business yr 10

purpose of a business?

-to provide goods and services

reasons for starting a business

• make a profit

• provide a good/service

• to distribute products

• to benefit society

• to fill a gap in the market

• to fulfil a business opportunity

enterprise def

seeing an opportunity to provide a product/service that people are willing to buy

good definition + examples

tangible e.g. computers, food, clothes

service definition + examples

intangible e.g. hairdressing, train journeys

3 stages of production

primary, secondary, tertiary

primary sector of production

extraction of raw materials, little value added, e.g. farming, mining

secondary sector of production

transformation of raw materials into goods, most value is added, e.g. food turned into ready meals, house building

tertiary sector of production

providing a service, e.g. hotels, healthcare, education

Deindustrialisation definition

fall of importance of the secondary sector measured by a fall in employment or output.

why has primary sector of production declined in UK?

• depletion of raw materials

• machines replaced workers

• materials cheaper from abroad

why has secondary sector of production declined in UK?

• competition from cheaper/better quality foreign imports

• machines replacing workers

why has tertiary sector of production increased in UK?

• consumers have higher incomes

• more leisure time

• rise in pop. so more education + healthcare required

interdependant

when businesses rely on each other to operate

4 factors of a business - the inputs to produce the outputs (product/service)

land, labour, capital, enterprise

opportunity cost

the benefits given up from the option not chosen

4 functions of a business

work together to make a successful business - marketing, operations, human resources, finance

entrepreneur def

Someone who is willing to take the risks involved in starting a new business

characteristics of an entrepreneur

Hard working, organised, innovative, willing to take a risk

objectives of an entrepreneur

• be their own boss

• flexible working hours

• pursue an interest

• earn more money

• identify a gap in the market

• dissatisfaction with current job

disadvantages to being an entrepreneur?

• financial risk of losing all money

• health can be affected

• time consuming can lead to strained relationships

purpose of a business plan

reduce risk, help business to succeed, make banks trust them, identify markets/resources needed, achieve aims

contents of a business plan

-idea, people running it, market research, finance, objectives, target market, competitors

changes the business environment can experience

• technological change (new ad methods, machinery, e-commerce ect.)

• economic factors (inflation, interest rates, GDP ect.)

• legal change (new legislation coming in)

• environmental expectations (how to produce, package + transport)

stakeholder definition

anyone who has an interest in a business

examples of stakeholders

owners, managers/employees, suppliers, customers, local community, pressure groups, government

who are the external stakeholders and what are their objectives?

people outside the business and not directly involved in its running

1. Suppliers - obtain higher prices for their supplies

2. customers - lower prices, better service

3. local community - more jobs, less congestion

4. pressure groups - less pollution (NIMBY)

5. government - increased tax revenue + jobs from successful businesses

Soletrader definition

business owned by 1 person (may have more employees)

who are the internal stake holders and what are their objectives?

people inside the business and involved in operations

1. Owners - increase profit

2. managers/employees - increase salary, improve working conditions

Advantages of a sole trader

• total control (make quick decisions)

• cheap and easy to start

• keep all profit

disadvantages of soletrader

• Unlimited liability (the business is not a separate legal unit, unincorporated business)

• Full responsibility

• Lack of capital (sources of finances are only from owner's savings or from banks but they can be reluctant to give soletraders because it's risky)

• Difficult to expand/likely to remain small (due to the lack of capital)

• Difficult to expand/likely to remain small (due to the lack of capital)

Partnership definition

A business formed by two or more joint owners of the enterprise.

Advantages of Partnership

• More capital available

• Relatively easy to start

• workload is shared

• more skills

disadvantages of partnerships

• Unlimited liability

• division of profits

• Disagreements among partners

• slower decision making

what is a sleeping partner?

a partner who invests in a partnership but has no part in the running of the business. has limited liability

Private Limited Company definition

Ltd, an incorporated business with limited liability, contains shareholders (family and friends but no general public), run by a Board of Directors

incorporated business definition

has a separate legal identity

advantages of being an Ltd

• limited liability ( limited to amount shareholder has invested)

• continuity (if owner dies business ca continue to operate)

• can raise money more easily (banks more prepared to lend money)

• control over share sale ( no risk of takeover)

disadvantages of being an Ltd

• financial info available to public (unlike soletraders + partnerships)

• administration ( more complex/expensive to set up and run)

• sale of shares is restricted ( restricts amount of capital that can be raised)

• dividends (conflict between shareholders + directors over where the profit goes)

Public Limited Company definition

PLC, can sell shares on stock exchange to general public,

Advantages of being a PLC

• can raise large amounts of capital (shares sold to public)

• easier to borrow money (banks see them as low risk -- have to have issued share capital greater then £50,000 to become one anyway )

• Limited liability

Disadvantages of being a PLC

• size (complex to manage all operations, inefficient)

• costly + complicated to set up (specialist bakers and lawyers needed)

• financial info available to public (competitors can see performance ect.)

• shareholders expect dividends

• threat of takeover (competitor could buy large number of shares + vote in new management team)

why buy shares?

• dividends payed

• share may increase (sell it for more - 'capital gain')

• can influence management of company

what is divorce of ownership and control?

• people who own the PLC don't control business 364 days a year (AGM exception)

• shareholders many have to money but not time/ management skills

• directors normally have large shares so doesn't happen often ( incentive for good dividends + capital growth )

ethical issues for businesses

• treatment of workers (underpaying, child labour, long hours, unsafe, discrimination)

• treatment of suppliers (late payment of bills)

• treatment of customers

• treatment of environment

advantages of being ethical as a business

• workers like it (improve motivation, costs of production fall, can get more workers)

• customers like it (good rep. , sometimes necessary to gain contracts with other businesses)

• investors like it (long term success)

disadvantages of being ethical

• higher costs (higher wages, safety precautions, sick pay)

• lost sales ( unethical bussinesses can increase sales by lower prices + unfair advertising)

• reduced profits (higher costs = lower sales revenue)

• poor financial figures

advantages of being environmentally friendly as a business?

• increased sales

• reduced tax bill

• reduced costs

• subsidies from govt

• reduces resource scarcity

disadvantages of being environmentally friendly as a business?

• raw materials cost more

• capital costs (investment as have to change the way business works)

• production costs increase (cheaper often not good for environment

advantages of using technology in production process

• costs reduced (fewer workers)

• machines more accurate (improved quality)

• production more flexible

• 24/7

• do dangerous/ boring jobs

• new technology = new products

disadvantages of using technology in production process

• reluctant workers + redundancy payments

• new skilled workers needed (in high demand = high salaries)

• training for workers (expensive)

• machines break

• expensive to buy + set up

• security issues

advs of businesses using e-commerce

• sell worldwide

• open 24/7

• professional look at small cost

• lower operating cost (don't need workers ect.)

cons of businesses using e-commerce

• worldwide competition

• delivering goods/ accepting returns

• online security (data protection + safe payments)

• advances in technology

pros to customers of e-commerce

• price comparison

• 24/7 availability

• wide range of products

cons to customers of e-commerce

• lack of personal contact

• returning goods difficult/expensive

• only image of goods seen (unsafe?)

• security for payments

• payment methods (no cash)

• technology (not everyone on internet)

Revenue definition

It is the total income of a business from sale of products and services.

Revenue formula

Revenue = Quantity sold x Selling price

fixed costs definition

costs that do not change when the business changes the amount it produces. (e.g a local tax)

variable cost definition

costs that do change when the business changes the amount it produces. (e.g. raw materials)

variable costs formula

Total variable costs = Quantity sold x Variable cost per unit

Total costs definition

the sum of the fixed and variable costs for any given level of production