Unit 1.1

Purpose of business Reasons for starting a business Basic functions and types of business Business enterprise and entrepreneurship Dynamic nature of business

business

an organization that exists to provide goods & service to customer’s profitability

customer

whom buys the product from a business

consumer

the person who uses goods & services produced by a business

need

something that must be fulfilled for the purpose of survival

• food, water, shelter

want

something non-essential but desired

• chocolate, spotify, nintendo

good

a physical product(car, phone)

service

intangible product(non-physical)

factors of production

resources/materials that businesses use to provide goods & services

land

physical land needed/ the site which the business is located

labour

the amount of people employed along with the skills they possess

capital

the equipment used to provide goods and services such as machinery

enterprise

the skill of those involved in the business to identify opportunities, bring resources together and execute them.

• management, essentially.

opportunity cost

the benefit lost from the next best alternative

• what could you have earned from a different decision?

primary sector

produces goods using raw materials.

• collected, extracted underground, grown

secondary sector

manufactures the goods

• any utility(like water)

• manufacturing capital for other products

• direct production of consumer goods

Tertiary sector

provides services and goods

• to other businesses or directly to customers

chain of production

all businesses included in the making of goods/providing services

• they are all interdependent and rely on one another

functions of a business

• marketing

• finance

• operations

• human resources(HR)

marketing

responsible for understanding the needs & wants of a customer

marketing responsibilities

• customer feedback

• product development

• monitoring/setting prices

• promotional campaigns

• customer research

finance

manages the financial resources of the business & reports on business’ financial position/performance

finance responsibilities

• monitors use of finance,

• ensures business has cash to pay its liabilities & meet legal requirements

• accounting

operations

organizes the process that turns input(materials & skills) into finished goods & services

operations responsibility

• organizes production

• controls use of input

• manages quality of output

human resources(HR)

responsible for all aspects of managing those that work in a business

HR responsibilities

• organizes employee recruitment & training

• sets up employee rules

• ensures business complies with employee related legislations

• communication between employees

business environment

how business are affected by external factors they cannot control

external factors business face

• rapid technological change affected how/what is bought

• changes in economy such as interest, inflation and income levels

• legal changes in regulations that business must keep up to date

• environmental expectations that consumers have

unlimited liability

there is no legal separation between the owner and the business

• responsible for all the business's debts, personal assets involved

lack of continuity

a business is unable to maintain its essential functions or resume normal operations after a disruptive event

division of labour

breaking a large production process into many small, specific tasks, with different workers (or machines) performing each task

dividend

a portion of a company's after-tax profits that is distributed to its shareholders (owners) as a reward for their investment.

• based on percentage of investment

sole trader

1 person who sets up a business, works for themself and runs it themself

sole trader details

• profit and losses fall on one person along with financing

• the person has unlimited liability with the goals of a business

• a sole trader has no partners but may employ

advantages of sole trading

• high profit margin

• quick/easy set up

• flexible hours

• total control

disadvantages of sole trading

• high risk, pressure & spending

• lots of effort

• hard to raise capital

• limited continuity

• unlimited liability

• long hours/workload

examples of sole trading

hairdressers, private tutors, nail technician, plumber

partnerships

owned by 2 to 20 people, where owners share responsibilities, decisions, & liabilities

deed of partnership

created when a partnership is entered, includes:

• how profit & losses are shared

• how much money each partner should put in

• how much a partner is paid(salary)

• working arrangements

• how a partner is added/removed

• arrangements for where money goes after dissolving

sleeping partner

provides capital for the business but doesn’t take part in the running.

• loss is limited to the capital they provided

advantages to partnering

• shared work

• less liability in losses

• social interaction and reviewing work between partners

• providing more skills

• raises capital with less costs

• less stress

disadvantages to partnering

• less flexible hours

• profit is shared in dividends

• slower decision making & disagreements

examples of partnerships

solicitors, dentists, accountants, doctors

company

owned by its investors(shareholders) whilst being ran by managers/owners

the 2 types of limited companies

• LTD(private limited company)

• PLC(public limited company)

LTD

made up of shareholders that can only be invited to purchase shares by the owner

• shareholders have the right to vote on important issues/decisions as owners are legally responsible to earn profit

advantages of LTDs

• limited liability(banks are more willing to lend loans too)

• high credibility for marketing

• continuity

• raising capital(easier than sole/partner)

disadvantages of LTDs

• longer legal procedures

• financial accounts must be published to public & checked by an external auditor(accountant)

• corporation tax

• slower decision making & disagreements between all shareholders with a vote

• profit is shared

examples of LTDs

specsavers, ikea, virgin atlantic

PLC

anyone can buy shares in the business and shares can be easily sold.

• listed on stock exchange, prices change according to demand

advantages to PLCs

• access to large amounts of capital through selling shares(buying is encouraged as selling is easy)

• limited liability for shareholders

• enhanced corporate image

• more publicity

disadvantages to PLCs

• risk of loss of control to shareholders or external buyers

• increased costs and complexity for setting up

• finances must be reported

• a greater risk of hostile takeovers

• share profits with potentially thousands of shareholders

examples of PLCs

coca cola, tesla, toyota

not-for-profit

organisation set up to help others rather than to make a profit

• wide varieties with different social objectives, often set up as a charity