Business Studies Notes

Business Organisations

Learning Objectives

• Identify the features of various types of business organisations: company, cooperative, and franchise.
• Explain the advantages and disadvantages of each type of organisation.
• Discuss the type of organisation entrepreneurs may set up.

Introduction

• Setting up an enterprise requires selecting an appropriate form of business organisation.
• A business organisation is an enterprise providing goods and/or services to consumers, usually to make profits.
• Common forms of business organisations include:
  • Sole trading
  • Partnership
  • Company
  • Cooperative
  • Franchise
• Each type differs in terms of:
  • Ownership
  • Raising of capital
  • Risks
  • Sharing of profits or losses

1.2 Company

• A company is an incorporated business organisation owned by its shareholders.
• It is set up by raising capital through the issue of shares.
• Companies must be registered at the Registrar of Companies.
• Legal rules for setting up a company are found in the Companies Act.
• Companies are easily recognised as the name of the enterprise must be followed by “Company Limited”, often shortened to ‘Co Ltd’.

1.2.1 How to Set Up a Company

• Setting up a company involves several steps.
• Entrepreneurs usually ask basic questions before setting up a company:
  • What is the legal procedure?
  • Who would manage and control the company?
  • Who would be the owners?
  • What are the risks involved?
  • Which documents are required to register?
  • How to register?

Terms Used in Company

• Companies Act: A legal document outlining laws and regulations to set up a company.
• Share: A voucher that represents a unit of capital.
• Shareholder: One who invests in a company by buying its shares.
• Share certificate: An official document stating the number of shares shareholders have.
• Dividend: Part of the company’s profits distributed to shareholders.
• Board of Directors: Those elected by shareholders to manage the company.
• Limited liability: Shareholders will lose only the initial amount invested if the company goes bankrupt.
• Registrar of Companies: The authority that registers companies and issues the certificate of incorporation.
• Memorandum of Association: A legal document with details such as the company’s name, physical address of registered office, names of shareholders, and the distribution of shares.
• Articles of Association: A document that specifies the internal rules of a company.
• Certificate of Incorporation: A legal document showing the official date a company can start operating.
• Annual General Meeting (AGM): A yearly meeting where shareholders elect the directors and the annual report about the performance of the business is presented and approved.

Types of Company

• Private Limited Company: Raises capital from a small number of shareholders such as friends and/or relatives.
• Public Limited Company: Raises capital by issuing shares to members of the general public; usually larger than a private limited company.

Steps for Registration of a Company

1. Application forms: Owners must fill up application forms available at the Registrar of Companies.
2. Registration: Two important documents, namely Memorandum of Association and Articles of Association must be submitted to the Registrar of Companies:
   • Memorandum of Association: Name of the company, office address, names of shareholders and the number of shares held by each of them, share capital, objectives of the company.
   • Articles of Association: Rules and regulations in the company, names of the directors, procedures to be followed at meetings, rights, duties and responsibilities of the directors.
3. Certificate of Incorporation: The Registrar of Companies issues a Certificate of Incorporation, after which the business can start its activities.

1.2.2 Features of a Company

• Registration: A company must be incorporated at the Registrar of Companies and gets a separate legal identity from the owners’ identity.
• Ownership: Shareholders are the owners of a company who buy shares. Each share has one voting right.
• Control: A company is managed by a Board of Directors appointed to make decisions and control the business. The accounts are presented to the shareholders in an AGM.
• Risk: Shareholders have limited liability.
• Profits: The company’s profit is distributed to shareholders as dividend.

1.2.3 Advantages of a Company

• Limited liability: In case of bankruptcy, shareholders lose only the amount invested as capital.
• Separate legal identity: Companies have a distinct identity from the shareholders.
• Continuity: A company continues to exist even if shareholders leave the company. The shares must be sold to someone else.
• Capital: More capital can be raised through the issue of shares.
• Management: The company is managed by a Board of Directors, who are usually experts, to take effective decisions to run and control the company.

1.2.4 Disadvantages of a Company

• Registration: Registration of a company can take a lot of time.
• Disclosure of accounts: Companies must disclose details of their accounts to the Registrar of Companies and shareholders. Business privacy is no longer maintained.

1.3 Cooperatives

• A cooperative is a business organisation which is owned and run jointly by its members, who share the profits or benefits.
• Each member contributes capital by buying a share and is allowed one vote when taking business decisions.

1.3.1 How to Set Up a Cooperative

• A number of steps should be followed when setting up a cooperative.
• The Registration must get a Certificate of Registration.

1.3.2 Features of Cooperatives

• Registration: The cooperative must be registered at the Cooperatives Division.
• Ownership: Owners of a cooperative are known as members. Shares are bought to raise capital required in the business.
• Control: Each member has one voting right to participate in decision-making.
• Risk: Members have limited liability.
• Profit: The gains are termed as surplus and members share it among themselves as dividend.

1.3.3 Advantages of a Cooperative

• Employment: Members of a cooperative create their own jobs and provide employment to others.
• Ownership and control: Members join together to share ideas and help each other to manage the cooperative.
• Profits: The gains are termed as surplus and members share it among themselves as dividends.
• Government support: The Government offers grants, loans, and financial assistance to support cooperatives.

1.3.4 Disadvantages of a Cooperative

• Consultation: Members must necessarily consult each other before a final decision is taken. It slows down decision-making.
• Low profits: Profits are usually low because prices charged are usually low.

1.4 Franchise

• A franchise business is usually a well-established and famous enterprise.

1.4.1 How to Set Up a Franchise

• A franchise is a type of enterprise that bought a license from a franchisor to sell its products and services.
• A franchisee is the enterprise that buys the license from a franchisor.
• The franchisor sells a license of operation before the latter can start to operate.

1.4.2 Features of a Franchise

• Ownership: The franchisee buys a license of operation from the franchisor.
• Control: The franchisee runs and controls the enterprise.

1.4.3 Advantages of a Franchise

• Strong reputation: Fewer chances of new business failing as an established brand and product are being used.
• Support and training: Advice, management support, and training to personnel are offered by the franchisor.
• Existing product: Most supplies are purchased directly from the franchisor.

1.4.4 Disadvantages of a Franchise

• Huge investment: The franchise license fee can be expensive.
• Control by franchisor: Strict rules over pricing and layout of outlet reduce owner’s control over one’s own business.
• Profits to franchisor: Part of the profits has to be paid to the franchisor each year.

1.5 Selecting the Right Business Organisation

• Choosing the right business organisation is one of the most important decisions an entrepreneur has to make before setting up an enterprise.
• Factors that influence entrepreneurs’ decisions:
  • Ownership and control
  • Registration and procedures
  • Continuity
  • Risks
  • Expansion
• Entrepreneurs are usually influenced by a number of factors in selecting the appropriate type of business organisation.
• The entrepreneur should ask the following questions before taking a decision:
  • Who will own and run the enterprise?
  • Will I have control over my enterprise?
  • What are the formalities involved in setting up the enterprise?
  • What are the risks I might have to take?
  • Who will be responsible for my enterprise when I am not available?
• Some entrepreneurs enjoy taking risks, but others may be unwilling to do so.
• Some entrepreneurs change their type of organisation because they must raise more capital to grow their enterprise.
• Others might be discouraged because registration is complicated and registration fees are expensive.

Unit 2 The Entrepreneur as a Leader

Learning Objectives

• Outline functions of an entrepreneur
• Recognise the responsibilities of an entrepreneur
• Explain the qualities of a leader entrepreneur
• Explain the role of stakeholders in the enterprise
• Describe how to manage risks in an enterprise

2.1 The Entrepreneur

• An entrepreneur is an individual who sets up an enterprise by taking risks and who aims at making profit.
• The entrepreneur has a business idea and works towards making the enterprise successful.

2.1.1 Functions of an Entrepreneur

• Entrepreneurs, as managers of enterprises, undertake several tasks to run their businesses effectively.
• Being an entrepreneur is challenging as he is the leader of the enterprise and he fulfills a number of functions.

Functions of an Entrepreneur:

• Planning: The process of choosing a business idea, setting objectives, and anticipating risks.
• Organising: Bringing in resources into the organisation to meet the objectives set by the entrepreneur.
• Staffing: Hiring people to work in the enterprise.
• Leading: Directing employees towards the objectives of the enterprise.
• Controlling: Ensuring that tasks are being done according to the expectations of the entrepreneur.

2.1.2 Responsibilities of an Entrepreneur

• Keep accounting records
• Recruit and train workers
• Promote the products
• Order raw materials or goods for resale
• Look after the finance of the enterprise
• Handle customers

2.1.3 Qualities of a Leader Entrepreneur

• Innovative: The entrepreneur comes up with new ways of doing things.
• Skilful: The entrepreneur develops a number of abilities to operate.
• Risk taker: The entrepreneur takes calculated risks when operating the business.
• Intelligent: The entrepreneur is able to take right decisions.
• Self-confident: The entrepreneur believes in his abilities to achieve the goals of the enterprise.
• Passionate: The entrepreneur is motivated and has a strong drive to make the business successful.

2.2 Stakeholders

• Stakeholders are people, groups, or organisations that take interest in activities and decisions taken by a business.

2.2.1 Roles and Objectives of Stakeholders

2.3 Managing Risks in an Enterprise

• Business risk refers to any factor that represents a threat to an enterprise’s ability to achieve its goals.

2.3.1 Types of Risk

• Strategic risks: Chances of business failure due to poor business objectives, causing heavy losses.

• Operational risks: Chances of business failure due to the poor running of the daily activities.

• Financial risks: Chances of business failure due to poorly managed finance.

• Compliance risks: Chances of business failure as enterprises fail to follow laws and regulations.

• Steps of risk management:

  • Identify potential risk(s)
  • Assess the impact of loss
  • Develop a plan to mitigate the risk(s)
  • Implement the plan
  • Review and evaluate the plan

2.3.2 Dealing with Risks

• Business risks can occur at any time, at the start of a business or even when launching a new product on the market.
• Entrepreneurs who have the ability to bear any kind of risk and who react positively to risky situations are better prepared entrepreneurs.

Unit 3 Entrepreneurial Skills

Learning Objectives

• Understand the terms 'communication' and 'communication process'
• Explain the importance of effective communication in an enterprise
• Describe the forms of communication in an enterprise
• Explain how to resolve conflicts in an enterprise

3.1 Communication

• Communication is the exchange and flow of information, ideas, thoughts, and feelings from one person to another.
• Entrepreneurs communicate with various stakeholders in order to convey messages during their business activities.

3.1.1 Communication Process

• The communication process shows the flow of information from the sender (the transmitter) to the receiver (the recipient).
• Features of the communication process:
  • Sender: the person who passes on information to others.
  • Receiver: the person to whom the message is sent.
  • Message: The information being passed on.
  • Feedback: the reply from the receiver to confirm receipt and understanding of the message.
  • Medium of communication is a means used to send a message for example, letters, emails, phone calls, or meetings.

3.1.2 Effective Communication

• An entrepreneur needs to communicate effectively with employees, customers, suppliers, and other organisations for the smooth running of an enterprise.

• Effective communication is a two-way process between the sender and the receiver, where feedback is provided.

• Ineffective communication:

  • Occurs when there are disruptions or failures in the communication process.
  • Can have serious consequences for enterprises.

• Causes of ineffective communication:

  • Language: a sender speaks in a language which the receiver does not understand
  • Medium: writing a message to a person who has difficulties to read
  • Technical problems: computer failure can prevent a message from being sent
  • Distractions: noise or bad reception causing the message to be poorly exchanged

3.2 Importance of Effective Communication in an Enterprise

• Effective communication leads to orders placed on time
• Employees know about job expectations
• The enterprise is able to meet customers’ orders on time
• It leads to quicker decisions taken by the entrepreneur

3.3 Forms of Communication in an Enterprise

• Verbal communication: oral exchange of information through spoken words (e.g., telephone conversation, meeting).
• Non-verbal communication: exchange of information through body language without using any spoken or written word (e.g., a handshake, facial expressions).
• Written communication: exchange of information through the use of written words (e.g., a business letter, a business plan).
• Visual communication: communication through visual aids to represent information (e.g., a chart, a logo).
• In choosing an appropriate communication method, factors such as speed, cost, the target audience, importance of a written record, and importance of feedback are taken into consideration.

3.4 Internal and External Communication

• Internal communication: takes place among people within the enterprise itself (e.g., Manager gives instructions to employees about tasks to perform).
• External communication: takes place when enterprises communicate with stakeholders outside the business (e.g., The entrepreneur communicates with the bank while applying for a loan.). Stakeholders involved:
  • Employees
  • Managers
  • The Entrepreneur
    Stakeholders outside the business:
  • Customers
  • Suppliers
  • Banks
  • Government

3.5 Conflicts in an Enterprise

• Conflict is a situation in which there is disagreement or disapproval with another person or within a group.

• If conflict is not settled, it can lead to inappropriate behaviour of employees that prevent them from working towards a common goal.

• Reasons conflicts may arise:

  • due to disagreements on the goals and objectives of the enterprise
  • on the attitudes and behaviours of people working together
  • over the process of getting tasks done

• Examples of conflicts:

  • Disagreement on allocation of work and responsibilities
  • Ineffective communication between the owner and employees
  • Rivalry among staff members

• Ways of resolving conflicts:

  • Agree on the problem
  • Improve on communication skills
  • Learn to manage emotions
  • Reach a win-win situation
  • Show willingness to resolve the issue
  • Turn problems into opportunities

Unit 4 Marketing

Learning Objectives

• Differentiate between selling and marketing
• Explain market research
• Describe the key elements of marketing
• Understand methods of e-marketing and its importance

4.1 Marketing

• Marketing is the process of identifying the needs of customers and attempting to satisfy them.
• Businesses carry out marketing in one form or another as it is an important business activity.
• The role of marketing is to ensure that the product of a business meets customers’ needs and wants.
• Effective marketing is essential to the success of an enterprise.

4.1.1 Selling versus Marketing

• Selling is concerned with exchanging a product for cash whereas marketing is the process of identifying the needs of customers and attempting to satisfy them.
• Differences between selling and marketing:
  • Selling: emphasis is on the product; product first, then customer.
  • Marketing: emphasis is on the customer's needs; customer first, then the product.

4.2 Knowing Your Market

• Key questions to consider when launching a product:
  • Target Market: To which group of customers will the product be sold?
  • Customers’ Tastes and Preferences: What are customers’ expectations regarding design and quality?
  • Pricing of the Products: At what price should the product be sold?
  • Competitors: Who are my competitors and what should I do to compete with them?
  • Channel of Distribution: How will the products be sold?
  • Advertising Media: How will the products be advertised?

4.2.1 Market Research

• Customers' needs and wants are identified and anticipated through market research.
• Market research is the process of collecting and analysing data about customers and the market., an entrepreneur can decide about the product design, pricing, advertising and how to make the product available to customers.

Importance of Market Research:

• Helps to identify the needs and wants of customers
• Allows an enterprise to respond quickly to changes in customers' preferences
• Helps a business to plan its marketing activities
• Helps an entrepreneur to launch new products with greater confidence

4.3 Elements of Marketing

4.3.1 Product

• Product refers to the goods and services produced by an enterprise to satisfy customers' needs or wants.
• The entrepreneur should make his product marketable.
• A marketable product is a product which consumers need and will be ready to buy.
• Characteristics of a marketable product:
  • Convenient to use and user-friendly
  • Attractive packaging
  • Affordable
  • Good labelling practices
  • Provides customer satisfaction

4.3.2 Price

• Entrepreneurs should sell their products at convenient prices.

• Price refers to the amount of money paid by the customer when buying a good or service.

• Cost of production - Prices of commodities are usually set to cover the cost of production.

• Ability to pay - Low prices are charged for low-income groups and higher prices to high-income groups.

• Price competition - Prices are lowered to attract more customers from the existing competitors.

Common Pricing Methods:

• Penetration Pricing: Setting a low price to attract customers to buy a new product.
• Premium Pricing: Setting a high price for a high-quality product that is unique on the market.
• Cost Plus Pricing: Setting the price by adding up cost per unit to % of profits.
• Promotional Pricing: Reducing the price of a product or service for a short period of time.
• Competitive Pricing: Setting the price to similar products in the market.

4.3.3 Promotion

• Promotion is about communicating with customers so as to encourage them to buy the products of an enterprise.
• Promotion helps to raise awareness of the product, increases sales and improves the image of the business.

4.3.4 Place

• An entrepreneur needs to find ways to distribute his/her products to customers. This is known as place.
• Place, as an element of marketing, is about selecting an appropriate channel of distribution for products to reach customers.
• A channel of distribution refers to the link a product passes through before it reaches the consumer.
• Factors influencing choice of distribution channel:
  • Producer to Consumer
  • Producer to Retalier to Consumer
  • Producer to Wholesaler to Retailer to Consumer
• Entrepreneurs need to deliver products to consumers at the right time and in the right place. This will make products available to customers conveniently, that is, whenever and wherever it is suitable to them.
• In choosing a channel of distribution, entrepreneurs might consider the following factors:
  • Nature of the product
  • The market
  • Competition

4.4 Entrepreneurs and E-marketing

• With the advent of technology, entrepreneurs are making use of the internet as a tool to market their products and services. This is known as electronic marketing (e-marketing) or online marketing.

4.4.1 Methods of E-Marketing

• Web marketing refers to promoting products or enterprises on the internet through websites.
• Email marketing refers to promoting products through the use of email to customers.
• Social media marketing involves the use of social network like Facebook and Twitter to market products.

4.4.2 Importance of E-Marketing

• E-marketing is less costly because a large number of customers can be reached through electronic means.
• It allows buying and selling at odd hours, for instance, even when shops are closed.
• With the use of technology, businesses can communicate more frequently with customers and provide the latest information.
• Entrepreneurs can gather information about how well their products are doing on the market through mini-online feedback forms.

Unit 5 Business Plan

Learning Objectives

• Describe the term business plan
• Outline the reasons for preparing a business plan
• Write up a simple business plan

5.1 Business Plan

• A business plan is a document that contains a detailed plan to set up and develop an enterprise.

• The exercise of preparing a business plan encourages entrepreneurs to think through their business idea.

• While doing so, entrepreneurs will have to present maximum information about the enterprise.

• Users of business plans:

  • Entrepreneurs themselves
  • Other stakeholders
    • Potential investors
    • Banks

5.2 Uses of Business Plan

• Business plans have several uses.
• A business plan can be used as a guide, as well as a decision-making tool for the entrepreneur.
• The business ideas of the entrepreneur can be written down in detail.
• Reasons entrepreneurs prepare a business plan:
  • A guide
    • To measure progress made by the business
  • A decision-making tool
    • To attract potential investors to the enterprise
    • To apply for a bank loan

5.3 Components of a Business Plan

• Components of a business plan:

  • Information about the enterprise
  • Human resources
  • Operations
  • Marketing
  • Finance

• Questions that should be considered before preparing a business plan:

  • What are the business aim and objectives of the enterprise?
  • Who will be the customers?
  • What prices should be charged for the products?
  • Which resources would be required to start up the enterprise?
  • What is the best location of the business?
  • What are customers' taste and preferences?
  • Where should the products be sold?
  • Who are the competitors?
  • What are the expected profits?
  • What type of enterprise should be set up?

• Table of information that is usually found in different components of the business plan.

  Table header 1
  Column A
  A.1	B.1

• Details of business plan
  The table below shows the type of information that is usually found in different components of the business plan.

  Details	Information about the enterprise	Human resources	Operations	Marketing	Finances
  Advertising				Advertising
  Business aim and objectives	Business aim and objectives
  Channels of distribution				Channels of distribution
  Description of the product	Description of the product			Strengths of the products
  Expected expenses/ revenue					Expected expenses/revenue
  Name of the enterprise	Name of the enterprise, Location of the business, Contact details, Type of business enterprise, Incorporation date of the enterprise, Start-up capital required, Business idea	The number of workers required (if any), Start-up capital required, Units of goods to be produced by the enterprise		Prices to be charged, Strengths of the products	Profits or losses to be made, Start-up capital required, Expected expenses/revenue
  Prices to be charged
  Strengths of the products	Channels of distribution