Business Opportunities

Revenue

• Revenue is the money a business makes from sales.

• Total revenue is the total amount of money a business receives from its sales.

• $Total\ revenue = quantity\ sold \times selling\ price$

Types of Costs

• Fixed Costs: Do not vary with output and only change in the long run. Examples include:

  • Rent

  • Management salaries

  • Interest charges

  • Depreciation

• Variable Costs: Costs that vary in direct proportion to changes in output. Examples include:

  • Raw materials

  • Fuel

  • Labor (when staff are paid for what they produce)

• Total Costs: $Fixed\ Costs + Variable\ Costs$

• Semi-Variable Costs: Costs that contain both fixed and variable elements. Example:

  • Telephone charges with a fixed standing charge plus a rate that varies with the number of calls made.

Profit

• Definition: Difference between the income generated from sales and the variable costs of producing the goods to generate those sales.

  • Allows a business to analyze whether each of its products covers its own variable costs.

  • Contribution is used to pay the company’s overheads (fixed costs).

  • Once these have been covered, additional contribution generates profit.

• $Contribution\ per\ unit = Selling\ Price\ per\ unit - Variable\ Costs\ per\ unit$

Calculation Example:

• Total Revenue = 400,000 x £14 = £5,600,000

• Fixed Costs = £360,000

• Variable Costs = 400,000 x £6 = £2,400,000

• Total Costs = £360,000 + £2,400,000 = £2,760,000

• Profit = £5,600,000 – £2,760,000 = £2,840,000

Direct Costs

• Definition: Costs that arise specifically from the production of a product or the provision of a service. Examples include:

  • Rent on a shop

  • Materials or components

  • Direct labor

  • Expenses such as copyright payments on a published book

  • License fees for use of patents

• These direct costs can be totalled to give the direct costs of producing the product.

• However, revenue minus direct costs does not indicate profitability because:

  • The business must also apportion overheads or indirect costs to the product.

Overheads/Indirect Costs

• Definition: Costs not directly related to production. Examples include:

  • Employing a secretary or receptionist

  • Advertising costs

• The true profitability of a product, factory, outlet etc. can only be judged if we take from revenue both direct costs and overheads.

Break-Even Analysis

• Definition: A diagram that shows the level of output where a business does not make a profit nor a loss.

Advantages:

*   Easy visual means of analyzing a business’ financial position at different levels of output.
    *   Gives a valuable rule-of-thumb guide to potential profitability.
*   Cheap to construct and can be carried out quickly.
*   Profit and loss situation can be seen at a glance – good for non-financial specialists.
*   Helpful for making decisions in ‘what if’ situations.
    *   Can cope with changing circumstances in relation to revenues and costs.
*   Break-even analysis, as part of a business plan, can be helpful in gaining finance.
*   Target setting made easier.
*   Can identify the margin of safety − aids planning.

Limitations:

*   Often regarded as too simplistic as some assumptions are unrealistic.
*   It assumes all output is sold, which is often not the case.
*   Assumes that conditions remain unchanged
    *   Wages, prices and technology can all change suddenly.
*   Relies on the data being accurate and often under- or over-estimations are made.
*   Assumes that total revenue and cost curves are always linear
    *   This may not be the case.
*   Allocating fixed costs in a multi-product business can be problematic
    *   Thus making break-even analysis output inaccurate.
*   Fixed costs are often stepped
    *   This makes break-even analysis difficult.

Margin of Safety

• Definition: The margin of safety shows how much a producer can reduce output before the business starts to make a loss.

• Calculation:

  • $Selected\ level\ of\ business\ activity - Break-even\ Point$

• Example:

  • Margin of safety = 600 – 200 = 400 hampers

  • The margin of safety consists of how many hampers?

Business Location Costs

• Location for new and existing businesses is still largely determined by:

  • Access to customers

  • Access to factors of production

  • Minimization of costs

• Most important location factor is likely to be the cost.

• The setting up of a new business will incur a number of location costs including:

  • Planning permission

  • Purchasing or rental/leasing

  • Refurbishment

  • Business rates

  • Labor costs

  • Transport costs

• New businesses, especially sole traders, have limited capital to start off with therefore they may not be able to afford the ideal of their choice.

• New businesses need to consider the importance of location on its success.

Social Reasons

• Managers want to live in an environment that suits them and their families.

• Managers can often retain a commitment to their existing workforce, even when it makes economic and business sense to relocate a business.

The Market and Competition

• The market is the place where buyers and sellers meet.

• Most commercial B2C exchanges (buying and selling in consumer markets) still take place face-to-face, so a physical location is required.

• Retail location should be driven by access to customers but there will be a balance between customer footfall and rental/lease costs.

• Costs of location will vary according to likely sales and customer potential, but within each price band there will be both good and bad locations.

• An anchor tenant is usually the first and the leading tenant in a shopping center whose prestige and name recognition attracts other tenants.

• Being in close proximity to competitors, a business can benefit from their marketing efforts.

• Manufacturers of components in many industries need to be located close to the users of their products.

Labour

• It can be a deciding factor in determining location.

  • By labour, its meant cost of labour, availability of labour, and the skills of labour.

• Businesses can be attracted to certain areas by the skilled labour that may be available.

  • Cardiff is rapidly developing a booming media industry, which is attracting new international investors looking to recruit talented employees.

• The cost of labour is also a determining factor.

  • International location has a habit of following low-cost labor to wherever it is available.

  • Many UK manufacturing businesses have relocated to the far East and China, where labor costs are very low.

Government Influence

• Cost of labour can be affected by the availability of government grants and government taxation policies.

• The availability of low cost and suitable land resources can also be an important factor when determining location.

  • National governments often ensure that planning permission is available to allow large developments to proceed.

  • They also offer incentives like tax breaks and help with recruitment and training of employees.

Infrastructure

• The type and quality of infrastructure also effects access to markets.

  • Infrastructure used to mean roads, rail and shipping. However, a more modern definition includes electronic communication systems, training agencies and financial services.

• For many modern businesses, such as those that are e-commerce based or the rapidly growing call center industry, quality infrastructure has a very different meaning from that understood by road hauliers and heavy goods manufacturers.

• Economies of concentration or agglomeration occur when a number of businesses in the same or related industries locate close together.

  • They are able to gain mutual advantages. New businesses are attracted by existing infrastructure clusters and in high-tech industries.

Increased Choice in International Location

• Footloose businesses are those that move from location to location, basing themselves wherever best suits their needs at a particular point in time:

  • Changing patterns of trade

  • Improved communications

  • Freer flows of capital

• All of the above mean that the largest businesses have the alternative of locating their production facilities virtually anywhere in the world.

• As long as there is a stable political background and an available workforce, most countries will offer the possibility of hosting a production (or even a remote service) base.

Main influences on international location beyond politics and labor force factors are likely to be:

*   Maximizing economies of scale.
    *   If businesses are able to have a single plant supplying all their requirements for a type of product or range of components, then the business’s average costs of production can fall.
    *   Therefore, there are huge factories providing cakes to sell throughout Europe or producing injection-molded plastics for distribution throughout the world. The falling costs of international transport have allowed this to occur.
*   Political factors can also have an influence on location.
    *   Tariff and quota-free access to trading blocs such as the EU or NAFTA (North American Free Trade Association) may depend on setting up a production facility within that trading bloc.
    *   Far Eastern companies such as Toyota and Honda, wanting free access to European markets, have large production units in the UK today.
*   Companies sometimes establish head office operations where taxation levels are lower than their home base.
    *   This can allow transfer costing to take place.
    *   Transfer costing is a process by which businesses are able to inflate their profits in countries where taxation levels are relatively low and decrease their profits where taxation levels are relatively high.
*   Comparative international wage levels also need to be considered when deciding on worldwide location.
    *   High-tech industries can often choose from willing and skilled workforces from many different global locations.
*   Freedom from restrictions, which would otherwise increase costs or constrain production methods, can be a driver of location.
    *   Businesses can reduce their costs if they locate operations in countries where red tape is less present or employment law is less strict.

Core Part of the Business Plan

Business plans should contain:

*   The introduction or overview/Executive Statement.
    *   This provides an overview of the business’s aims, objectives and strategy, and is evidence that the proposal is viable. It sets out how the business is going to be run.
*   The Marketing Plan.
    *   Important part of any business plan based on both field and desk research. Market research carried out needs, if possible, to establish the size of the market, the needs of the customers and the level of competition. When market research findings have been examined then the marketing plan can be prepared.
*   The Operations Plan.
    *   Include details of where the business will be located, production methods and any equipment needed. Plus, information on the costs of production and where the business will buy supplies may be included.
*   The Human Resources Plan.
    *   The number of employees and the skills, experience and qualifications they require will be outlined. Any management team will also be identified.
*   The Financial Plan.
    *   A variety of forecasting will be necessary:
        *   A sales forecast indicating potential revenues
        *   A cash flow forecast for the first 12 months
        *   A profit and loss and balance forecast for the end of the first year
        *   A break-even analysis.
    *   In addition, information on where the finance for starting and running the business will come from, indicating the available start-up capital as well as any potential borrowing.

Advice Available to Start Up Businesses

• Business Wales

  • This is a government run website-based information resource for those individuals who are thinking of starting a business or wanting to grow their business and are seeking information, advice and guidance.

• Commercial Banks

  • Many of the high street banks offer a dedicated service to small businesses and offer advice on how to construct a business plan and gain financial approval.

• The Princes Trust

  • They work with 18 to 30-year-olds to turn big ideas into a business reality through their Enterprise programme, and offer training and mentoring support to funding and resources.

• British Chambers of Commerce

  • They provide continued advice and support for local businesses. The BCC is a strong campaigning voice for the interests of business, delivers services that help business grow, and is the premier private sector source of advice and support for international trade.

Benefits of Having a Business Plan

• Sets out their objectives and strategy

  • Outlines the way in which they will attempt to achieve their business objectives.

• Outlines its marketing strategy

  • Researches vital information such as the size of the potential market, the strength of the competition, etc.

• Clear idea of direction and operation

  • Strategic planning/setting objectives.

• Helps to convince banks and lending institutions of its ability to pay back loans

  • Cash flow forecast

    • Without one, obtaining finance from banks, etc. is less likely.

• Highlights strengths and identifies possible problems which can then be dealt with in advance.

• Sets out what personnel/skills will be required to run the business effectively.

• Helps them think ideas through – giving a clear idea of direction and operation. May help to identify difficulties that may occur and allow the business to deal with them before they become a problem.

• Useful as a monitoring tool – e.g. compare actual performance with forecasts in the business plan.

However:

• May succeed if the product or service proves so popular that sales are very high, and profits are made consistently.

• May succeed without one if a small, easily managed business e.g. window cleaner.

• No business can be guaranteed success however good the business plan.

• External factors may make the business successful even if business plan not drawn up – economic upturn, change in the law/government policies.

• Those businesses that have a clear plan are more likely to be successful compared to those that do not.

The Business Plan

• Definition: A statement that outlines the way in which a business will attempt to achieve its objectives.

  • Giving a clear idea of its operation and direction.

Goods

• Definition: items produced by the conversion of raw materials into finished products by the secondary sector.

  • They are tangible/physical products, e.g. a car.

    • Consumer Goods: Goods that are used by the consumer.

    • Producer Goods: Items that are bought by another business and used to help make other goods, e.g. photocopier, JCB.

    • Single Use: Items that can only be used once, e.g. ice cream, coffee.

    • Durable: Items that can be used over and over again, e.g. car, kettle.

Business Aims and Objectives

• Aims: The long-term intentions that provide a focus for setting objectives.

  • They are usually expressed qualitatively, sometimes in the form of a mission statement.

• Objectives: The medium to long-term targets that can give a sense of direction to a manager, department or whole organization.

  • E.g. boost market share from 8% to 10% within the next 3 years.

• Private sector aims:

  • Survival

  • Profit maximization

  • Maximizing growth

  • Gaining market share

  • Maximizing sales revenue

  • Maximizing shareholder value

  • Diversifying into new products/new markets

  • Social aims

  • Ethical aims

  • Improving reputation

  • Improved quality

  • Environmental

  • Increased efficiency

  • Competitiveness.

• Public sector aims:

  • Provide a universal service to all UK households wherever they are located

  • Provide a service that the private sector may not be willing to provide as it may not be profitable to do so

  • To make a trading surplus if possible

  • Provision of merit goods to raise society’s standard of living

  • To ensure effective provision of public goods.

Public Goods

• Definition: Public goods are goods that would not be provided in a free market system, because businesses would not be able to charge for them.

• Public goods have two main characteristics:

  • Non-rivalry

    • The consumption of the good by one individual does not reduce the amount available for others, e.g. social services.

  • Non-excludability

    • It is impossible to exclude others from benefiting from their use, i.e. people who use the street will benefit from the street lighting provided.

• Examples include: defence, social protection - police, street lighting, flood control, lighthouses and public water supplies.

Merit Goods

• Definition: Merit goods are goods that could be provided by the free market but policy makers recognise that they would be under-consumed.

  • There are external benefits in providing these goods and services and they are provided free of charge by the Government

• Examples include: health, education, libraries, museums, roads.

Sectors

• The private sector includes all these businesses that are set up by individuals or groups of individuals, e.g. sole traders, partnerships, companies, charities and cooperatives.

• The public sector is essentially business activity that is owned/ run by the government for the benefit of everyone, e.g. army, police force, schools, hospitals.

Services

• Definition: intangible, a task performed in return for payment.

  • This includes personal/ direct services, e.g. hairdresser/haircut, and commercial services, e.g. banking and insurance services.

Importance of the Public Sector

• Goods and services needed in our everyday lives (public goods) would not be provided by the private sector who are looking to make profits. For example: street lighting, defense (army, navy, air force) and the police.

• We all benefit from them without paying for them.

Sole Traders

• Definition: Owned and run by one individual but they may employ people.

Advantages:

*   Independence/own boss
    *   Wants to take own decisions and take responsibility rather than being told what to do. This makes decision-making quick as the sole trader has full control.
*   Wants to develop the skills acquired in the building industry/has acquired sufficient knowledge and understanding to give them the confidence to set up their own business.
    *   Natural progression.
*   Wants to achieve something for themselves.
*   To increase rewards
    *   A sole trader may believe they will earn more than if he continues to be employed in the building industry.
*   Privacy of business affairs
    *   There is no legal requirement to share how the business is performing with anyone.

Disadvantages:

*   Unlimited liability
*   More responsibility
*   Relies heavily on their own ability to make decisions
*   May work long hours and have limited holidays as there is no one to cover them
*   Limited sources of resources.

Reasons Why Would Someone Set Up Their Own Business

• Financial reward:

  • The opportunity to become better off/earn more than current employment/keep the profit/do not have to split the profit with anyone.

• Independence:

  • Enjoy being in control rather than being employed/greater degree of flexibility.

• Personal satisfaction:

  • Building your own business may help individuals reach the higher goals in life.

• Prefer to work on their own:

  • One man/ women businesses are not uncommon.

• Interest:

  • May be passionate about the product or service they provide.

• May take over a family business:

  • Wish to keep it going to support family and employees.

• Identifying gap in the market:

  • Can exploit an opportunity/to increase wealth.

• Lack of employment opportunities:

  • People made redundant and unable to find alternative work.

• Encouragement by external/government agencies to set up own business:

  • Support and advice offered by agencies, e.g. GO Wales, Career Wales, Princes Trust.

Partnerships

Definition:

• Owned and run between 2–20 people.

Deed of Partnership:

• The partners may choose to draw up a ‘Deed of Partnership’, which is a legal agreement setting out the rights and responsibilities of the partners.

It covers issues such as:

*   How much capital each partner will contribute
*   How profits (and losses) will be shared amongst the partners
*   The procedure for ending the partnership
*   How much control each partner has
*   Rules for taking on new partners.

Advantages:

*   Can share resources and ideas
*   Can cover for each other (during holidays for example)
*   Have more sources of finance
*   Have shared responsibility and decision-making.

Disadvantages:

*   Unlimited liability
*   Loss of control
*   Slow decision-making
*   Disagreements between partners
*   Profits must be shared between partners.

Private Limited Companies [LTD]

Definition:

• Often a small business. Shares do not trade on the stock exchange.

Advantages:

*   Benefit of limited liability
    *   If the business fall into debt then the owner is not held responsible and their personal possessions are safe.
*   Can attract extra shareholders to invest because of limited liability.
*   Control cannot be lost to outsiders
    *   Shares are only sold by word-of-mouth so the owners have to invite people to buy the company shares.
*   Continuity
    *   The business does not end if a partner dies.
*   Can be tax advantages if owners are paying the higher rate of income tax.
*   Increased capital
    *   The ability to sell shares can generate the capital needed to expand the business.

Disadvantages:

*   Legal procedure in setting up takes time and costs money.
*   Having to disclose the accounts
    *   Financial information filed with the Registrar can be looked at by public/competitors.
*   Profits have to be shared with the other shareholders.
*   Slower decision-making
    *   Especially if all shareholders have to be consulted.

Public Limited Companies [PLC]

Definition:

• Is usually a large, well-known business. Shares trade on the stock exchange.

Advantages:

*   All shareholders maintain limited liability.
*   More market power maybe enjoyed due to larger size.
*   Huge amounts of money can be raised from the sale of shares to the public on the stock exchange
    *   This can be used to expand the business.
*   Economies of scale may be enjoyed as the company grows.
*   May gain greater presence/dominance in the market.
*   Often easier to raise finance
    *   Financial institutions, such as banks, are more willing to lend to plcs.

Disadvantages:

*   It can be expensive
    *   Setting up costs can run into millions for some businesses.
*   Outside interests could take control as shares are on sale to the public.
*   Greater divorce of ownership and control than in a private limited company.
    *   The company’s board may lose control.
*   Accounts can now be inspected by the public or competitors who could use them to their advantage.
*   Have to publish more information than private limited companies.
*   Greater size may lead to slower decision making.
*   Can be time consuming to gain listing.
*   If they grow too big, they may become inflexible, e.g. they may find change difficult to cope with.

Should a Business Become a Public Limited Company or Remain as a Private Limited Company?

Reasons for becoming a PLC:

*   Large amounts of money can be raised for the business from the sale of shares to the public
*   May gain economies of scale
*   Easier to raise loan finance
*   Helps growth
    *   Might give a business a bigger market share
*   May motivate employees/managers
*   Brand recognition
*   More capital for investing in new products.

Arguments to remain as an LTD

*   Setting up costs for the business would be expensive
*   There would be an even greater divorce of ownership for the business between ownership and control
*   A business may lose control and be involved in a takeover
*   The business accounts can be inspected by the public
    *   Used by competitors
*   A loss of personal touch between the business and its customers
*   The business may become inflexible because of its size.

Why Move From a Sole Trader to a Partnership?

Arguments in favor of a partnership

*   Potentially more capital
    *   Ideal for example if the business needs to find new premises as the current one is becoming too small
*   A new partner brings new skills
*   Possibility of specialisation
*   More ideas/problems can be shared
*   Share workload
    *   Presents an opportunity to reduce working hours/take holidays
*   Avoids need to employ somebody
    *   A risk - new staff need training – not sure of their capabilities.

Arguments against forming partnership (staying as a sole trader):

*   Original sole trader will lose their independence
*   Will need to share profits
    *   Though possible to generate more

• Could result in disagreements/quarrels * Though many family businesses are successful others end in acrimony

  • Decision making potentially slower

    • Need to consult/less flexibility

• By employing a new worker, the original sole trader could retain their independence and also reduce their own working hours

  • If, after a short time, the new partner finds they want to leave the partnership, then the original sole trader is back to square one.

Social Enterprises

Definition:

• Social enterprises include for-profit and not-for-profit businesses (e.g. cooperatives) with primarily social objectives, trading for social and environmental purposes, whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners.

• Operating in what has become known as the “Third Sector” (neither public not private sector). They are usually charitable trusts, founded for a social purpose. They reinvest their profits in the company or the community, and attempt to change lives for the better.

• Examples: Jamie Oliver’s 15, Big Issue, Fair-trade Divine Chocolate, worker cooperatives, charities.

• They do, however, need to make a profit to compete in the market, to ensure their continued survival, to invest in their social or environmental aims and to reduce any dependency on public grants.

Social enterprise businesses will seek to:

*   Survive
*   Make profit
*   Wish to grow.

• In this sense, they are not essentially different from private enterprise businesses.

Social enterprises are distinctive because:

*   Their social and/or environmental purpose is absolutely central to what they do – their profits are reinvested to sustain and further their mission for positive change.

• An ethical business is not the same as a social enterprise.

  • An ethical business tries to achieve its financial goals while minimizing any negative impact on society or the environment.

  • A social enterprise’s main purpose is to fulfil its social and/or environmental goals.

Why Move From a Sole Trader to a Private Limited Company?

• Potentially a lot more capital available for expansion

• Greater protection for personal assets

  • Benefit of limited liability

• Easier to attract investors/shareholders because of security of limited liability

• Becomes a separate legal entity

• Likely to have greater continuity

• Possibly greater credibility with financial institutions

• Can still keep control

• Shareholders may bring in additional business ideas.

But:

• Loss of certain advantages associated with being a sole trader e.g. keeping all of the profit, may now need to consult when making key decisions

• Will need to consider the fact that they will need to publish accounts so that business affairs are less private

• Possibly less control over business – separation of ownership and control – but the sole trader can remain majority shareholder

• Cost of setting/private limited company setting.

Charities

• A non-profit-making organisation established with the aim of collecting money from individuals and spending it on a cause, which is usually specified in its title.

  • Not established to make profits but they can earn surpluses

  • Charities can often have a narrow focus (single issue) in what they are trying to achieve

  • Charities raise the majority of their finances through voluntary donations, but more and more charities now operate retail outlets as well.

Stakeholders

Definition:

• A stakeholder is anyone with an interest in a business. Stakeholders are individuals, groups or organizations that are affected by the activity of the business.

They include:

*   Owner/Shareholder – they are interested in how much profit the business makes.
*   Managers – they are concerned about their salary.
*   Employees /workers – they want to earn high wages, have job security and a nice working environment.
*   Customers – they want the business to produce quality products at reasonable prices and to have a variety of products/services to choose from.
*   Suppliers – want the business to continue to buy their products at a fair price.
*   Competition – they have interest in what the business is doing. If they do not “keep up” with them then they risk losing customers.
*   Financiers/Lenders – want to be repaid on time and in full.
*   Local Community – they have a stake in the business as employers of local people. Business activity also affects the local environment. For example, noisy night-time deliveries or a smelly factory would be unpopular with local residents.
*   Government – they are concerned with whether or not the business is operating within the constraints of the law; how many jobs the business is providing and how much tax the business has to pay.
*   Pressure Groups/Trade Unions – they will fight for the rights of their members and put pressure on the business to behave in a certain manner.

Shareholders

• Shareholders are the owners of a limited company. In theory, all shareholders share the common objective of sustained long-term growth, giving both capital gain and increasing income.

However, the reality is that even shareholders can come into conflict:

*   Institutional shareholders (investment and pension funds) are often driven by the need to achieve in the short term.
    *   This means that they require high dividends and strategies to achieve short-term growth from the businesses that they have invested in.
*   However, these strategies may be at odds with achieving long-term growth through reinvestment of profits and investing in brand value, which are what the individual, long-term investor may be looking for.

• Unfortunately for the small private shareholder, the institutional view is the one that more often than not wins the day.

Directors and Managers

• Directors and managers in large organizations focus their efforts on achieving the long-term objectives of the business.

• They use the resources under their control to achieve maximum benefits for the business and to gain the most from the assets that they manage.

• Often the success or failure of the business will be reflected in the rewards they receive.

• Unfortunately for some businesses, the main long- term objective of some managers is the protection of their position.

• This idea of self-preservation is sometimes a motivator for middle managers that can result in the establishment of whole layers of hierarchy whose role is to preserve their position.

• Senior managers are also sometimes accused of personal objectives ahead of those of the business by attempting to maximize their salaries and benefits, whilst cutting costs through redundancies and rationalizations.

Employees/Workers

• Employees/workers from middle management down receive a wage and possibly fringe benefits such as pensions.

• Naturally, a major concern of this category of stakeholders is job security. With many businesses seeking to incorporate technology and reduce the size of the workforce, there will be obvious conflicts in the views of stakeholders.

• In the past, this conflict would have often led to industrial action.

However, over the last two decades, it seems that the labor force has become more aware of the realities of modern employment and are therefore less likely to take part in strikes:

*   The labor force is more willing to accept job restructuring, redundancy, the need to move jobs, relocate and retrain. However, industrial action does still take place and those employees who are members of strong trade unions are able to influence their pay and conditions to a greater extent than non-unionized workers.

Government

Government benefits from business success as it results in:

*   Increased tax revenues
*   Higher employment
*   Lower benefit payments.

However, the same economic success also means:

*   Increased pollution
*   Increased traffic
*   Loss of greenfield sites through development.

• In the past, the priority was invariably given to growth, but increased environmental awareness has forced the government into limiting developments, encouraging development of brownfield sites and into imposing taxes such as the Climate Change Levy and the Landfill Tax.

• These taxes on businesses increase business costs, reduce competitiveness and potentially increase unemployment.

• As a stakeholder, the government has to balance business and economic growth against external costs of business activity.

Local Communities

Local communities need to be considered as a stakeholder:

• There are a number of benefits to a local community that stem from local business activity:

  • Employment

  • Increased regional wealth

  • Improved facilities and infrastructure.

• Often the economic prosperity of a community may depend on one large employer in their area – the presence of which may support a range of other businesses such as shops, garages and hairdressers.

• Businesses may also support local charities as well as being involved with local schools and colleges.

However, conflicts can also occur between local communities and the businesses that operate close to them:

*   Potential pollution
*   Environmental damage
*   Loss of open space.

• For example, heavy transport moving 24/7 can affect the peace and quiet of a community.

Suppliers

• Suppliers depend on the success of businesses for their sales – businesses depend upon suppliers in order to carry on their operations. They are mutually dependent.

• Suppliers want a fair price for their products whilst businesses wish to minimize costs:

  • Following supply and demand theory, each market should achieve an equilibrium price, which should allocate rewards between supplier and buyer efficiently in a competitive market.

  • However, unfortunately for suppliers, the power in the market often rests with the buyer, and we are seeing this market imperfection more and more.

  • The big four supermarkets dominate the UK’s farming industry, continually forcing down the prices they pay to producers, reducing farm incomes (for example, consider the recent milk price