Business in the real world

Difference between need and want

A need is required for survival but a want isn’t and is a luxury

Business

An organisation that trades to make money and comes in all shapes and sizes

product/good

Something tangible that is sold to satisfy customer needs

service

Intangible involves businesses doing something for customer

4 factors of production needed to operate a business

• land-somewhere to produce goods

• labour-people working in business

• capital-money to get business started

• enterprise-idea/motivation to start business

opportunity cost

Benefit lost of the next best choice when a decision is made

reasons for starting a business-5

• produce goods

• provide service

• distribute product

• fulfill business opportunity

• provide good or service to benefit audience

difference between charity and social enterprise

a charity collects donations and uses to fulfill social cause but a social enterprise operates as a business and uses profits for social cause

primary sector

businesses extract raw materials from the earth e.g.farming

secondary sector

Involve manufacturing goods from raw materials e.g. car manufacturing

tertiary sector

These involve services.Business doing something for customer e.g.shop

enterprise

a business or project

entrepreneur

someone who has a business idea and takes the risk to start a business

risks involved with starting your own business

leaving your job,investing savings,borrowing from banks

characteristics of an entrepreneur-6

• hardworking

• resilient

• brave,

• motivation,

• smart,

• organised

PESTLE factors-6

• political factors-war,

• economic factors-interest rates,

• social factors-trends,

• technology factors-internet,

• legal factors-equality acts,

• environment factors-flood

SPICED

strong pound imports cheaper exports dearer

WIPIDEC

weak pound imports dearer exports cheaper

sole trader

1 person owns business,can employ others,unlimited liaility-legal identity of business and owner same

adv and dis of sole trader

A-own decisions,earn all profits,flexible,easy to set up

D-long hours,less ideas and skills,unlimited liability,limited finance

partnership

2 or more people own,unlimited liability,usially professionals,profits shared equally

adv and dis of partnership

A-shared workload,easy to set up,more ideas and skills,share risks,more investment,don’t need to publish info

D-unlimited liability,share profit,conflict

private limited company (LTD)

owned by family and friends,limited liability-business and owner have separate legal identity,owners also lose initial investment

Public limited company

shares are sold to public on stock exchange,limited liability,usually initially an LTD that has expanded,shareholders own business but might not manage on daily basis

adv and dis of limited companies

A-shared workload,limited liability,more ideas and skills,share risks,more willing to lend (PLC-easy to expand,more finance from shares sold)

D-hard to set up,publish information

not-for-profit

have social cause,operate as a business and profit is put towards social causes,limited liability

aim and objective

something a business sets out to do

survival

new businesses aim to survive-earn enough revenue to cover costs

profit maximisation

aim to maximise profits,Profit=revenue-costs increase revenue or cut costs

growth

aim to grow-sell more,increase type,more locations

increase market share

increase popularity in market-proportion of market owned

sales of business/total market sales x 100

increase customer satisfaction

aim to increase as unique selling point,increase quality and customer service

social objectives

social enterprises aim to fulfill social needs

ethical objectives

doing what is right,treatment of workers,less negative effect on the environment

shareholder value

increase amount shareholders owning business

purpose of setting objectives

set targets for performance,motivate staff,clarifies business direction

how can objectives help a business

keep owner and employees all working towards common goals,keep eye on profitability,puts customer service at centre of business,focus on growth,see what works and doesn’t

why don’t all businesses have the same objectives

size will have an impact,level of competition and type of business

why do businesses change objectives

they may start as a sole trader or partnerships but some start as limited company,as business grows they want limited liability so change to LTD which has impact on objectives they may also want to sell shares to become PLC-impact on objectives

how do objectives help businesses succeed

It’ll know direction it’s going in and core values,know when been successful-met objectives

stakeholder

person/organisation that has an interest in a business and is affected by it’s actions

main stakeholders of a business

owners,employees,customers,local community,government,suppiers

stakeholders conflicts

employees want higher wages but owners want higher profits

customers want lower prices but shareholders want higher dividends

local community want less noise but owners want to open for longer hours

how do stakeholders impact business activity

employees-work hard and poor customer service

suppliers-increase prices and deliver on time

government-put more health and safety laws and decrease taxes

customers-loyalty and bad reviews

local community-protests and visit

factors influencing business location

• cost of premises

• availability of government grants

• proximity to market

• proximity to customers

• availability of cheap and skilled labour

• proximity to raw materials

• proximity to transport links

business plan

document setting out future plans of business,Explains how entrepreneur plans to make their idea succesfull

purpose of a business plan

helps set up business,helps raise finance,helps set objectives and aims,outlines how functions of business organised

main sections of business plan

goals,pricing,market,customers,competitors,location,promotion,finance

drawbacks of business plan

not realistic,time consuming,useless if not used

fixed cost

dont vary with output

variable cost

vary with output

total costs

sum of fixed and variable costs

sales revenue

money into business through sales

selling price x quantity sold

profit

sales revenue - costs

gross profit

sales revenue - variable costs

net profit

sales revenue - total costs

loss

business has more costs than revenue

why do businesses expand

earn more revenue,dominate market,increase reputation,increase impact of social cause

organic expansion and advantage and disadvantages

growth within business

A-retain culture,less risks,benefit from economies of scale

D-takes longer,limited expansion,risky to business owner

franchising and adv and dis

business owner sells right to entrepreneur-pay initial fee and percentage

A-training and marketing,more chance of success,cheaper

D-unsuccessful,conflict,reputation affected

other organic expansion

opening new stores,e-commerce,outsorcing

inorganic growth

expansion outside business

merger adv and dis

2 businesses come together to form new one

A-economies of scale,increase in market share,revenue and profits,easy buying technology,expand internationally

D-clash of cultures,communication problems,unreliable,diseconomies of scales,80% fail

takeover adv and dis

business takes over another

A-eliminates competitor,gain assets,cheapest,economies of scale

D-might not work,high legal costs,loss of control,lots of resources and time needed

Economies of scale

It occurs when unit costs fall as output increases

Types of EOS

Production/technical-large producers use technology/techniques to increase output

Purchasing/bulk buying-buying bulk enables business to get discounts

diseconomies of scale

Sometimes producing more can increase unti costs

Examples of internal DEOS

Poor communication-As business grows and has more workers communication may be slower leading to mistakes being made and wastage of resources increasing costs

poor coordination-as business grows it’s harder to coordinate

poor motivation of workers

examples of external DEOS

Overcrowding in industrial areas causes delays,traffic congestion,high prices of land and labour