paper1

Why are businesses set up

1. See business opportunity they want to fulfil

2. Benefit other people

3. Starts making a good they think customers will pay for

What are the 3 sectors of economy

primary, secondary, tertiary

Primary Sector

Produces raw materials which are used to make goods or services

Secondary sector

Manufactures goods. Turns raw materials into finished goods

Tertiary Sector

Provides services

Enterprise

Identifying new business opportunities then taking advantage of them

Examples of enterprise

Starting up new business of helping an existing one to expand by coming up with new ideas

Entrepreneur

Someone who takes on the risks of enterprise activity

Why decide to become an entrepreneur

1. Financial reasons: earn more money if successful give them better quality of life

2. Identified gap in market think of useful good or service no other business is providing

3. Independence of being own boss make decisions on how it's run and enjoy flexible working hours

4. Want to follow an interest and can give them a lot of job satisfaction

5. Dissatisfied with current job starting up new business help them feel happier and more motivated

What qualities does an entrepreneur need

1. Hardworking

2. Organised

3. Innovative new ideas and solutions to problems

4. Willingness to take risks

What are the 4 factors of production?

Land, Labour, Capital and Enterprise

Land

Non renewable and renewable resources, water, animals , minerals extracted by mining

labour

Work done, different people have different levels of education, experience and training, some more valuable

Capital

Equipment, factories and schools that help produce goods or services

Enterprise

The entrepreneurs who take risks to create things from the 3 factors of production

opportunity cost

The benefit given up in order to do something else- the cost of the choice that's made

the idea that money and time spent doing one thing means missing out on something else so it puts value on the product

Opportunity cost is the value of the next best alternative that's been given up

Limited companies

Firms owned by shareholders who have limited liability

private limited company LTD

Ownership is restricted. Shares can only be sold if all shareholders agree

Advantages of LTD

1. Limited liability: you can't lose more than you invest

2. Easier for LTD to get a loan or mortgage than dole traders and partnerships

3. Incorporated company so can continue after shareholder dies

Disadvantages of LTD

1. More expensive to set up because of all the legal paperwork

2. Legally obliged to publish its accounts every year

public limited company (plc)

Often a large company, owned by shareholders who have limited liability. The company can sell its shares to the general public

Advantages of PLC

1. Much more capital which helps company expand and diversify

2. Limited liability and incorporated

Disadvantages of PLC

1. Hard to get lots of shareholders to agree on how business is run, very little say

2. Easy for someone to buy enough shares to take over the company

3. Accounts have to be made public so everyone including competitors can see if business is struggling

4. More shareholders means more people wanting a share of profits

Shareholder

an owner of shares in a company

Stakeholder

Any individual or group of people affected by a business

Sole trader

business owned and operated by one person

Examples of sole traders

Plumbers hairdressers newsagents

Advantages of a sole trader

1. Easy to set up great for start up business

2. Be your own boss decide what happens to any profit

Disadvantages of sole trader

1. Work long hours may not get many holidays

2. Have unlimited liability so legally responsible for paying back all debts

3. Your unincorporated means if anyone sues business they sue you personally

4. Often have to rely on own savings, family and friends to raise money as banks see as risky

Partnerships

businesses with two or more owners

examples of partnerships

Accountancy firms, solicitors, doctors and surgeries

Deed of partnership

A binding legal document which states the formal rights of partners

Advantages of Partnership

1. More owners means more ideas great range of skills and expertise

2. More People to share the work

3. More capital (money) can be put into business so can grow faster

Disadvantages of Partnership

1. Each partner is legally responsible for what all the other partners do

2. Disagreements about which direction business should go in and how much time put in

3. Profits are shared

not-for-profit organizations

Aren't aiming to make a profit for their owners they need to generate income to cover their costs but only surplus is put back into business or used to fund projects that help the community

Drawback of not for profit

Hard to mange when there's always uncertainty about how much finance they will have available and if they rely on volunteers rather than permanent members of staff

What are the legal structures not for profit must chose

1. Unincorporated association: easy to set up but the people who manage the organisation have unlimited liability

2. Incorporated: people who run them have limited liability

What are businesses aims

1. Survival

2. Maximise profit

3. Growth

4. Increase shareholder value

5. Achieve customer satisfaction

6. Make sure activities don't cause harm to environment

7. Do what's socially ethically and morally right

What objectives does firm need to change

1. New legislation: adjust objectives when new laws are introduced, affects profits

2. Changes in the economy: concentrates on survival

3. Changes in technology: keep up to date new equipment and training staff

4. Environmental expectations: avoid losing customer environmental impact has to become more important

aims and objectives of the different stakeholders

Owners: make profit if business successful and decides what happens to business

Employees: interested in their job security and promotion want descent wage and good working conditions so benefit most when objectives based on profitability growth and ethics

Suppliers: firms buy raw Martians from suppliers objectives based on profit and growth

Local community: suffer noise and pollution gain if firm provides goods jobs and sponsors local activities

Government: revive taxes if firm makes profit objectives, growth job creation and profit

Customers: want high quality products at low prices objective is customer satisfaction

The hierarchical structure

Different levels of management and staff, with higher levels exercising greater authority and control

4 layers of staff hierarchy

1. Directors: responsible for business overall direction decide strategy and targets regular board meetings

2. Managers: organise the carrying out of the directors strategy

3. Supervisors: ranked below mangers usually look after specific projects

4. Operatives: workers who aren't responsible for any other staff often given specific tasks to perform by managers or supervisors

chain of command

The chain connecting directors to operatives

Span of control

The number of workers who report to one manager in a hierarchy

5 main factors influenced by location

1. Location of raw materials

2. Labour supply

3. Competition

4. Location of the market

5. Cost

revenue

The income earned by a business

Revenue\=sales X price

Costs

Expenses paid out to run the business

Fixed costs: have to be paid even if firm produces nothing eg rent insurance

Variable costs: costs that will increase as the firm expands output eg raw materials factor labour

Costs equations

Total costs\=variable costs + fixed costs

Average unit cost\= total cost/ output