Business Chapter 1

What is a business?

An organization that aims to meet the needs and wants of individuals (or organizations) through:

• producing/extracting raw material

• creating a product

• providing a service

What are the resource inputs for businesses?

Human: The right quality and quantity of people. Required by all businesses, even if it’s only 1 person. Some businesses require many people with different skillsets.

Physical: The right quality and quantity of materials, machinery, and land space. Even online/internet businesses require a computer.

Financial: The right quantity of cash and other forms of finance.

Enterprise: Least tangible- The business idea and determination to turn that idea into a functioning, thriving business. AKA entrepreneurship, exists in even small businesses.

What are the production processes for businesses?

Capital-Intensive: Large proportion of land or machinery relative to other inputs. These may have proprietary/special qualities, or cost a great deal due to scale of operation.

Labour-Intensive: Large proportion of labour relative to other inputs. Can be at any skill level.

What are the product outputs for businesses?

Goods: Tangible products that we can physically take home. Primary or secondary sector.

Services: Intangible, can’t be physically taken home. Retail sales are a service - provides ‘service’ of having an array of products for consumers to purchase.

What are the 4 business functions?

HR: Ensuring appropriate people are employed and suitably rewarded. Done through recruiting people, training them, dismissing them, and determining appropriate compensation.

Finance & Accounts: Ensuring appropriate funds are made available. Done through forecasting requirements, keeping records, procuring financial resources, and ensuring proper payments.

Marketing: Ensures that what the business provides is desired by a sufficient number of people for profitable operations. Done through strategies to promote, price, package, and distribute.

Operations Management: Ensures that appropriate processes are used to make something of desired quality. Done through controlling quantity and flow of stock, determining ways of prod., and looking for more efficient ways to prod.

What are the 4 sectors of the economy?

Primary: Engaged in extraction or production of raw materials.

Secondary: Engaged in production of finished good through manufacturing.

Tertiary: Engaged in the delivery of services

Quaternary: Engaged in the production, processing, and transmission of information - subset of tertiary.

What are the reasons/opportunities to start a business?

Sharing an Idea: Really believe in something, want to share it with others.

Challenge: Want to see if they can ‘make it’.

Rewards: Get to keep more rewards to oneself.

Interest: People with a passion for something who just want to keep doing what they enjoy.

Finding a Gap: Untapped opportunity to gain ‘first-mover advantage’.

Independence: Being your own boss and not working by someone else’s rules.

Necessity: Individuals whose positions were made redundant or who could not find work.

What are the steps for a start-up?

1. Organizing the basics

2. Researching the market

3. Planning the business

4. Establishing legal requirements

5. Raising the finance

6. Testing the market

What are the challenges a business may face?

Business Plan: Did not convince, vague or contradictory goals

Finance: Accounts were not kept properly (cash flow); raising start-up capital / med-long term finance was difficult

Legal Requirements: Labour laws ; registration was difficult ; tax obligations

Market: Launch failed ; inconclusive pilot ; limited success

Organization: Inappropriate location ; structure didn’t work ; unreliable supplies

Market Research: Poor or inappropriate ; test was too optimistic ; weak channels of communication

What is the difference between public and private sectors?

Public Sector: Owned and/or operated by the government. Ex. utilities, telecommunications, etc.

Private Sector: Not controlled by government, managed by other individuals and companies. Most are for-profit.

What is a sole trader? Give 3 features, 3 adv. and 3 disadv.

A sole trader is a business owned and operated by one person, with no legal distinction between the business and owner. Sometimes, sole traders want to stay small because they have a niche in the market.

Features:

• Unlimited Liability - No legal distinction between business and owner, so owner is liable for all debts.

• Limited Finance - Personal savings or loans from family, friends, or bank. Financial institutions may be reluctant to lend because of high failure rate.

• Privacy and Limited Accountability - Don’t have to declare finances to anyone except tax authorities and possibly lenders/lessors.

Advantages:

• All profits belong to the sole trader

• Flexibility in terms of working hours, products, decisions, etc.

• Minimal legal formalities in terms of setting up.

Disadvantages:

• May be stressful, leading to poor decision making. Particularly caused by lack of time and competition from established businesses.

• Lack of continuity as business dies with owner.

• Unlimited liability for any debts the business incurs.

What is a partnership? Give 3 features, 3 adv. and 3 disadv.

A partnership is a business owned and operated by two or more people, with no legal distinction between the business and the owners.

Features:

• Managed by the Partners: Partners each have a percentage ownership. Since decisions are made jointly, getting agreement is harder as the number of partners increases.

• Unlimited Liability: No legal distinction between business and owners, so all partners are liable for all debts.

• Profits aren’t always shared Equally: Paid out based on % ownership of the business. In cases with sleeping partners, the active partners may have a fixed drawing, after which the rest is distributed based on %.

Advantages:

• Bring more expertise than one person can because they have different skills. Helps with specialization and division of labour.

• Have greater stability and lower risk because they have more access to finance than sole traders.

• Can help in emergencies and have more chance of continuity.

Disadvantages:

• Each partner has unlimited liability, even to actions of the other partner. Exception only if declared ‘limited liability’ to a specific partner in deed of partnership - comes with limited control.

• Have less access to loans from banks & institutions than corporations.

• Partners can disagree, which at its worse can lead to dissolution of partnership and business.