Studied by 7 people
3.1.1 The purpose and nature of businesses notes:
Factors of production:
Land – somewhere to produce the goods e.g. a farm
Labour – people to work in the business e.g. farm workers
Capital – money to get the business started
Enterprise – This is the drive or motivation from the owners to start a business
Opportunity Cost: The cost of NOT selecting an alternative
Reasons for starting a Business:
To fulfil a business opportunity
To supply a service
Social Enterprise:
Aim to help the planet
Aim to tackle poverty and unemployment
Basic functions and types of Businesses:
Primary Sector - Raw materials are extracted (ores)
Secondary Sector - Raw materials are manufactured
Tertiary Sector - Selling the finished product / deliveries
Entrepreneur: A person who starts a business and takes on a financial risk in hope to make a profit
Characteristics of an Entrepreneur:
Hardworking - Dedicate hours into the business
Initiative - May start the business after identifying market gap
Entrepeneur Objectives:
Be your own boss - Take orders from no one
Flexibile hours - Work life revolves around personal life
Dynamic Business enviroment: The enviroment is always changing and a business has to adapt to these changes
Changes to:
Technology - Businesses can reach customers easily online
Ecenomic situation:
infalation Rates - Rate of which the price of goods + services increase - (effect on business) = Raw materials cost more, costs of business increase - effects profit
Interest Rates - the cost of borrowing — rising interest rates impact a business — loans or overdrafts will cost them more
Unemployment Rates - More unemployed = business have more applicants per job when advertising + households on lower incomes - sales + profits may fall
Exchange Rates - Cost of one currency expressed in terms of another e.g. $ to £ - If £ is strong (increases) - a
business importing - goods becomes cheaper
Legislation:
Employment Laws - Government legislation. designed to protect employees from exploitation
Health and Saftey Laws: Workers have right to work in places where risks to their health and safety are properly controlled
Consumer Laws: Goods must be; as described, fit for purpose and satisfactory quality - (effect on business) - products must be quality
Enviromental Expectations:
Making enviromentally friendly goods - less gas emmisions
Reducing paperwaste - Recycling when possible
Explain, using one business example, what the tertiary sector is:
Final stage of production - finished product is sold
E.g. Beans sold at a shop
Explain one reason why someone might want to start a business:
To be there own boss, meaning they wouldn’t tke orders from an authority
3.1.2 BUSINESS OWNERSHIP
Sole Trader:
Unlimited liability
Only 1 owner - can employ workers - wont control business
Profits are taxed
Advantages:
Own boss - Decisions made quickly
Can offer personal attention to customers (high quality service
Disadvantage:
Unlimited Liability
No Economies of Scale
Partnership:
Unlimited Liability
Partners are all joint owners
Profits shared proportional to amount invested
Advantages:
Easer to raises capital (more partners)
Motivated workers (profits go to partners)
Multiple set of skills
Disadvantages:
Unlimited Liability
Partners may have disagreements
Private Limited Companies (Ltd):
Public can’t buy the businesses shares (Owner controls this)
Limited Liability
Expand by selling shares
Minimum 2 people
Advantages:
Easier to get loans (rather than a sole trader)
Can sell Shares to raise Capital
Disadvantages:
Business has to show public accounts annually (can be expensive)
Competitors can see this information and benifit from this
Public Limited Company:
Shares are open to the public
Limited Liability
Very Large Businesses
Advantages:
Limited Liability
Banks willing to lend money (less risk to a big business)
Disadvantages:
Owners can lose ownership - if 1 party has 51% or more shares
Public can see annual accounts + expensive
Not-For-Profit Organisations:
Objective of something other than making a profit
Dedicated to a social cause
Limited Liability
Why might a sole trader invite a partner for the business?
A. To give a friend a job
B. So shares can be sold
C. To share the profit
D. To get more skills into the business
Answer = D
What are 2 benfits of being a Private Limited Company?
Limited Liability - the business is a seperate entity from the Owners - so private belongings are protected if the business goes into debt and fails
Multiple skill set - more ideas = more opportunities = perhaps more chances to make more capital
3.1.3 Business setting Aims and Objectives
4 Factors of Production
Land
Labour
Capital
Enterprise
These factors influence the location of a business:
Raw Materials - if business is closer to the production area of the raw materials, costs will be less
Labor - access to a reliable supply of skilled staff is important
Competition - locate near competitors (clustering effect), or to locate away from competitors (gap in the market)
Types of business Aims
Survival:
Start-up business aim — when more established - aims may change - unless a recession or problems in the market - business may keep this as aims
Objective = reach sustainable sales - allows business to reach break-even point
Profit Maximization:
Profit = Total revemue - total costs
To increase profit — increase the Total revenue OR reduce total costs
Growth:
Objectives may change — owners want to grow business
Can be done by, selling more or providing and producing more
Market Share:
The % of sales held by the business in the market
So taking away sales from competitors — by promoting more+ discounts
Customer Satisfaction:
Aim to have quality service
So less complaints and less returns
Ethical responsibilities
Shareholder value
Note 
Flashcard (48)