BUSINESS IN THE REAL WORLD. What is a business? - An organisation that provides goods and services. Reasons for starting a business - Earn money - Dissatisfied with current job - Work-life balance (flexible working hours) - Based on their own skills + interest - Identified a gap in the market - Being their own goods. Why do Businesses exist? - To produce goods - To distribute products - To make a profit - To provide a service - To help others - To meet the needs of society What is a Social enterprise? - A business that is driven by a social purpose that is at the very heart of what they do, with the profits reinvested into the project. What are charities? - organisations set up to provide help and raise money for those disadvantaged in the society. What is a cooperative? - A business or organsaion run by the people who work for it or by the people who use it. What are friendly societies? - Organisations set up yo help members with different issues, such as sickness benefits, life insurance and pensions. Goods? - A tangible product e.g. car. Services? - Intangible items e.g. hairdressing, taxi ride. Needs? - Something that is required/essential for survival e.g. water, food, shelter. Wants? - Something that people have the desire to have, but may or may not be able to afford it e.g. a specific type of car. Primary Sector? - Organisations in the first stage of production are involved with obtaining or providing natural raw materials for the secondary stage of production. - E.g. Mining / Fisheries / Agriculture / Oil exploration. Secondary Sector? - Organisations in the second stage of production that are involved with the manufacturing and assembly of finished goods. - Turning raw materials into finished goods - E.g. Car manufacturers / House building / Textiles/Jewellery making. Tertiary Sector? - Organisations that provide services. - This will also include businesses that are involved in the distribution process. - E.g. Retailers / Transport / Distribution / Banking / Entertainment. Enterprise? - The idea behind the business. - The process by which new businesses are formed in order to offer products and services in a market. - The entrepreneur will bring all the factors of production together to produce goods or services and take the risk involved in setting up the business. Entrepreneur? - The individual who takes the risk of starting a business (enterprise). What - is an enterprise? Provides goods and services that customers want and need. The skills used by entrepreneurs for running a business. Skills and actions used when running and developing a business. What is an SME? - An SME means a small to medium-sized enterprise. - Major sources of employment in the UK. - They are considered to have 250 or less employees. - Contributed 47% annual turnover to the UK economy as of 2016. This has now increased to £2 trillion (52%) since then. What is a Micro business? - Number of employees in a micro business must be 10 employees or fewer - The annual turnover of a micro business is under 2 million euros What is a small business? - Number of employees in small sized business must be 10-50 employees or fewer - The annual turnover of a small sized business is above 2 million euros but below 10 million euros. What is a medium-sized business? - N of employees in a medium sized business must be 50-250 employees. - The annual turnover of a medium sized business is above 10 million euros but below 50 million euros. How do satisfying needs and wants give opportunities to entrepreneurs? - By satisfying needs and wants, entrepreneurs cna increase their sales revenue as they are able to successfully gain customers in their target market. Examples of business opportunities. - Identifying a gap in the marlet from observation. - Having a business idea. - Providing goods and services to allow other business to sell more. The role of entrepreneurs in creating, setting up, running and developing a business. - Entrepreneurs provide goods and services in order to satisfy needs and wants. - Coming up with a business idea. - Employing staff - Creating and sharing wealth Financial motives of entrepreneurs - Profit maximisation - Steady income Non-financial motives of entrepreneurs - Independence and home-working - Flexible working hours - Giving back to the community - Pursuing a particular interest What - makes a good entrepreneur? Hard working Risk-taker Innovative/Think outside the box Resilient Leadership skills Focused/determined Patient Importance of entrepreneurs and SMEs to the primary, secondary and tertiary sectors of the UK economy. - Many SMEs grow significantly quicker than large business - Entrepreneurs provide jobs for the economy which help with the production of goods and services. - SMEs make up a large percentage of the primary and tertiary sectors. - SMEs are often innovative which increases the wealth of the economy if sales grow. Impact of entrepreneurs and SMEs on business in the economy. - Their growth means more jobs & wealth creation for the economy and is vital for the sustainable success of a country. - Arrange new technologies. - Better facilliteis in terms if a rise in taxation = a rise in the money supply for the NHS. Sole trader? - A business that is owned and managed by one person(self employed). - They can employ others. - Unincorporated. Partnership? - A business that is started by two or more people who own and make all the decisions. - Unincorporated. Private Limited Company (Ltd) - A business that has a separate legal identity from its owners who are shareholders. - Capital can be raised through the sale of shares to family and friends. - Shareholders have to be invited and approved by the existing shareholders in a Ltd. - They are not listed on the stock market. Public Limited Company (Plc - A business that has a separate legal identity from its owners who are shareholders. - The business can raise funds by selling and buying its shares on the stock market to the general public. Not for Profit organisations - A business whose primary aim is not profit maximisation. Types of Not for profit organisations. - Charities - collect money to spend on a cause. - Social enterprise - operate to make profit but trade to solve social problems or help the communities they live in. Profit is invested back in the business. - Co-operative - owned by its members (employees/customers) - profit benefits the members rather than by private individuals making profit for their sponsor wealth. Legal Structure Benefit Drawback Partnership Opportunity to raise more funds from an increased number of owners. Unlimited liability (usually). Increased specialization and division of labor. Slower decision-making than a sole trader due to an increased number of owners. Profits have to be shared. Plc Limited liability. Can raise large amounts of funds by selling shares on the stock market. Expansion and growth possible. Can be subject to a takeover. Detailed accounts must be produced and available to the public. Payment of dividends. Builds investor confidence. Lack of control for owners. Ltd Limited liability. Workload is shared amongst other shareholders. Can raise funds through selling shares to family and friends. Sole trader Greater administrative costs. Loses control over all decisions. Restrictions in terms of who can buy shares. Supports growth of the business. A summary of financial accounts must be available to the general public. They are easy to set up. No sickness benefit. Control over all decisions. Full profit kept by the owner. Freedom and flexible working hours. Unlimited liability. Down time if you are unwell/on holiday. Limited Liability? - Is when the shareholders may only lose the money they have invested in the company to help pay off any debts or liabilities. - More expensive as you have to engage with solicitors. Unlimited Liability? - When the money owed(liabilities/debts) of a business is paid back using the owners’ personal funds. - Very risky. Factors affecting the choice of the legal structure of a business. - The type of business considered - If the owner does not wish to expand - If the business intends to take high risks and use a large amount of borrowed money - If the start up costs are expected to be low - If the owner wishes to endure the business can continue regardless of their situation. Aims - and Objectives for a business? Survival - for startup businesses or when a new firm enters the market. Profit Maximisation - to make the most profit possible. Market share - to increase the volume or value of sales. Social and ethical objectives/considerations - to help society as a whole and make sure the business has a positive effect on others. - Customer satisfaction - to keep customers happy through good service or better products than the competition. - Growth - to expand the business possibly by opening new locations around the world or country. - Shareholder value - focuses on the reward to the shareholders for investing in the business. Corporate Objectives Functional Objectives Increase sales introduce new products based of popularity + increase advertising & quality of products Reduce costs bulk buy the necessary raw materials Increase cash flow Finding new sources of finance + raise prices + cut spending on unnecessary costs Improve customer satisfaction staff training + employee satisfaction in conducting market research based of customer needs and wants Aims - states the overall purpose for the business, the long term goal. Mission Statement - General description of the overall aims of the business. Objectives - Specific, measurable targets to help meet the aims of the business. The role of Objectives? - provide direction for a business. - enable businesses to effectively implement plans across all departments. - to be a measurable target to help meet the aims of the business. - A focus for all activities. SMART? S - Specific M - Measurable A - Achievable R - Reliable T - Timely How and why do business objectives may change as the business evolves? - They might change because if a businesses objective was just profit maximization if there is competition, it might change to customer satisfaction instead. - International expansion for large businesses. How can the success of a business be measured in other ways than profit? - Customer satisfaction - Reputation - Market share What is a stakeholder and who are the stakeholders of a business? - A stakeholder is any individual or organization who has a vested interest in the activities and decision-making of a business. - Shareholders or business owners. - Managers & employees. - Customers. - Suppliers. - Local community. - Government. - Banks and other finance providers. - Pressure Groups. Shareholders/business owners' objectives? - proper running of the business. - high level of profits and dividends. - success & growth of the business long term. Managers & Employees objectives? - Job security & good working conditions. - Promotion opportunities. - Job satisfaction and status through high levels of motivation. - Interesting roles & responsibilities. Customer objectives? - Value for money. - Product quality that meets their specific needs. - Appropriate levels of customer service. Pressure Groups Objectives? - Neutral or beneficial impact on society. - Company being socially responsible. Suppliers objectives? - Financial stability. - Profitable orders. - Fair/high prices and prompt payments from its customers. Local community objectives? - Success of the business. - Helping the business to grow - creating jobs. - The correct collection and payment of taxes (e.g. VAT) - Compliance with local laws and regulations. Government? - Success of the business - particularly creating and retaining jobs. - Compliance with local laws and regulations (e.g. noise, pollution). What is a business plan? - Is a written document that describes a business, its objectives, its strategies, the market it is in and its financial forecasts. Information That Should Be Included in a Business Plan. - Executive summary (Executive Plan) - Company overview (Background, Ownership, Aims and Objectives, Location, Staffing) - Market research (analysis of the market, target market) (Marketing Plan) - Products and services - Human resource plan - Operations plan - Marketing and sales (e.g. price, promotion, expected sales) - Financial projections and financial resource required (Financial Plan) Reasons why businesses create plans? - Helps to determine whether the business idea is possible to be carried out. - To raise finance. - Measuring performance - Enables a business to set aims/objectives and therefore measure success. - Detailing how functions of a business will be organised. Benefits of business planning? - ensure nothing is forgotten when planning the business. - Assess the viability of the business idea. - helps to raise finance. - helps set objectives. Drawbacks of business planning? - Involves a lot of uncertainty. - May cause the business to be inflexible and not adapt successfully to changes in the market. - The plan will require constant updating. Mains - sources of information and guidance available to entrepreneurs. Government organisation e.g. GOV.UK who offer free advice. Government organisations who offer grants for new businesses. Privately run organisations that supports businesses e.g. The British Chamber of Commerce. The public sector - made up of organisations that are owned and run by the government. - Huge + includes some of the largest employers in the UK. Features of the Public sector - Non-excludability - no one can be excluded. - Non-rivalry - equal access to product or service. E.g. NHS. - Merit goods Aims of the public sector - Providing a range of service sfor society to maintain and improve the peoples’ living standards. - Transformation of the economy. - Balanced regional development. - To ensure the safety and security of the people. Private sector - Made up if organisation that are owned and run by private businesses. Aims of Private Businesses. - To make a profit - make a return on the capital invested in the business + profit maximisation. - To increase shareholder value - measured by the dividend paid + share price. - Survival. - Gaining market share. - Improving ethics. Unincorporated - The owner of the business - no legal difference. - Owner has unlimited liability for business actions (including debts). Incorporated - Legal difference between the business and the owners. - Owners (shareholders) have limited liability. Factors Affecting Location Decisions. - Proximity to the market. - Costs - Government influence - Competition - Availability of Labour - Infrastructure - Access to raw materials - Social reasons Proximity to market - Business may need to be located near particular centres of population. - Particularly important for businesses in the tertiary sector, as they provide a service. - Less important for online business as access is via their website. Availability and cost of Labour - When a start up business needs to hire employees then access to a reliable supply of skilled staff will be important. - Labour intensive businesses often look to locate in areas with traditionally low wages or higher unemployment. - Some businesses will need specific skills so they will need to be near the availability of workers. Costs - A start up business is likely to have limited finances and will want to keep costs low. - The cost of premises and labour varies in different locations Competition - If a new business sees “a gap in the market” where there is no competition, this might be a good reason to locate there. - In some cases, it may be of benefit to be near a competitor, as customers may come to the competition but see another business that is nearby. New business Existing business -Should it be based at home or located in a nearby office, shop or industrial unit. -Should they stay where they are? -City centre or outside. -Online and physical premises? -Online or physical premises -Do they need bigger premises?
