The purpose and nature of businesses

What is a business?

Business is the trade of goods or services to make an income.

Reasons why a business is set up

.Producing goods and services

.Fulfilling a business opportunity

.Providing a good or service to benefit others (social enterprise)

.Make a profit

Functions of a business

Marketing, operations, human resources and finance.

Types of businesses

• Sole traders.

• Partnerships.

• Private limited companies (ltd)

• Public limited companies (plc)

• Not-for-profit organisations.

Goods

. actual objects

. touched, felt and held

.produced and consumed

Services

. activities

. intangible

. provided by other people or businesses

Needs

Those goods or services that we have to consume if we are to live

-food

-shelter

-warmth

Wants

Goods or services you would like. Do not have to consume in order to survive

-holidays

-game console

Factors of production

Land, Labour, Capital, Enterprise.

Land

The land where the business is based, but also includes the natural resources on, or under, that land.

Labour

The people working in the business, including the managers.

Capital

The building and machinery needed by the business.

Enterprise

The entrepreneur who set up the business, organises the factors of production and takes the risks involved in running the busines

Opportunity Cost

Opportunity cost is measuring the cost of what you purchase in terms of what you have given up.

Primary Business

Producing raw materials that are extracted from nature.

• Farming, mining, oil, exploration, fishing

Secondary Business

Manufacturing goofs which are made from raw materials and turned into finished goods. This sector also includes firms involved in construction.

• Car manufacturing, steel, chemicals, clothing maker, builders.

Tertiary Businesses

Providing services. This sector will also include businesses involved in the distribution process.

• Shops, transport, hair dressing,banking, entertainment.

Enterprise and the role of entrepreneurs in starting businesses.

Entrepreneurs are key to enterprise, as they identify business opportunities, take risks, and organize resources to create goods and services. They play a crucial role in driving innovation and economic growth by meeting customer needs and creating jobs. 

Dynamic Nature of Business

If a business is dynamic they are open to change and are willing to adapt.

• Legislation, technology, economy and environment.

Legislations

Laws set by government

.Minimum wage

.Holidays and sick pay

.The rights of the consume

.Regulation on sale and distribution regulations

Environment

Everchanging around you

Example COVID 19, Businesses had to rapidly adjust to changing needs of their employees, their customers, and suppliers.

Sole Trader

An individual owning a business on his/her own

Sole Trader Features

Can employ people but do not share ownership in the business

Examples - hairdressers, gardeners, plumbers and electricians

Sole Trader Advantages

.quick and easy to set up

.can make all decisions

.they get to keep all profits

.minimal paperwork

Sole Trader Disadvantages

.unlimited liability - are personally responsible for debts

.may not have all skills needed

.making decisions can be stressful

.can be difficult to raise finance

.heavy workload

Partnership

Formed when a business is started by more than one person

Partnership Features

.2-20 owners

.a legal document called a Partnership Agreement is recommended and sets out how the partnership runs and how profits are divided

Examples - doctors, solicitors or vets

Partnership Advantages

.simple to form a business together

.minimal paperwork once Partnership Agreement complete

.jobs can be shared

.Partners can provide specialist knowledge

.any losses will be shared

Partnership Disadvantages

.unlimited liability

.decision making can take longer

.harder to raise finance than a company

.short life, if one partner leaves or dies the partnership ends

.profits are shared

Company

Formed when a business is set up to have a separate legal identity from its owners

Company Features

.finances are separated from personal finances of their owners

.owners are shareholders who own shares in the company

.run by Board of Directors - decisions made by them - can be the shareholders

Private Limited Company (LTD)

Can only raise funds (sell shares) from investors, such as friends and family but not from general public

Examples : River Island and Clarks

LTD Advantages

.limited liability - protects the personal wealth of shareholders

.easier to raise finance as can sell shares

.original owner are likely to retain control

LTD Disadvantages

.shareholders have to agree how profits are distributes

.greater administrative cost than setting up as sole trader or partnership

.finance limited to friends and family

.less privacy - public disclosure of company information, but not as extreme as for PLC

Public Limited Company (PLC)

Public Limited Companies can raise funds (sell shares) from general public as its shares are listed on the stock exchange

PLC Features

.complicated and expensive to set up

Examples : BP, Boots, Barclays

PLC Advantages

.limited liability

.can raise large sums via Stock Exchange

.stable form of structures - business to still exist even when shareholders change

PLC Disadvantages

.shareholders have to agree how profits are distributed

.Public can see any information and accounts

.risk of company being taken over

.separation of ownership of control

Not For Profit Organisations

.community and other voluntary organisations

.set up to achieve objectives rather than profits

.50% of surplus money must be reinvested into the enterprise or into activities to help satisfy the social need being attempted to meet

Limited Liability

Owners are personally responsible for companies debts

Unlimited Liability

Owners are protected as their personal finance is separate from the business. Separate legal identity

Aim

The overarching, long-term goal or direction a business wants to achieve

Objective

a specific, measurable, and achievable goal a business aims to reach to achieve its wider aim or mission

Common Aims

Survival, profit maximization, growth, and increasing market share

Non-Financial Objectives

.Social and ethical objectives are linked to doing things in an ethical or environmentally friendly manner, or having a business whose sole purpose is to meet a social need

.Customer satisfaction measures how happy a customer is with the products or services provided by the firm

Who are stakeholders?

Any individual or organisation who has an impact in the activities and decision making of the business

Customer Interests

.cheap prices

.high quality product or service

.special offers

.customer service

Employees Interests

.high wages/salary

.good working hours

.good working conditions

.breaks/lunches

.good working relationships

.access to promotion opportunities

Managers Interests

.good workers

.good profits

.good feedback

.good teamwork

.supervisors to help them

Competitors Interests

.how well they are doing

.what they are doing different

.customer opinions

The Media Interests

.stories to write about

.new things to promote

Government Interests

.how well the business does for the economy

.taxes

.job opportunities

Factors that Influence business location

.proximity to the market, availability of skilled labor, cost of location, and accessibility to materials and transportation

Purpose of business planning

.Provides a focus on the business idea

.helps test the financial viability

.encourages entrepreneur to set appropriate objectives

.helps clarify thoughts and gaps in information

.essential to raise finance from outside provides - banks, investors

.organisation

.provides something to measure performance

Main Sections of business plans

.The Idea

.Objectives

.Finance Required

.Market Overview

.How the business will operate

.Cash Flow forecast

Business Plan Advantages

.allows owners to review their ideas

.reduces risk by providing a guide

.will help secure finance - getting a bank loan

Business Plan Disadvantages

.plan may be poor quality due to lack of research

.requires constant updates

.requires time and effort

.can cause opportunities to be missed if not in plan