Unit-1 business in the real world

Good

A tangible product

Service

An intangible product

Reasons for starting a business

Making profit, skill and interest, making decisions, investing money

Purpose of a business

Producing goods, distributing products, benefit communities, supply services, business opportunities

Factors of production

The resources a business uses to provide goods and services

Capital- buildings and machinery needed

Enterprise - the entrepreneur who sets up a business

Land- where a business is based, natural resources

Labour- people working in a business

Opportunity cost

The next best alternative given when making a choice

Characteristics of an entrepreneur

Innovative, risk taker, hardworking, organised, persuasive

Objectives of an entrepreneur

Wants to be their own boss, profit, passion, interest, gap in the market

Types of businesses

Primary, secondary and amd tertiary

Dynamic nature of a business

New legislation, change in economy, new tech, political events, social

Soletrader

An individual owning and running a business

Advantages and disadvantages of being a sole trader

advantage: quick, decision making , profit

Disadvantage: stressful, unlimited liability, workload, raising fininace is hard,

Partnership

Two or more sole traders join together in a business enterprise

Advantages and disadvantages of partnerships

Advantage: shared skill, less workload, easier to raise finance,

Disadvantage: shared profit, harder decisions, unlimited liability

Private limited company LTD

Can only sell shares to friends and family

Advantages and disadvantages of Private limited company LTD

advantage: more control, limited liability , easier to raise finance

Disadvantage: payout dividends, less privacy, legal duties are stricter

Public limited companies plc

Can sell shares to anyone via stock exchange

Advantage and disadvantage of Public limited companies plc

Advantages: raise large sums of money, anyone can buy, limited liability

Disadvantage: complicated to set up, expensive, takeover, divedends

Not for profit organisations

Set up to achieve other objectives than profit e.g charity

Aim

Longterm purpose of the business

Objective

SMART targets used to fulfil an aim

Purpose of setting objectives

Decision making, investors understand direction, target for comparison, motivation

Role of objectives

Survival, profit ,shareholder value , customer satisfaction, marketshare, growth, ethical, environment and sustainability ,

Changing objectives

Internal reason: achieved, change in view, requirements

External: new competition, economic environment, technology,

The main stake holders of a business and their objectives

Government - legal behaviour, taxes and growth

Employees - secure jobs, higher pays

Owners- high dividends

Suppliers-payed on time

Community -local jobs, minimise environmental impact of the community

Customers -useful, accurate information, good service, value for money

How can stake holders influence a business

Negotiation - two sides discuss to find a solution

Direct action -boycotts

Refusal to co operate-

Voting

Why is location important

Costs

Sales

Image

Factors effecting location

The nature of a business

Proximity to the market

Competitor

Proximity to raw materials

Cost of labour

Transport

Technology

Costs

Overseas location

Cheaper labour

Access to raw materials

Financial incentives

HOWEVER:

different rules and regulations

Different preferences

Environmental costs

Supply chains

Business plan

A document setting out what a business does and what it hopes to achieve

Business planning

A process of producing a business plan

Why to business plan

Help set up successfully

Raise finance

Set object

Co ordinate actions

Problems of business planning

Uncertainty- outcomes are difficult to predict

Lack of experience

Change

Reduce risk of business planning

Research

Consultant

Plan for a variety

Regularly review

Main sections of a business plan

Background info

Analysis of market

Objectives

Prices and expected sales

Competing

Analysis of financial positions

What is in financial section of a business plan

Revenue

Fixed costs

Variable costs

Revenue

Income a firm receives from selling its goods,

Total cost

Fixed cost plus variable cost

Fixed cost

Costs do nit change when a business changes its output

Variable cost

Costs that vary directly with output

Business expansion

Enterprise becomes bigger by increasing output and sales

Internal growth (organinx)

Increases its production and sales of production

External growth (intergration)

Two business or more join together

Measuring size of business

Value of sales - what it owns minus what it owes

Value of business- calculate value of shares (market capitalisation)

Number of employees

Franchising

Franchise- franchisor sells the right to sell products to a franchisee

Franchisee- buys a franchise in return for a fee or percentage of turnover

Franchising- a business selling the rights to a franchisee

Franchisor- sells a franchise for a fee and percentage of turnover

Advantages of selling a franchise

Growth

Franchises can provide some finance

Motivation to run their own business

DisAdvantages of selling a franchise

Lose control

Share profit

Brand damage

How to expand

Open new stores

E commerce

Outsourcing

Business uses another business to produce for it

Merger

Two or more business ,merge together to form a new business

Takeover

One business buys control of another

Types of integration

Horizontal -firm joins another at the same stage

Vertical -joins with a firm at a different stage

Advantage of business expansion

Economies of scale

More power

Status

Reward for staff

Economies of scale

Unit cost of production falls as its output rises and business expands

Diseconomies of scale

Cost per unit increases as business expands

disadvantage of business expansion

decision making

Isolation

Control and coordination