Studied by 2 people
Why Are Businesses Set Up
someone is making a Good or Service they think people will oay for
In order to benefit others
To fill a gap in the market
Sectors of The Economy
Primary
Produces natural resources/raw materials e.g. crude oil
Secondary
Manufactures goods using things from primary sector e.g turning crude oil into jet fuel
Tertiary
Provides services for businesses and consumers. e.g. a cargo/ passenger flight between two places
Reasons why people become entrepreneurs
want to be their own boss
identified a gap in the market
to pursue an interest
to take home all of the profit
Qualities needed by an Entrepreneur
Hardworking
Organised
Innovative
Willingness to take risks
Factors of Production
Land - natural resources which are scarce
Labour - work done by people who contribute to the production process
Capital - equipment and factories which contribute to the production process
Enterprise - People who create things from the other three factors
Opportunity Cost
The positive impact given up by doing one thing over another
Sole traders
easy to set up
you are your own boss
keep all the profit
unlimited liability
no legal identity
can be hard to raise funds
Partnerships
2-20 Partners
work can be shared between people
more capital
partners legally responsible for eachothers actions
more disagreements
often have unlimited liability
profits are shared
Private Limited Companies (LTD)
limited liability
incorporated
easier to gain capital such as loans
cant undergo a hostile takeover
expensive to set up
legally obliged to publish yearly accounts
Public Limited Companies
More capital can be raised from the sale of shares
limited liability
Incorporated
easier to gain captial such as loans
can be hard to get many shareholders to agree
can suffer a hostile takeover
profits often shared with more people
legally obliged to publish yearly accounts
Not-For-Profit Businesses
dont make a profit for owners
Generate enough to cover costs with surplus being reinvested
sometimes have charitable status which gives tax breaks
hard to manage due to uncertainties about finance
Stakeholders of a Business
Suppliers
Workers
Shareholders
Community where the business is based
Customers
Government
Profit
Profit is the sum of Total Costs subtracted from the revenue
revenue is the amount of sales multiplied by the price
Total costs = Fixed + Variable Costs
variable costs are ones that change based on the firm’s output
Business Plans
What a business will do and how it aims to do it
forces the owner to think carefully about what the business will do
can be shown to financian backers
Contain
Personal Details
Mission Statement
Objective
Product Description
Production Details
Staffing rquirements
Finance
Factors affectng Locations of Businesses
Distance from suppliers - the further away you ae the higher delivery costs will be
Labour supply - defines wether wages will be high or low
Competition
Location of Market - the further away you ae the higher delivery costs will be
Cost - the cost of having a high traffic location may outweigh the potential profits
Economies of Scale
Purchasing economies of scale
as a business grows the average unit cost of each product falls, usually because bulk buying is taking place
Technical economies of scale
a firm can afford to buy more advanced machinery
it can make more goods for less
Diseconomies of scale
growth also brings diseconomies of scale
harder to communicate with more workers
hader and more expensive to manage
production process may become more difficult to coordinate
Internal expansion
low risk but slow
can be done via:
opening new stores
e commerce - selling products via the internet
outsourcing - paying another firm to carry out tasks
Franchising
Company sells other entrepreneurs the right to use their brand in return for a percentage of the profits
leads to quick expansion that can be far away from the company’s base
could lead to a worse image if the franchisee doesnt work responsibly
