Business

need

Any good or service that people must have in order to live

wants

any goods or services that people would like to have

Factors of production (CELL)

The resources, including land, labour, capital, and enterprise, that are used to produce goods and services in an economy.

Land

all the essential resources in economics including renewable and non-renewable, that can be obtained from the land or sea.

Labour

the skills and number of people who help provide goods and services

Capital

the human-made resources and finances that are used to produce goods and services

Enterprise

the ability and willingness to take risks to bring together and organise the other three factors of production

Examples of land

• Minerals

• fish

• forest

• oil

• gas

Examples of labour

• miners

• factory workers

• doctors

Examples of capital

• machinery

• vehicles

• finance

• buildings

Adding value

Difference between selling price - cost of bough-in materials

How added value can be increased?

• Branding - develop a logo, name (feels trusted = pay higher)

• Improve quality - provide high standards of service = pay higher

• Design - add extra features = charge higher prices

• Add convenience - Customers pay higher for goods + services, save time

Opportunity cost

the next best alternative forgon

Primary sector (extract)

involves the extraction or gathering of raw materials from the land or sea

Examples of Primary Sector

• mining

• fishing

• farming

Secondary Sector (make)

• Involves manufacturing, constructions and refining of raw materials to produce goods

Examples of Secondary Sector

• house building

• car making

• oil refining

Tertiary Sector (service)

Involves providing services to consumers or other businesses

Examples of Tertiary Sector

• shops (retailers)

• banks

• delivery

• plumber

Private Sector

The part of the economy that is owned and controlled by individuals and companies for profit

Public Sector

The part of the economy that is owned and controlled by the state or central government

Business plan

A detailed written document outlining the aims and objectives of a business and what it intends to do to achieve them

Characteristics of successful entrepreneurs

• decisive

• initiative

• self-confident

• risk-taker

• creative

• determined

Risk-taker

willing to take chance or risks knowing that it may not work

Creative

The ability to think up new ideas or different ways of doing things

Determination

Will keep working on an idea and not give up when things do not go as expected

Self-confident

Having trust in your own ability and ideas to carry them out successfully

Initiative

Being willing to take on new ideas or projects to make things happen

Decisive

Ability to make decisions, even if it involves making difficult choices

The importance of a business plan for entrepreneurs

• Raise finace

• Set goals or targert

• Act as a checklist

• Inform-decision making

• Understand potential risks the business might face

Why governments support business start-ups

• Job creation

• Increased competition

• May provide specialist goods and services

• Increase output

• May grow into larger business

HOW governments support business start-ups

• Arranging business fairs for entrepreneurs

• information, advice and support from specialist training

• free or low-cost training schemes for employees

• low-cost or rent-free premises for a certain period

Ways to measure a business size

• number of employees

• capital employed

• value of output or sales

• volume of output or sales

Problems of measuring business size

• Businesses might use different amounts and types of labour

• The amount or type of machinery used will depend on what they make or sell

• The value of the product will vary between businesses

Why some businesses grow and others remain small

• Increased profit

• Increase in market share

• Lower average costs

• Spread risk - create more products to sell

Different ways business can grow

• Internal growth

• External growth

Internal growth

It happens when:

• it develops a new product

• finds new market for its product

• increases the number of goods it can produce (buying more or better machinery)

External growth

It takes place when a business merges with or takes over another business in the same or a different industry

Horizontal integration

When two businesses at the same stage of production join to become a single, larger business

Merger

When two business agree to join to become a single, larger business

Takeover

When one business buys a controlling interest in another

Horizontal integration Advantages

• Reduced competition leading to an increase in market share

• Possible cost savings including bulk discounts as able to order materials in large amounts

Horizontal integration Disadvantages

• Increased risk - as operating in same industry if demand falls

• May be difficult to combine two sets of employees or business systems

Vertical integration

Vertical integration brings together two businesses in the same industry, but each one is at different stage of the production process

Vertical integration Advantages

• Better access to suppliers or customers, which may have a reliable source of materials/ products or outlet to sell products

• Helps spread risk as less reliant on one market

Vertical integration Disdvantages

• Few cost savings, as both businesses are at different stages of the production process

• May be difficult to combine two different businesses, leading to a higher average cost

Internal growth advantages

• Low cost

• Easier to manage changes - can reduce risk

• Owners able to retain control of the business

External growth advantages

• Quick way to grow

• Gain customers of the other business

• Gain assets, technology, and skills of other business - leading to new ideas

• Reduce competition - more power to influences prices or suppliers

Internal growth disadvantages

• Slow - business may miss out on opportunities and competitors may increase their market share

• Likely to be a limit to possible expansion due to factors such as finance and space

External growth disadvantages

• High cost of takeover/ merger - possible financial problems

• Control and/or communications problems as each business has different ways of working - could lower efficiency.

Problems linked to business growth

• lower employee motivation - increasing labour turnover

• poor communication - leading to possible errors

• difficult to coordinate operations - reducing efficiency

• difficult to control larger business

• access to the necessary equipments

Why some business remain small

• owners choice

• access to and availability of capital ( Bank may be less willing to lend)

• market size ( limited potential growth)

• type of product/ service offered ( some serve at local area/ offered specialist)

Factors business success/ failure

• Management skills

• Availability of finance

• Suitable products

• Demand for products

• Level of competition

• Changes in the economy

Sole trader

A business that is owned and controlled by just ONE PERSON

Advantages of sole trader

• Quick and easy to set up, as there are few legal requirements to complete

• can make all the decisions

• able to choose when to work

• keep all the profit.

• owner is their own boss

Disadvantage of sole trader

• May have to work long hours

• No one to share loss or risks with

• No continuity

• Limited access to sources of finance

Partnerships

A business owned and controlled by two or more people

Advantages of business partnership

• Additional finance can be raised as all partners contribute funds

• Can share workload/ responsibilities

• Greater range of skills/ ideas

• Decision-making is shared

• Partners can share the costs

Disadvantages of business partnership

• Unlimited liability

• Risk of disagreements

• Must share any profit made

• If one of the partner leaves, the business no longer exist

• All partners are bound by the decisions of other partners

Shareholder

A person or organisation who buys shares in a limited company, which means they own part of the business

limited liability

owners of a company are only responsible for the debts of the business up to the amount they have invested in the company

What are the two types of limited companies

• Private limited companies

• Public limited companies

Private limited company

Business that is owned by shareholders that can only sell its shares to family or friends

Advantages of a private limited companies

• can raise finance by selling shares

• limited liability for owners

• continuity

• can control who buys shares

Disadvantages of private limited companies

• Cannot sell shares on stock exchange

• Some financial information must be made available for the public to look at

• Large amount of paperwork to complete

• Owners may expect dividends

Public limited company

Business that is owned by shareholders that can sell it shares to the general public

Advantages of of public limited company

• limited liability

• can sell share on stock exchange

• able to raise large amount of finance

• shares do not need to be repaid

Disadvantages of public limited company

• Must publish financial information

• cannot control who buys shares

• many legal requirements to complete

• selling shares to public is expensive

Franchise

A business agreement where one person or business buys the right to use the name, lgo and product of an existing business

Franchisee advantages

• lower chance of business failure as it is a well-known brand

• advice and training provided

• national advertising is paid for by franchisor

• suppliers are organised for the business

Franchisee disadvantages

• Must pay licence fee to buy franchise

• must pay percentage of profit to franchisor

• strict controls over what can be done with product, pricing, store layout

• must pay for local advertising

Franchisor advantages

• receive licence fee for use of its brand name

• quicker way to grow the business

• receive a share of franchisee’s profits

• not responsible for day-to-day management

Franchisor disadvantages

• poor management of one franchise can damage whole business reputation

• only receive small share of profits made

• must provide ongoing advice and training to each franchisee

• loss of control

Joint ventures

Two or more businesses agree to work together on a project and set up a separate business for this purpose

Joint venture advantages

• Share costs and resources - this can reduce the financial risk for each business

• each business brings different expertise - help with new ideas and solutions

• market and product knowledge can be shared to the benefit of both businesses in the joint venture

Joint venture disadvantages

• Any mistakes may damage the reputation of each business in the joint venture, even if they were not the cause of the mistake

• The business may have different ways of working or leadership styles, so decision-making can be difficult

• Each business will have to share any profit made

Choosing the type of business organisation

• whether it is a new or existing business

• business objectives

• control

• attitude to risk

• potential size of the market

Social enterprises

A business with social objectives that reinvest most of its profit back into the business or into benefiting society at large

Business objectives

A statement of a specific target to be achieved by a business

what are the business market objectives

• Profit

• Survival

• Growth

• Market share

• Social, ethical and environemental

The importance of business objectives

• Provide a target or goal to work towards

• Help with decision-making

• Provide a way to measure success

• Can help motivate employees also have a target to work towards

Stakeholder

An individual or group that has an interest in a business because they are affected by its activities and decisions

What are the two types of stakeholder groups

• Internal stakeholders

• External stakeholders

Internal stakeholder (MOE)

• Owners

• Managers

• Employees

External stakeholders

• Customers

• suppliers

• lenders/bank

• government

• local community

What is internal stakeholders

Internal stakeholders are people inside the business who have an interest in the decisions and activities of a business

What is external stakeholder

External stakeholders are people outside the business who have an interest in the decisions and activities of a business

What is the owner objectives

• to receive high returns/ profit as a rewards for their investments

• Increase value business

what is the managers objectives

• more status power

• Benefit from financial and non-financial methods of motivation

• opportunities for promotion

What is the employees objections

• good working conditions

• job security

• benefit from financial and non-financial methods of motivation

• payments on time

• opportunities for promotion

what is the customers objectives

• receive a variety of and good quality products

• low or fair prices

• good customer service

What is the supplier objective

• regular/ increased orders from the business

• to receive payment for goods on time

• to receive fair prices for goods provided

what is the lenders/banks objective

• to receive interest payments when due

• to have loans repaid when due

What is the government objectives

• to be paid the correct amount of taxes on time

• for the business to provide jobs - can lower the amount of benefits government must pay

What is the local community objectives

• jobs for local people

• support projects in local community

• reduce pollution caused by business activity

Main stages in recruitment and selection of employees

1. Identify

2. Advertise

3. Select

Identify steps for recruitment and selection

1. job analysis

2. Create jobs

3. Produce person specification qualifications, skills and qualities

Advertise methods for recruitment + selection

• Employment agency

• online recruitment

• newspapers

• specialist magazines

Selection methods for recruitment + selection

• Applications

• CV/ resume

• reference

• interviews

• testing/ assessment centres

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