Business Activity and Influences On Business

Business

Organisation that produces goods and services

Organisation

A group, such as a club or business, that has formed for a particular purpose

Goods

Physical products, such as a mobile phone, a packet of crisps or a pair of shoes

Services

Non-physical products, such as banking, car washing and waste disposal

Output

Amount of goods or work produced by a person, machine or factory

Needs

Basic requirements for human survival

Wants

People’s desires for goods and services

Private secotr

Business organisations owned by individuals or groups of individuals

Public sector

Business organisations owned by central or local government

Private enterprise

Businesses owned privately by individuals or group of individuals

Social enterprise

Business that aims to improve human or environmental well-being for example charities

Public enterprises

Good and services provided by organisations owned by central or local government

Stakeholder

An individual or group with an interest i the operation of a business

Objectives

Goals or targets set by a business

Importance of clear objectives

Employees need something to work towards

Owners will have motivation to keep the business going

Objectives help to decide where to take a business and what steps are needed to get there

Easier to assess the performance of a business if objectives are set

Financial objectives

Survival

Profit

Sales

Increase in market share

Financial security

Shareholders

Owners of limited companies

Dividends

Share of the profit paid to shareholders in a company

Non-financial objectives

Social objectives

Personal satisfaction

Challenge

Independance and control

Why might objectives change as businesses evolve?

Market condition

Technology

Performance

Legislation

Internal reasons

Sole trader

Business owned by a single person

Advantages of a S.T.

The owner keeps all the profit

They are independent - owner has complete control

It is simple to set up with no legal requirements

Flexibility

Can offer a personal service because they are small

May qualify for government help

Disadvantages of a S.T.

Have unlimited liability

May struggle to raise finance

Independence may be too much of responsibility

Long hours of hard work

Usually too small to exploit economies of scale

No continuity

Partnership

When between 2 to 20 people own a business together

Advantages to a partnership

Easy to set up

Partners can specialise in their area of expertise

The job of running a business is shared

More capital can be raised with more owners

Financial information is not published

Disadvantages of partnerships

Partners have unlimited liability

Profit has to be shared

Partners may disagree and fall out

Any parters’ decision is legally binding

Partnerships still tend to be small

Limited partnership

This is where some partners provide capital but take no part in the management of the business

Franshise

A business allows another operator to trade under their name

Advantages to the franchisee

Less risk

Back-up support is given

Set-up costs are predictable

National marketing may be organised

Disadvantages to the franchisee

Profit is shared with the franchisor

Strict contracts have to be signed

Lack of independence

Can be expensive to start

Advantages to the franchisor

Fast method of growth

Cheaper method of growth

Franchisees take some of the risk

Franchisees more motivated than employees

Disadvantages to the franchisor

Potential profit is shared with franchisee

Poor franchisee may damage brand’s reputation

Franchisees may get merchandise from elsewhere

Cost of support for franchisees may be high

Limited companies

They have separate legal identities from their owners

Advantages of private limited companies

Shareholders have limited liability

More capital can be raised

Control cannot be lost to outsiders

Business continues if a shareholder dies

Has more status

Disadvantages of private limited companies

Financial information has to be made public

Costs money and takes time to set up

Profits are shared between members

Takes time to transfer shares to new owner

Cannot raise huge amounts of money like PLCs

Public limited companies

A limited company whose shares are freely sold and traded

Advantages of public limited companies

Large amounts of capital can be raised

Shareholders have limited liability

PLCs can exploit economies of scale

May be able to dominate the market

Shares can be bought and sold easily

May have a very high profile in the media

Disadvantages of public limited companies

Setting up costs can be very expensive

Outsiders can take control by buying shares

More financial information has to be made public

May be more remote from customers

Managers may take control rather than owners

Multinationals

Large businesses with significant production or service operations in at least two different countries

Public corporations

Business organisations owned and controlled by the state/government

Reasons for the public ownership of businesses

Avoid wasteful duplication

Maintain control of strategic industries

Save jobs

Fill the gaps left by the private sector

Serve unprofitable reigons

Reasons against the public ownership of businesses

Cost to government

Inefficiency

Political interference

Difficult to control

Privatisations

Transfer of public sector resources to the private sector

Why does privatisation take place?

To generate income

To reduce inefficiency in the public sector

As a result of deregulation

To reduce political interference

Factors affecting the appropriateness of different forms of ownership

Growth

Size

The need for finance

Control

Limited liability

Primary sector

Production involving the extraction of raw materials from the earth e.g. agriculture, fishing, forestry and mining

Secondary sector

Production involving the conversion of raw materials into finished and semi-finished goods

Tertiary sector

Production of services the economy

Interdependance

Businesses in each three sectors are likely to be interdependent

De-industrialisation

A decline in manufacturing