business in the real world

good

a tangible physical product

service

intangible and non physical

supplier

a business which sells or supplies products to another business

customer

any person or organisation which buys or is supplied with a product by a business

consumer

the person who ultimately uses (or consumes) a product

markets

where buyers and sellers meet to exchange goods and services

need

something we must have to survive

want

a desire, something we would like to have but it is not essential

opportunity cost

the value of what you have to give up in order to choose something else e.g money in the bank vs investing

specialisation

focusing on one product or a limited scope of products so as to become more efficient

business activity

the process of combining resources in order to add value and produce a good/service of value to a customer

primary

extracting raw materials e.g farming, fishing, mining

Secondary

processing or refining materials e.g manufacturing

tertiary

providing public or private sector services e.g health, education, retail

percentage change

change/original x 100

four factors of production

\-land

\-labour

\-capital

\-enterprise

adding value

creating something of higher value than its inputs (costs)

value added

value of ourput - value of input

how to add value

\-convenience and speed

\-good design

\-quality

\-brand name/packaging

\-USP

\-good customer service

entrepreneur

a person who sets up a business or businesses taking on financial risk in the hope of profit

reasons to start a business

\-be your own boss

\-flexible hours

\-profits

\-spotted a gap in the market

\-dissatisfaction with current job

charactersitics of an entrepreneur

\-hardworking & determined

\-innovative

\-willing to take risk

\-organised

enterprise

the willingness of an individual or a business to take risks, show initiative and undertake new ventures

risks in a business

\- competitors

\-finance

\-does the product/service meet customer needs

calculated risk

a carefully considered decision that exposes a person to a degree of personal and financial risk that is counterbalanced by a reasonable possibility of a benefit

why businesses fail

\-poor management

\-lack of planning

\-insufficient capital

\-location

\-start business for wrong reasons

unlimited liability

no legal difference between the owner and the business e.g personal assests may be seized by creditors inorder to repay business debts

limited liability

there is a legal difference between the owner and the business (investors and owners can only lose the amount of money that they invested in the business)

sole traders

an individual who owns and runs their own business

characteristics of a sole trader

\-unlimited liability

\-owns and makes business decisions

\-keep all profit as well as loses

\-own money os used to set up business (can also be a loan)

advantages of a sole trader

\-easy to set up

\-accounts are kept confidential

\-complete control over business

\-flexible hours and holidays

disadvantages of a sole trader

\-limited funding

\-long hours for owner

\-risk of personal bankruptcy

\-unlimited liability

\-comitted to work - illness, holiday

partnership

a business with at least 2 owners

characteristics of a partnership

\-shared profits

\-unlimited liability

deed of partnership

a legally binding agreement between partners

advantages of a partnership

\-potentially more funding

\-sharing of workload

\-partners may have different expertise

disadvantages of a partnership

\-sharing profits (not neccessarily equal)

\-loss of control

\-unlimited liability

\-responsible for partners mistakes

Private limited companies (Ltd) & public limited companies

a business where shareholders are the owners

characteristics of a private limited company

\-number of shares indicates ownership

\-shares traded privately

\-company can’t be bought or sold without approval of directors

\-limited liability

advanatges of a private limited company

\-limited liability

\-seperate legal identity

\-easier to borrow and raise funds

disadvantages of a private limited company

\-financial info is available for competitors to view

\-company accounts must be audited

\-extensive formalities e.g AGM, meeting (long time for decisions to be made)

Characteristics of public limited companies

\-number of shares indicates ownership

\-shares traded on the stock exchange

\-limited liability

\-more requirments when publishing accounts

advantages of a public limited company

\-easier to raise finance

\-easier to borrow money

\-firm may gain reputation from stock exchnage listing

\-limited liability

disadvantages of a public limited company

\-loss of indiviual control (takeover)

\-floating cost is high

\-large admin costs

\-accounts are public

\-formalities e.g meeting (time consuming)

dividend

payment made to shareholders, usually paid twice a year but the amount varies with performance from year to year

Share

issued inorder to raise finance, gives voting rights

public sector

owned, funded and operated by the government

private sector

owned and run by individuals & groups

non profit organisations

organisations that focus on non financial goals

examples of non profits

charities, social enterprises

Charities

run by comittees, funded by grants, governement and fundraising

social enterprises

commerical organisations with a social objective, run by individuals/groups but self funded

franchise

allows the right to sell the goods/services of a well established business and use its already successful format e.g name, logo, products

franchisor

the already successful business that sells the right to use its name and to sell its products

franchisee

the entrepreneur who wants to follow a franchise business model

inital fee

payment made to the franchisor to setup the franchise

royalty

a share of profit/revenue regularly paid to the franchisor

advantages for the franchisor

\-expand quickly

\-less rick (franchisee will have to pay debts)

\-doesn’y have to spend much (franchisee spends money to set it up)

\-do not lose control

\-receive income

disadvantages for the franchisor

\-supporting, training and monitoring franchise can be expensive

\-underperforming franchises could damage the brand

\-don’t keep all profit

advantages to franchisee

\-less risk of being unsuccessful

\-get financial advice and support

\-doesn’t have to pay for advertising

disadvantages to the franchisee

\-no freedom (business has to be run the way the franchisor wants)

\-franchisor can withdraw the franchise any time if they feel its not being run properly

\-pay set up fee and royalties

aim

what a business wants to achieve in the long term, the purpose of the company

objective

a specific target that is set for a business to achieve the overall aim

purpose of setting objectives

\-helps decision making

\-establishes priorities

\-helps investors undertsnad direction of the business

\-motivate managers and employee

examples of business objectives

\-survival

\-profit maximisation

\-growth/expansion/market share customer satisfaction

specific objectives

objectives that state exactly what is to be achieved

measurable objectives

objectives that are capable of measurement - able to define whether is has been achieved and how far

achievable objectives

objectives that are realistic and can be achieved given the circumstances in which it is set up and the resources available to the business

relevant objectives

objectives that are relevant to the people responsible for achieving them

time bound objectives

objectives that are set with a time frame (realsitic time frames)

how objectives might change

\-old objectives met

\-changing ownership

\-growth of the business

mission statement

a qualitative statement of an organisations essential purpose

stakeholders

an individual or group which has an effect on or is affected by or is interested in an organisation

examples of stakeholders

\-local residents/community

\-customers

\-suppliers

\-managers

\-shareholders

\-employees

flexible location

\-not influenced by access to materials or market

\-not tied to a particular location e.g internent based businesses

what to consider when choosing location

\-cost of land/rent

\-proximity to suppliers

\-residential density

\-location of target market

advantages of locating overseas

\-cheaper labour

\-access to fast growing markets

\-avoid protectionist measures e.g tariffs

disadvantages of locating overseas

\-may be different rules and regulations

\-consumers may have different tastes

\-language barriers

business plan

document used to help the entrepreneur plan and organise their business

what goes in a business plan

\-nature of business

\-owneship -product, market, customers

\-aims/objectives/stratergy

users of business plan

\-entrepreneur

\-bank/investors

\-applying for grants

fixed costs

costs that don’t vary with the level of output e.g rent of location

variable cost

costs that come directly from output, the more you produce the more this cost is

total cost

fixed cost + variable costs

sales revenue

quantity sold x selling price

profit

sales revenue - total costs

why businesses want to grow

\-more profit forowners/shareholders

\-market share

\-avoid takeover

\-spread risk

internal growth (organic)

when businesses grow from inside the company by expansion etc e.g ecommerce, new stores, franchising, new products

advantages of organic growth

\-can retain own company culture

\-higher production means business can benefir from economies of scale and lower costs

\-more market share can result in more influence e.g setting prices within industry

disadvantages of organic growth

\-high risk

\-takes time to make back the money invested

\-growth limited

external growth

when businesses grow by mergers or aquisitions (takeover)

merger

two businesses merging to become one new one

takeover (aquisition)

one business buying more than 50% of the shares of another business and taking over the business

advantages of mergers

\-economies of scale

\-increased rvenue and market share

\-international expansion

disadvantages of mergers

\-clashing company cultures

-communication problems

-unreliable merger partners

horizontal integration

when a business joins with another business at the same level of production

vertical integration

when a business joins with another business at a different level of production

conglomerate integration

when a company buys into something with which it has no connection

economies of scale

unit cost reductions from operating on a larger scale - can result in higher profits

diseconomies of scale

increased unit cost from growth and increasing output