

Backward vertical integration

When a business integrates with another business that is at a earlier stage of production.

Conglomerate integration/Diversification.

When one business merges with or takes over a business in a completely different industry.

Benefits of horizontal integration

Merger reduces competitors
More opportunities for economies of scale
Combined businesses will have a bigger share of the total market

Benefits of Forward Vertical Integration

Merger gives assured outlet for its product.
Profit margin made by retailer is absorbed by expanded business, so expanded business gets to keep everything.
Retailer can be prevented from selling competing products.
Information about consumer needs/preferences can be obtained from manufacturer.

Benefits of Backward Vertical Integration

Merger gives an assured supply of important components
Profit margin of supplier is absorbed by expanded business
Supplier could be prevented from supplying other manufacturers
Costs of components and supplies for manufacturer could be controlled.

Benefits of conglomerate integration

Business now has diversified activities in multiple industries, spreading the total risk.
Possible transfer of ideas between different sections even if operating in different industries.

Problems resulting from expansion and solutions

Difficult to control. - Operate business in small units/decentralisation
Poor communication - Decentralisation/use IT equipment/telecommunications
High costs - Expand slowly

Why do some businesses remain small?

Type of industry, if too large, difficult to offer niche services
Market size, if small business is likely to remain small
Owner’s objectives, some prefer to remain small to avoid stress etc.

Causes of business failure

Lack of management skills

Changes in the business environment

Liquidity problems/poor financial management

Over-expansion

Why are newer business at a greater risks of failing?

Lack of finance/resources

Poor planning

Inadequate research

Lack of experience and decision making skills

Sole trader

Business owned by one person.

Limited liability

Liability of shareholders is limited to only amount invested

Unlimited liability

Owners of a business can be held responsible for debts incurred by business. Not limited to amount invested.

Advantages of sole trader

Few legal regulations

Own boss

Close, personal relationship with customers

Incentive to work hard in order to keep all profit

Does not have to give information about business to anyone

Disadvantages of sole trader

No one to discuss business matters with

Do not benefit from limited liability.

Limited finance to expand

Unlikely to benefit from economies of scale

No continuity of business after death of owner

Partnership

Two or more people agreeing to jointly own a business

Partnership agreement

A written and legal agreement between business partners.

Unincorporated business

A business that doesn’t have a separate legal identity.

Advantages of partership

More capital can be invested

Responsibilities are now shared

Both partners are motivated to work hard to benefit from shared profit.

Disadvantages of partnership

No limited liability

No separate legal identity

Disagreements may happen

If partners are inefficient/dishonest, other partners can suffer

Most countries limit partner amounts

Shareholders

Owners of a limited company.

Private limited companies

Businesses owned by shareholders but they cannot sell shares to the public.

Advantages of private limited company

Shares can be sold to large number of people.

All shareholders have limited liability.

People who started the company can control it as long as they don’t sell too many shares to other people.

disadvantages of private limited company

Complicated legal matters to form

Shares cannot be sold or transferred without agreement of other shareholders

Accounts are less secretive than sole trader/partnership

Company cannot offer shares to general public

Public limited companies

Businesses owned by shareholders but they can sell shares to the public

Advantages of public limited company

Limited liability

Separate legal identity

Opportunity to raise capital to invest in business

No restriction on buying, selling or transfer of shares

Usually has high status and can easily attract suppliers/banks

Disadvantages of public limited company

Legal formalities

Lots of regulations and controls

Selling shares is expensive

Annual General Meeting

A meeting where shareholders may attend and vote on who they want to be on the Board of Directors for the coming year.

Dividends

Payments made to shareholders from the profits of a company.

Franchise

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

Joint Venture

Two or more business start a new project together, sharing capital, risks and profit

Public corporation

A business in the public sector

Business objectives

Aims or targets that a business works towards

Most common business objectives

Business Survival

Profit

Returns to Shareholders

Growth

Market Share

Service to Community

Market share

Percentage of total market sales held by one brand or business

Social Enterprise

Has social objectives as well as an aim to make a profit to reinvest back into business

Internal Stakeholders

Owners

Workers

Managers

External Stakeholders

Customers

Government

The whole community

Banks

Motivation

The reason why employees want to work hard and effectively

Main motivators

Money

Security

Social needs

Esteem needs

Job satisfaction

Benefits of well motivated workforce

High output per worker

Willingness to accept change

Two-way communication with management, for example, suggestions for improving quality.

Low labour turnover

Low rates of absenteeism

Low rates of strike action

Motivation Theories - F.W. Taylor

If paid more, workers will work harder.

Motivation Theories - Herzberg - Motivators

Achievement

Recognition

Personal growth/development

Advancement/promotion

Work itself

Motivation Theories - Herzberg - Hygiene Factors (Doesn’t motivate)

Status

Security

Work conditions

Company policies and administration

Relationship with supervisor

Relationship with subordinates

Salary

Wage

Payment for work, usually weekly

Time rate

Amount paid to an employee for one hour of work

Piece rate

Amount paid for each output

Salaries

Payment for work, usually monthly

Bonus

Additional payment above basic pay as a reward for good work

Commission

Payment relating to number of sales made

Profit sharing

system whereby a proportion of the company’s profits are p

Fringe benefits

Non financial rewards

Job satisfaction

Enjoyment derived from feeling you have done a good job

Job rotation

Workers swapping around and doing each specific task for only a limited time

Job enrichment

Adding more skill/responsibility

Teamworking

Using groups of workers and allocating specific tasks and responsibilities to them

Organisational structure

Refers to levels of management and division of responsibilities within an orgnanisation

Hierarchy

Levels of management in any organisation

Chain of command

Structure in an organisation which allows instructions to be passed down from senior management to lower levels of management.

Span of control

Number of subordinates working directly under a manager

Autocratic Leadership

Manager expects to be in charge and have their orders followed

Democratic leadership

Gets other employees involved in the decision making process

Laissez-faire leadership

Makes objectives known to employees and leave them to make decisions and organise work

Trade union

Group of employees who have joined together to ensure their interests are protected.

Recruitment

Process from identifying that the business needs to employ someone up to the point at which applications have arrived at the business.

Employee selection

Process of evaluating candidates for a specific job and selecting an individual for employment based on the need of the organisation.

Job analysis

Identifies/records the responsibilities/tasks relating to a job

Job description

Outlines responsibilities/duties to be carried out by someone employed to do a specific job

Job specification

Document which outlines the requirements, qualifications, expertise, physical characteristics, etc for a specified job

Communication

When a message is transferred from one person to another, who understands the content of the message.