Business Azut (copy) (copy)

Business

combines factors of production to satisfy people’s wants by producing goods or services.

Need

is a good or service essential for living.

Want

is a good or service which people would like to have, but which is not essential for living. People's wants are unlimited.

Economic problem

There exist unlimited wants but limited resources to produce the goods and services to satisfy those wants, this creates scarcity.

Scarcity

is the lack of sufficient products to fulfill the total wants of the population.

Factors of production

resources needed to produce goods or services. There are four factors of production and they are in limited supply.

(factor of production) Land

is the term used to cover all of the natural resources provided by nature and includes fields, forests, oil, gas, metals and other resources.

(factor of production) Labour

is the term used to describe the number of people available to make products.

(factor of production) Capital

is the finance, machinery and equipment needed for the manufacture of goods.

(factor of production) Enterprise

is the skill, and risk-taking ability of the person who brings the factors of production together to produce a good or a service. For example, the owner of a business. These people are called entrepreneurs.

Opportunity cost

is the next best alternative given up by choosing another item.

Specialisation

occurs when people and businesses concentrate on what they are best at.

Division of labour

is when the production process is split up into different tasks and each worker performs one of these tasks. It is a form of specialisation.

Advantages(2) and disadvantages(2) of division of labour

Advantages
Workers are trained in one task and specialise in that. This Increases the efficiency and output
Less time is wasted moving from one workbench to another
Quick to train workers as fewer skills need to be taught.

Disadvantages
Fall in efficiency if workers become bored
If one worker is absent and no one else to do the job then the production might be stopped

Added value

is the difference between the selling price of a product and the cost of bought in materials and components.

How to increase added value

Improve packaging (To give an idea of high quality product)
Sell in pleasant surroundings
Employ experienced workers
Improve quality
(To establish a brand image of high quality product)
Decrease the cost of making( by buying cheaper raw materials)
Increase the selling price
(This widens the gap between cost and price)

Primary sector

Business whose main activity involves extraction of raw materials

Secondary sector

industry manufactures goods using raw materials provided by the primary sector.

Tertiary sector

industry provides services to consumers and the other sectors of industry.

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De-industrialisation

occurs when there is a decline in the importance of the secondary, manufacturing sector of industry in a country.

Mixed economy

has both a private sector and a public sector.

Private sector( no need to know def)

Businesses not owned by the government. Services are charged and paid for by the customer

Public sector( no need to know def)

Government owned and controlled businesses and organisations. Services provided are free and are paid for by taxes.

Capital

the total amount if money invested into a business by the owners

Privatisation

When governments sell public sector businesses to private sector businesses

Entrepreneur

person who organises, operates and takes the risk for a new business venture.

Benefits of being an entrepreneur(2)

-Independence- able to choose how to use time and money
-Able to put ideas into practice
-May become famous and successful if business grows
-May be profitable and the income might be higher than working as an employee for another business
-Able to make use of personal interests and skills

Disadvantages of being an entrepreneur(2)

-Risk-the business might fail
-Capital- have to put own money into business and might have to find other sources of money
-Lack of knowledge and experience in starting and operating a business
-Opportunity cost- lost income from not being employed in another business

Qualities of an entrepreneur(8) (CHRISIOE)

-Hard working- Have to work long hours and have few vacation days
-Risk taker- Making decisions to produce goods or services that people might buy is potentially risky
-Creative- A new business needs new ideas about products , services and ways to attract customers, in order to make it different from other companies
-Optimistic- Looking forward to the future is essential, if you think you will fail you will fail
-Self-confident- Necessary to convince to convince banks, other lenders and customers that your business will be successful
-Innovative- Being able to put new ideas into practice in interesting and different ways is important
- Independent- Will often have to work on their own before they can hire other people, have to be able to be motivated and be able to work by their self
-Effective communicator- Talking clearly and confidently to banks, other lenders, customers and government agencies about the new business will raise the profile of the new business

Why do governments support business startups(4)

-Reduce unemployment- New businesses will often create jobs
-Increase competition- New businesses give customers more choice and compete with already established businesses
-Increase output- The economy benefits from being increased output of goods and products
-Increase tax revenue-When the company grows large they would need to pay filthy amount of tax
-Can grow further- May help some small firms grow to become very large and important in the future

How do governments help business(2)

-Business idea and help- Governments organize advice and support sessions offered by experienced people
-Finance- Loan money to businesses at small interest rates or grants. Additionally, lower tax rates could be implied on the startups
-Location- Rent free spaces
-Training courses for entrepreneurs and/or workers

Business plan

a document containing the business objectives and important details about the operations, finance and owners of the new business.

Contents of a business plan

• Description of the business

• Products or services

• The target market

• Location

• Organizational structure

• Financial Information

• Future business objectives

• Business stratergies
  

How does a business plan help an entrepreneur(4)

To predict cash flow problems
To support loan application
Give business a sense of purpose
To help identify the skills required
To help identify what promotional method they should use
TO calculate costs of setting up the business

How to measure Business Size(4)

Number of employees
Value of output
Value of sales
Value of capital employed

Capital employed

is the total value of capital used in the business.

Why do owners want their business to grow(2)

-Possibility of higher profit for owner
-Larger market share- this gives the business more influence when dealing with suppliers and distributors

Internal growth

occurs when a business expands its existing operations, e.g creating a new product or expanding to another market(location)

External growth

is when a business takes over or merges with another business.

Integration

is when one firm is integrated into another one.( Another word for external growth)

Merger

is when the owners of two businesses agree to join their firms together to make one businesses.

Takeover

is when one business buys out the owners of another business, which then becomes part of the predator business.

Horizontal integration

is when one firm merges with or takes over another one in the same industry at the same stage of production.

Vertical integration

is when one firm merges with or takes over another one in the same industry but at a different stage of production, it can be forward (higher stage of production) or backward (lower stage of production).

Conglomerate integration

is when one business merges with or takes over a business in a completely different industry. Also known as diversification

Problems of business growth and how to overcome that problem?(2)

-Larger business is harder to control. Hire specialists managers
-Expansion is expensive. May need to borrow a loan.

Why do some businesses stay small(2)

-Market size- if the market size is small than a business which operates in that market is likely to remain small
-The owner's preference- Owner might want to avoid the stress and worry of running a large company
-Lack of capital-Not enough money to expand the business
-Lack of demand-
-Lack of knowledge-

Why some businesses fail

-Poor management
-Too much competition
-Too much debt
-Lack of money to pay wages or rents

Why new businesses have a higher chance of failing(2/3)?

• Poor planning (due to lack of experience)

• Strong competition from large firms( cannot benefit from economies of scale like large firms)

• Lack of demand ( cannot pay for cost from sales revenue)

• Difficulties entering the market ( as does not have brand loyalty)

Sole trader

is a business owned by one person.

Advantages and disadvantages of being sole trader(2 each)

Advantages
Can make his own decisions (Decision can be made quickly)
Keeps all the profit( So has an incentive to work harder)
Business details are private

Disadvantages
Unlimited Liability ( may lose personal assets to pay business debts)
Limited sources of finance (difficult to fund expansion)
No one to share workload with( may feel burnt out, and make mistakes )

Limited liability

means that the liability of shareholders in a company is only limited to the amount they invested.

Unlimited liability

Owners of a business can be held responsible for the debts of the business they own. Their liability is not limited to the investment they made in the business.

Partnership

is a form of business in which two or more people agree to jointly own a business.

Advantages and disadvantages of being in a partnership (2 each)

ADVANTAGES

• Easy to set up

• More capital

• New skills and ideas

• Can cover up for the other business partner if one is absent
  

DISADVANTAGES

• Unlimited liability

• Conflict (Lower productivity)

• Profit needs to be shared
  

Partnership agreement

is the written and legal agreement between business partners. Not essential to have it but always recommended.

Unincorporated business

is one that does not have a separate legal identity. Sole traders and partnerships are unincorporated businesses.

Incorporated business(Limited company)

are companies that have separate legal status from their owners.

Private limited company

Businesses owned by shareholders but they cannot sell share to public

Advantages and disadvantages of private limited companies (2 each)

ADVANTAGES

• Limited liability

• Shares can be sold to raise funds

• Easier to keep control that public limited company

• Incorporated
  

DISADVANTAGES

• Needs to host AGM which requires lots of money

• Expensive to set up

• Many legal formalities (increases costs)

• Only can sell shares to family and friends

• Dividends needs to be paid to shareholders (decreased retained profit)

Public limited companies

Businesses owned by shareholders but they can sell shares to public and their shares are tradeable on stock exchange

Advantages and disadvantages of public limited companies (2 each)

ADVANTAGES

• Limited liability

• Large amount of money can be raised as shares are tradeable on stock exchange (to fund growth)

• No restriction on buying or selling of shares

• Incorporated

DISADVANTAGES

• Owners might lose control over the company

• Very expensive to set up

• Needs to give dividends(decreases retained profit)

• Many legal formalities (increased costs)

Why would a small business not prefer to become a PLC(2/1)?

As the business would require a huge capital to sell its share to public.
The owner of the business likes to stay in control.

Why would a business decide to convert into LTD(1)?

As the business can raise money by selling the shares to family, friends etc.

Shareholders

are the owners of a limited company. They buy shares which represent part ownership of a company.

Annual general meeting (agm)

is a legal requirement for all companies. Shareholders may attend and vote on who they want to be on the Board of Directors for the coming year.

Dividends

are payments made to shareholders from the profits (after tax) of a company. They are the return to shareholders for investing in the company.

Franchise

is a business based upon the use of the brand names, promotional logos and trading methods of an existing successful business. The franchisee buys the license to operate this business from the franchisor.

Advantages and disadvantages of being a franchisee (2 each)

ADVANTAGES

• Banks would lend money as the chances of failing is low

• Support from franchisor - advice, training, marketing

• More chance of success as selling a well known product

DISADVANTAGES

• Needs to share profit with franchisor

• Needs to follow franchisor rules

Advantages and disadvantages of being a franchisor (2 each)

ADVANTAGES

• Expansion of business with less money

• Gets a part of the profit owned by the franchise

DISADVANTAGES

• Bad franchisee can ruin reputation of whole company

• Money and time spent on supporting franchisees

Joint venture

is when two or more businesses agree to start a new project together, sharing the capital, the risks and the profits.

Advantages and disadvantages of joint ventures (2 each)

ADVANTAGES

• Sharing of costs and risks

• Local market and product knowledge is known by one of the business

DISADVANTAGES

• Have to share profits

• Conflicts may occur

Public corporations

These are businesses that are fully owned by the government. But they are managed by a board of directors who are made clear what the purpose of the business is.

Business objectives

are the aims or targets that a business works towards.

Benefits of business objectives

-They give workers and managers a clear target to work towards
-Making decisions will be easier since they will focus on "will it help us achieve our objectives"
-Helps unite entire business under one goal
-Can compare how business has performed compared to its objectives

Different types of objectives

-Survival
-Profit
-Growth
-Returns to shareholders
-Market share
-Service to the community

What is the primary objective of business?

To make Profit

Social Enterprise

has social objectives as well as an aim to make profit to reinvest it back into the business.

Objectives of social enterprises

to provide jobs and support for the disadvantaged groups in society
Environmental: to protect the environment
Financial: to make a profit to reinvest back into the business.

Market share

is the percentage of total market sales held by one brand or business

Stakeholder

is any person or group with a direct interest in the performance and activities of a business.

Stakeholder groups

-Owners
-Consumers
-Workers
-Government
-Managers
-Banks
-The Local community

Why might a business’s objectives might change?(2)

• Increase competition

• Weak performance

• Market changes

Features of owner(2)

They put up capital into set up and expand the business.
They are risk takers.

Objectives for owner(2)

-Growth of the business so their investment is worth more
-Want a share of the profit made by company to reinvest it back into the business

Features of workers(2)

They are employed by the business.
They have to follow the instructions of managers and may need training to do their work efficiently.

Objectives for workers(2)

-Regular payment
-Contract of employment
-Job security
-Job that gives satisfaction and provides motivation

Features of managers(2)

They are employees of the business and control the work of other workers.
They take important decisions.

Objective for managers(2)

- High salaries for their important work
- Job security
-Growth of business so they can have more status and power

Features of consumers(2)

They are important for all businesses. They buy goods or services a company provides.
Without them a company might fail.

Objective for consumers(2)

-Safe and reliable products
-Value for money
-Well-designed product of good quality
-Reliability of service and maintenance

Features of government(2)

It is responsible for the economy of the country.
It passes laws to protect workers and consumers

Objective for Government(2)

-Business to be successful, will pay taxes, employ workers and increase country output
-Business to follow laws

Objective of the whole community(2)

-Jobs for working population
-Product that does not damage the environment
-Safe products that are socially responsible

1 Feature of Banks

They provide finance to other businesses.

Objective for banks(1)

-Business to pay back money lent with interest

Motivation

reason why employees want to work hard and work for the business effectively