POB NOTES
Form Four
TERM ONE
Principles of Business
Importance of Business
(Benefits/Advantages)
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07.09.21
land/Natural resources/Gifts from God/Free
Gifts from Nature
Teaches you about how businesses are managed.
Examples: Water, Trees, Sea, Rivers, Rainfall, Animals, Fruits &
➢ You may become a successful business owner
Gives you insights & life skills about:
➢ How to be a better/productive employee
➢ How to be an informed consumer
➢ How to be an informed investor
➢ How to be a better decision maker about money & finance
Vegetables, oil, etc.
The Nature of Business
Some KEY terms used in businessBusiness/Firm- an organization involved in the production of goods &
services to satisfy the needs & wants of consumers with the aim of
maximizing profits.
2. Organization- a group of persons working together towards achieving a
particular goal/objective.
3. Production- refers to the creation of goods & services by combining
resources into finished products.
Labour/Employees/Workers- includes Mental &
Physical effort.
Capital/Man-Made Resources/Producer
Goods- Capital is much more than money, It also includes
numerous physical man-made items which help to accelerate the
production process & help workers to perform certain tasks that
may seem impossible to do on their own. Egs: Vehicles, computers,
Buildings, Furniture, Telephone, etc.
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Factors of Production (Inputs/means of
production/factor inputs/resources)These resources which when combined in their correct proportions, result in
an output of good & services to satisfy consumers.
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The four MAIN factors of production are:
➢ Land
➢ Labour
➢ Capital
➢ Enterprise
➢ Factors of Production are the resources, which when brought
together in its correct proportions, result in an output of goods
& services.
➢ There are 4 MAIN Factors of Production: Land, Labor, Capital &
Enterprise
Enterprise/Entrepreneur/Entrepreneurship- This is
the beneficiary who bares risk by starting a business and must
accumulate the 3 other factors of Production in their correct
proportions.
Principles Of Business
Factor Rewards/Payments –
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Each Factor of Production receives a reward
for their contribution to the production process.
Factor of Production
Land
Reward
Rent
Labour
Wages & Salary
Capital
Interest
Enterprise
Profit
08.09.21
Factor Income- Incomes/Rewards that the 4 factors of
production give us.
NOTE: Products are of 2 types of Goods & Services.
Goods- are physical/tangible items such as books, cars, etc.
Services- are intangible activities that satisfies a need/want e.g.,
Education
NOTE: There are 2 Types of services
➢ Direct Services (Personal Services)
➢ Indirect Services ( Commercial Services/Aid to Trade)
Needs- refer to those things which are essential for life e.g. food.
NOTE: Needs are things we need to survive.
Profit can be defined as the amount by which Total
Revenue/ Sales Revenue exceeds the Total Cost.
E.g. TR= $600
TC= $500
Profit= TR-TC= $100
Loss = TC-TR
E.g. TC= $900
TR= $400
Loss= TC-TR= $500
Wants- refer to the things that are desired but is unessential such as
make-up or television.
NOTE: Wants are things that we would like to have to simply enjoy.
Consumers- are persons who purchase & use products to satisfy their
personal needs & wants
Profit- Can be viewed as the excess money made from selling an item
for more than it cost to provide.
Loss- Occurs when the Total Cost of providing a good/service exceeds
the Total Revenue
Enterprise- is sometimes used to refer to a business. It’s usually used
as another term for the 4th factor of production.
Commodity- Is a tangible term that can be used as a medium of
exchange & has a value in its own right, such as crude oil or gold.
Principles of Business
•
14/9/21
The Functions & Contributions of Business
➢ Provides goods & services
➢ Provides employment to members of the community
➢ Firms to help improve the overall Standard of Living
NOTE: By doing these such things Businesses contributes to the overall
growth & development of the country. (Economic Growth & Development)
Standard of Living- refers to the amount of consumer goods & services that
the people of a country can enjoy.
MAIN factors that influence the Standard of Living of people in a country are:
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Income
Health
Level of Pollution
Crime Rate
The way in which Income & Wealth is distributed
Traffic Congestion
Indirect Satisfaction of Wants
As man evolved & improved tools, transportation & ways of doing things for
themselves, this led to specialization. Specialization/Division of Labour is the
breaking down of a complexed task into smaller tasks & becoming an expert at
it.
Specialization resulted in surplus/extra products being made to exchange
with other persons/communities. This was the birth of Indirect Production as
what was need/wanted came from other people. This gave rise to the Barter
System.
Barter is BEST defined as the exchange of goods & services for other goods &
services without the use of money.
Barter was the earliest form of trade.
Advantages of the Barter System•
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Allowed for persons to have a wider variety in diet & other necessities
Allowed excess/surplus products to be traded & not wasted.
Disadvantages of the Barter System
The development of Trade & Economic Activities
The 2 MAIN disadvantages/drawbacks of the Barter System are:
Economic/productive Activities refer to those BROAD-BASED activities that
provide employment/jobs and an income for many. It produces goods &
services in exchange for money & contributes to the economic growth &
development of a country. Examples: Agriculture, Fishing, Mining, Hunting,
etc. (They can be viewed as industries)
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Economic Activities can be classified as➢ Primary
➢ Secondary
➢ Tertiary Industries/Sectors
From Subsistence Economy to Money EconomyEconomic activity is that of making, purchasing, or selling goods & services.
Economic activities started because human beings needed to satisfy their
needs & wants.
In early economies, man engaged in direct satisfaction of wants (Direct
Production) which means providing for himself and his family. There was a
very insufficient supply of goods so whatever food they caught was ample
for their survival. i.e., early economies were essentially
Subsistence/Primitive Economies.
The need for a double Coincidence of Wants
➢ People could only exchange if both had what the other wanted.
• The need to decide on a Common Rate of Exchange/Common Value
➢ That is to determine how much of one good was worth in terms of
another good. Persons often could not agree on fair quantities to
exchange. For example, was 5 bananas a fair trade/exchange for a
chicken?
Other problems/drawbacks of the Barter System –
➢ Divisibility- Some items couldn’t be divided to create a fair exchange in
terms of value.
➢ Storage of Wealth- A lot of things traded at that time such as produce,
and animals were highly perishable & so it couldn’t be stored for long
periods.
Attempts made to solve the problems of the Barter system involved using
shells, beads, etc. to value items. Eventually, precious metals were introduced
& coins & notes now replaced them all as a Medium of Exchange and a Unit of
Account.
The Barter System
The barter system is the trading of products & services for other products &
services.
Concept of Money
Money is anything which can be used as a medium of exchange.
Evolution of Money
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The word money derives from the Latin word Monet
The origin of money is lost
Hunting societies used animal skin as currency
Pastoral societies used livestock as currency
Agricultural societies used grains & food as currency
The Romans used cattle and salt
Money was developed according to needs & requirements
Main aim was to remove the shortcomings of the Barter System
Different Stages of the Evolution of Money
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Commodity Money
Metallic Money
Paper Money
Credit money
Electronic Money
Commodity Money- is when different commodities were used as a medium of
exchange. (Barter System)
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Cows, Goats, Axes, Dried Fishes, etc. were used as mediums of
exchange.
Commodity money had different problems like:
➢ Storage
➢ Durability
➢ Transportation
➢ Divisibility
Metallic Money- the next step in the evolution was the discovery of precious
metals like gold, copper, silver. “Metallic Money consists of coins made of
Gold, Copper, Silver or nickel as a medium of payment.”
Uncoined Metals
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Metals were not used as a coin but as a Bullion
This created the problem of measuring the weight & value
Supply of money also became a problem when the mines were fully
used up or new mines were discovered.
Coined Metals
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As a next step, standard coins were created
They’re a standard weight & value
Problems faced with uncoined metals dissolved with the use of coined
metals.
Paper Money
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Paper currency was introduced as a mode of payment
Originated as a receipt issued by Goldsmiths
These receipts were then later used for payments
Difference in the value of receipts was becoming a problem then
Paper money refers to the notes issued by the state/bank, usually the
Central Bank
Paper money can be:
➢ Representative Paper Money
➢ Convertible Money
➢ Fait Paper Money
Credit Money
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Includes Bank money (different instruments offered by banks)
Cheques, Drafts, etc. are examples of Credit Money
Convenient, safe & easily convertible into cash
Electronic Money
Electronic Money (e-money, electronic cash/currency, digital
money/currency) – refers to money or scrip which is exchanged only
electronically. Typically, this involves use of computer networks, the
internet & digital stored value systems.
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Our monetary system developed to meet the changing needs of the
economy
Primitive economies consisted largely of self-suffered units or groups
that lived by means of hunting, fishing & simple agriculture.
There was a need to exchange goods & services.
Barter & Commodities
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Bartering & commodities were the first way of exchange. Bartering
was an exchange of goods & services.
Commodities was the basic term of money & things like tea, tobacco,
salt, cattle, seeds, etc.
Shells
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Money Is:
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In 1200 B.C, China cowry shells were used as the medium of exchange.
Known as anything authorized by law
Generally accepted as a medium of exchange
One form in which we keep our wealth
Is as defined by Farlex Dictionary, Money is a currency & coin that is
guaranteed as a legal tender by the government.
The First Metal Money
Characteristics of Good Money
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In China around 1000 B.C people handed in metals & tools like knives &
spades to make metal circles which was then used as money.
The money had holes in the center so that they could be worn as
jewelry around the neck.
Silver
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This was used in 500 B.C Turkey. They were imprint ted with the faces
of emperors & Gods to show its value.
Other metals started being used such as bronze & gold
Noses
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“To pay through the nose” is a common saying used. It originated when
the Danes cut off the noses of people who wouldn’t pay their taxes.
This occurred during the 9th century.
Paper Money
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China was the first country to have paper money during the timeline of
the 9th – 12th centuries.
In 1455 the money disappeared from China & Europeans still didn’t have
any knowledge of paper money.
Gold
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In 1816, England decided that the value of the gold related to how much
it weighed (in ounces). This stopped inflation of the currency.
In 1900 the U.S joined onto the idea
Today
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Money has changed over the years & today we see money in the form of
coins & paper notes. Countries like England & the U.S have started
changing the appearance of some notes.
Value has also started to change for example the way the currency
looks
General Acceptability
Durability
Portability
Divisibility
Stability of Money Value
Uniformity
Malleability
Transportability
Storability
Principles of Business
17/09/21
Importance & Functions of Money
The Functions of Money
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Money is a Medium of Exchange– This is the main function of money. It
gives the consumer a freedom of choice by which he wouldn’t possess
under Barter.
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Unit of Account- provides a means of by which goods & services can be
given a price. It is also used for economic calculations.
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A store of Value- Money can be stored for future spending/use.
However, this function of many can be satisfied only if:
➢ It retains its value
➢ Goods & services are available when required.
• A means of deferred payments- Money makes credit transactions
possible. Because of this function, business capital can be borrowed to
finance production; consumers can buy goods on hire purchase or some
other form of Credit.
• The Price Mechanism- Money makes possible the working of the price
mechanism, e.g. money/registers demand & assigns prices to goods &
services.
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Money simplifies matters
Money becomes the medium of exchange
With money, there is low-uncertainty -high-exchangeability
requirement
Money also contributes to economic development & growth
Money is a store of value
EXTrA NOTES
Principles of Business 22/9/21
Economic Systems
Opportunity Cost/Real Cost Continued-
Economics- is defined as a ‘Social Science which studies human behaviour
as a relationship between ends/human wants & scarce means resources
that have alternative uses.’
Sacrificed in making them. Once resources are committed to the production
of one thing, we must forego the output of another. Thus, since one is forced
to choose between alternatives, the Real/Opportunity Cost of satisfying any
want is the alternative that must be foregone to do so. For example, if a
student chose to buy books instead of going to the cinema, the Real Cost of the
books is the cinema show he did without.
Economics can be further described as the study of scarcity & choice. It is
because resources are scarce relative to man’s wants resulting in
countries experiencing an economic problem.
Limited Resources
Man’s Wants Unlimited
Individuals, firms/businesses, countries, governments all experience this
economic problem.
All countries faced with the basic economic problem have developed economic
systems in their attempt to solve it. Any economic system must answer the
following questions:
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Scarcity
CHOICE
How to Allocate Scarce Resources
Economic Systems/Economies
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The Economic Problem:
Resources Limited ~ Humans Wants Unlimited ~ Scarcity ~
Choice
Resources- are anything that can be used to make goods & services
available for people. Resources are scarce/limited.
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Scarce- means limited in supply relative to people’s wants.
NOTE: Goods & Services are produced from scarce resources, thus
everything (economic good) either cost something to make or has a price
which must be paid for it.
Human Wants- aren’t restricted/limited to what they can buy with their
incomes. People’s wants are UNLIMITED.
Wants can be arranged in order of importance to show our relative
preferences. Wants can vary from person to person, from time to time &
from place to place. Wants may be competitive (e.g. Sneakers & shoes) or
wants may be complimentary (e.g. notebook & pen). Wants result in a
demand for goods & services.
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The productive resources of a country required to make goods & services
are limited/scarce. Because SCARCITY exists, people need to choose which
wants they will satisfy. People need to Economise i.e. allocate resources to
get the greatest possible satisfaction from them. They must act rationally
by choosing the alternative that will satisfy their most pressing wants.
Opportunity Cost/Real Cost: resources are limited in relation to what
people would time them to produce. A resource can’t be used for 2
purposes at the same time, there is always a cost involved in making
anything available for a person’s use. Cost in the sense that resources are
What goods & services to produce?
How much of each should be produced?
How are they to be produced?
For whom are they to be produced?
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The Perfectly Free Enterprise/Market Oriented/LaissezFaire/Uncontrolled/Capitalist Economic System- In this system, the
economic problem is solved by the ‘Markey Forces’ The essential
features are:
Private Property- all non-human resources (land & capital) are privately
owned.
Freedom of Choice & Enterprise- freedom of the individual as a
producer/consumer. Freedom to choose he activity to which one is best
suited. Producers respond to consumer preferences, they produce what
consumers demand, thus the consumer is sovereign.
Self-Interest- is the dominating motive. Each unit in the economy
attempts to do what is best for itself. Firms aim at maximizing
profit/minimizing losses, whereas consumers aim at maximizing
satisfaction from their limited incomes.
Competition- in the market for each product there exist large numbers of
buyers & sellers, so that no single firm/individual is large/strong enough
to control the market & exploit the other buyers/sellers.
The Price Mechanism/Price System- this system allocates resources to
various uses. The interactions of the market forces of demand & supply
determine the price. Changes in these market forces cause changes in
market prices & these changes bring about changes in the ways which
society uses its economic resources. Price movements act as indicators
of changes in demand, while they induce supply to respond to demand.
Price acts as a rationing device, it rations scarce goods to those who can
afford to pay:
The absence of Government Control. – For example: The USA
The Mixed Economic System- This economy combines elements/features
of both the free market & the Planned Economies. There’s public &
private ownership of resources, which are allocated through the price
mechanism & some governmental planning & regulation. E.g. Trinidad &
Tobago, Jamaica
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The Planned/Command/Communist/Government
Controlled/Collectivism Economic System- In this economy, all
decisions concerning the allocation of resources are made by the
State/Government/A Central planning Authority. All resources
are/may be collectively owned with ultimate ownership vested in the
state. The state plans and issues directives to firms/producers.
Production is said to be for use rather than for profit. In its pure form,
this system’s means of production, distribution & exchange are publicly
owned.
The Subsistence/Traditional/Primitive Economic System- In this
economy, there’re features of private property, freedom of choice,
Self-Interest & Enterprise. The problems of what to produce, how &
from whom etc. are solved by the individual family.
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Each family produces for only its own consumption (direct production).
People live & work as small & largely independent communities, & in
producing for themselves, they produced a little more than the barest
essentials: food, clothing, shelter, etc. If the family wishes to have more
of a commodity, it produces that commodity for itself or goes w/o it.
The family engaged in primary economic activities such as: fishing,
hunting, mining, etc. using productive methods based on custom &
habit.
Since the family was self-sufficient, there was little surplus, therefore
no need for markets, & no prices. Any exchange of surplus goods was
done through the Barter System.
Principles of Business
6/10/21
Advantages of a Laissez-Faire Economy•
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Advantages of a Planned economy
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Capitalism
Private Enterprise
Private Property
Price Mechanism
Little or No Governmental Control
Free Market
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Individuals have freedom of choice
People are free to work whenever they choose
Wants can be easily changed. Change in wants are reflected by
changes in the price system
Efficiency is achieved because of profit incentive
Because owners wish to obtain the greatest possible return from
their F.O.P, they take these factors to where the return is highest
thus, production responds to changes in demand looking to an
optimum allocation of resources.
The price system registers wants & arranges the allocation of F.O.P
automatically. It operates w/o a host of officials.
Government can decide what needs to be produced for the good of the
country, & direct resources into those areas.
Profits resulting from industry & agriculture can be used:
➢ To buy more capital equipment & so to increase production
➢ To build more hospitals& schools & provide better welfare
services:
So that workers can be paid higher wages.
No group of workers can force up their wages by striking/putting up
prices, since the state controls all wages & prices.
Workers may be prepared to work harder since they may feel that they
are working for themselves & for their country.
Incomes are evenly distributed
Disadvantages of a Planned Economy
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Money & Credit
Advantages of a Market Oriented/Laissez-Faire/Uncontrolled Economy-
It leads to great inequalities of wealth, for the rule “To him that hath
more shall be given”, seems to apply generally in the accumulation of
wealth.
Since profit is the dominant motive, only those goods which yield the
highest profits would be produced.
If left entirely to private enterprise some goods & services wouldn’t be
produced at all or produced so inefficiently that the total supplied would
be inadequate.
Certain forms of competition make themselves lead to waste &
insufficiency in the use of the Factors of Production (F.O.P)
In practice the competition upon which the efficiency of the capitalist
system depends may disappear.
The motive of private profit doesn’t ensure that public welfare, as
distinct from private welfare, will be maximized.
Under capitalism there occur periods when F.O.P are allowed to stand
idle because producers consider that the prospects of making a profit
are poor.
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Estimating just how much of a community is needed by the whole
economy at a particular time is a difficult task, since the planners may
not have correct estimates about demand, & since they can’t estimate
for unseen circumstances.
Managers who have no financial interest in a firm may lack the incentive
to work. However, in a communist system, managers who are
unproductive are, fined & so they’ll usually give off their best.
Central planning calls for a lot of personnel which in itself may mean a
wastage of manpower.
What the country needs may not be the same thing as what the people in
the country want. The planners may think the country needs roads &
houses while the people want consumer goods, especially luxury items.
Principles of Business
12/10/21
Forms/Types of Business Units-
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There are 2 main groups of business units:
Private Enterprise:
Public Enterprise
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Public Co-operations
Municipal Undertakings
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Single Ownership
No Sharing of Profit & Loss
One Man’s Capital
Unlimited Liability
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LESS Legal Formalities
One Man Control
Sole Trader
Partnerships
Joint Stock Companies
Co-operative Societies
Sole Proprietorship/Trader:
Advantages of a Sole Trader•
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Owner keeps all the profits
Owner controls all the decisions
Easy to set up business
Disadvantages of a Sole Trader•
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Owner bares all responsibility
If owner can’t work, the business may suffer a lack of cash
Owner may have difficulty obtaining finance
Owner has unlimited liability
Advantages:
➢ Business is simple to start as it generally requires only a small
amount of capital & no legal formalities.
➢ Decisions can be made promptly & new ideas can be put into
operation quickly.
➢ There is close personal contact with employees & clients which
makes for good personal relations with employees & an
understanding of customer’s needs.
➢ There is personal incentive to succeed & to run the business
efficiently.
➢ Organization can be flexible
Disadvantages:
➢ The sole trader must find all capital needed to start the business &
for later expenses. This limits the size of the business.
➢ The sole trader must work long hours & may not be able to take a
vacation.
➢ When they die, the business may have to be closed as there may be
no-one to run it.
➢ The sole trader has unlimited liability which means he may lose not
only the money invest but his personal property & savings as well.
Principles of Business
14/10/21
Partnerships
Liability- refers to the responsibility of owners with respect to the
debts of the business. Having a liability means you are responsible
for it all & even your personal belongings can be ceased to pay off
debts.
There are two types of partnerships:
Unlimited Liability- is the MAIN disadvantage of the Sole Trader
Establishment. With unlimited liability, if the sole trader firm should
fail, the owner stands to lose not only the money that he/she
invested into the firm as their capital, but they may also lose their
personal property & possessions. Their home, land & car can be
taken by creditors (the Bank) to clear off loans, etc.
An Ordinary Partnership is an association between two & twenty persons who
are in business in common with a view of canning a profit. All the partners
take an active role/participate in the daily operations of the business & they
all have Unlimited Liability
The sole trader is a person who is in business on his own in the
sense that he himself bares the risk of his own business operations
& that he takes any profit which the business may yield. He may be
employing others to work for him, but these persons would be
employed at a wage & their employment wouldn’t affect the risk
which he takes personally.
➢ Ordinary Partnership/General Partnership Business
➢ Limited Partnership Business
A Limited Partnership is an organization where there must be at least one
general partner (a member of the firm willing to accept responsibility for all
debts incurred by the business). The other partners (limited/silent/sleeping
partners) only contribute capital to the firm & enjoy the benefit of Limited
Liability. Limited partnerships aren’t very common as private companies are
just as easy to form.
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Differences between the Two Types of Partnerships
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In an Ordinary Partnership there must be two-twenty General
Partners, whereas in a Limited Partnership, there must be at least
ONE General Partner, while the other partners are Limited/Sleeping
Partners.
In an Ordinary Partnership, all the partners are ordinary partners &
take an active role in the daily running of the firm. The other partners
(limited partners) don’t participate in the running of the firm.
In an Ordinary Partnership, all partners have Unlimited Liability, so if
the Partnership firm should fail, they ALL stand to lose more than they
invested as their capital. Whereas in a Limited Partnership, only the
Ordinary Partner(s) have Unlimited Liability. The other partners enjoy
the benefit of Limited Liability which means that if the Limited
Partnership firm were to fail, the partners will only lose the money
they invested as their capital, but they CANNOT lose their
property/savings/possessions.
Partnership Agreements:
Partners can make an agreement between themselves in three different
ways: Orally/Verbally, In Writing & By Implication from the
Conduct/Actions of the partners. Partners can make an agreement about
anything, e.g., they can agree on how they are going to share profits &
losses. If any partner is to be paid a salary by the partnership firm, if
partners will be paid Interest on the Capital Invested, etc.
The best way to make an Agreement between partners is in writing. If the
agreement was made in writing, then it is called a Partnership Deed. Each
partner would sign the Partnership Deed & get a copy.
It is good practice to draw up a deed/agreement of partnership which must
be signed by the partners. The deed must embody all important terms &
services/features of the partnership. In the event of a dispute between the
partners, the deed would be produced as evidence in a court of law. In the
absence of an agreement as to how profits are to be shared, profits &
losses would be shared equally.
Advantages of a Partnership Business:
➢ As with a sole trader, a partnership business is easy to form w/o
legal formalities.
➢ More capital can be raised by the combined resources of several
partners.
➢ Specialization in management is possible as each partner may
participate in the field in which he has experience & training.
➢ In a partnership the work can be split among the partners. This
makes it possible for a partner to take vacation & on the death of a
partner, the firm would be run by the remaining partners/they
may find a replacement.
➢ There is still the incentive to succeed & there is also close contact
with employees & customers.
Disadvantages of a Partnership Business:
➢ All partners stand to lose if one partner makes a bad mistake.
➢ Capital is still limited
➢ Except in the case of a limited partnership, there is still unlimited
liability if the business fails.
➢ There is the risk of disagreement & quarrelling with other members
of the firm.
Principles
Principles of
of Business
Business
19/10/21
14/10/21
Joint
Stock Companies
A joint stock company is an association of persons who have contributed
capital towards the operating of a business. A joint stock company is a legal
person; it has an existence separate from that of the persons who aren’t (the
Stakeholders). The owners contribute capital towards the company by buying
shares in it & they enjoy the benefits of limited liability which means that in the
event of the company failing, they may lose the fully paid-up value of the
shares & nothing else. There are two classes of joint stock companies:
➢ Public Companies/LLC
➢ Private Companies/LLC
Private Companies:
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No shares/debentures can be offered to the general public
Shares aren’t transferable without the company’s directors’ consent
The company’s accounts are private
The number of members will not be less than 2 or more than 50, not
counting employee shareholders.
Public Companies:
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Shares & debentures are advertised & offered to the general public
Shares are easily transferable, via a stock exchange if one exists or
through Trust Companies.
All accounts must be made public & must be submitted to the Registrar of
Companies.
The number of members must NOT be less than 7.
NOTE: Trust Companies are companies formed to act as a trustee or to deal
with trusts.
The Registrar of Companies is a division within the Registrar General's
Department ('RGD'). The Registry is under the direct administration of the
Registrar General. The Registrar General is the Registrar General of Business
Names under the Registration of Business Names Act
Advantages of Limited Liability Companies (LLC)
•
•
•
•
•
•
•
•
Large sums of money can be raised by issuing shares
Shares are easily transferable through a security exchange or other
agencies
Limited liabilities are a great boon to investors
There’s a continuity of existence
The company is a separate subject for taxation
It provides an outlet for savings in the form of investment.
Specialization & research are encouraged
Economies of scale are possible. Economies of scale are the benefits
to be derived from large-scale production.
Disadvantages of LLC’s
•
•
•
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Management is divorced from ownership
There is little contact between owners & employees/ customers
A company can’t be formed easily
There can be reduced incentives to work hard since managers
aren’t owners.
NOTE: Only PLLC’s can have their shares traded. (bought/sold on the stock
exchange)
Formation of a joint Stock Company
•
Essential information must be forwarded to the Registrar of
Companies, for e.g., name of company, capital authorized, & a
declaration of limited liability.
•
Articles of Association which spell out:
The rights & priorities of members at meetings
The division of shares into classes with strict identification of
shareholder rights & priorities.
Share transfer & forfeiture procedure
Borrowing powers of the company
The procedure for re-election of directors
The power of Directors
The procedure for the calling up of uncalled capital.
The Memorandum of Association governs the external relationships of the
company, while the Articles of Association govern the internal
relationships.
The Prospectus of the company contains information about new shares to
be issued & invites the public to make offers to buy on the terms &
conditions set out in the prospectus.
After the memorandum & articles have been filed with the neighbour,
accompanied by a list of people consenting to act as directors & a
statutory declaration to this effect, the neighbour will issue a Certificate of
Incorporation.
•
Shares
The holders of shares are part owners of the business & will share in the
company’s profits by receiving dividends.
•
Ordinary Shares
Holders of these are the real risk-bearers of the company. It’s these people
who will get no returns if the company is doing badly.
•
Preference Shares
These are offered at a fixed rate of dividend. Preference shareholders must
be paid their fixed rate of dividend before ordinary shareholders can receive
dividends. However, if the company makes no profit/income then the holders
will nor receive any dividend for that year.
•
Debentures
Debentures are loan certificates offered at multiples of a basic figure, e.g.,
$100 & they carry interest at a fixed rate of. This interest must be paid
whether or not a profit has been made.
PRINCIPLES OF BUSINESS
03/11/21
Cooperatives
A cooperative is a business organization that is scared & controlled by
groups with specific goals & interests e.g., policemen, teachers, farmers,
supermarket owners. They are controlled by members through the purchase
of Share Capital & their voting rights. Members receive a portion of profits
based on the value of their shares called Dividends. Share Capital is the
money raised by issuing/selling common/preferred stock. When an
individual purchases shares, they are called shareholders.
When the Cooperative makes a profit, shareholders are entitled to a portion
of the profits based on the value of the shares they own. (Dividends)
7 Cooperative Principles:
Voluntary & Open Membership
Democratic Member Control
Members’ Economic Participation
Anatomy & Independence
Education, Training & Information
Cooperation Among Cooperatives
Concern For Community
Types of Cooperatives
Producer/Agriculture- members produce goods & services e.g farmer.
Buyer- for businesses which use certain inputs in their business and come
together to buy in bulk.
Consumer- members come together to buy certain goods at reduced costs
to meet the needs of the members.
Marketing- allows its members, who produce the same or similar products,
to cooperatively market & sell the products.
A Franchise (a renowned company) is a legal agreement between a franchisor
(a person interested in running a “copy” of the established business) & a
franchise to use the established name, products & operational model of the
franchise.
Advantages
Franchisee benefits from support, training & marketing from
franchisor
Benefits from relationships with already established suppliers
Risk of failure is reduced because the brand is well established.
Avoids the stress of starting a business from scratch
Less need to market the business as it is already established
Disadvantages
Must pay royalties to franchisor
Doesn’t have creative control in the franchise
Start-up capital is expensive.
A Multinational is a company that has its head/home office in one country
while operating with branches, offices, or production facilities in other
countries. Examples: Microsoft, Apple, Samsung, Sony, BP, Toyota, DHL, FedEx,
Walmart, Dell, Lenovo, Mitsubishi, etc.
Advantages
Provides employment in the host country
May introduce new technology
May provide work for local companies
Disadvantages
May give high level jobs to their nationals & not locals
May cause harm to the environment
Profits go back to the home country
Worker- is a cooperative that is owned & self-managed by its workers.
Financial- brings together persons with similar financial goals like saving. It
is known as a Credit Union.
ADVANTAGES of COOPERATIVES
Creates employment
Democratic Management
Profit Sharing among members
Open Membership
Disadvantages of Cooperatives
Limited capital for expansion as it is dependent on the investment
of shareholders.
Members may lack management experience
A Conglomerate is a group of companies under the management of one
umbrella/holding company. The companies are diverse in their interests &
are called subsidiaries. Each company, however, can operate independently.
Examples are Amazon, Kraft Foods, etc.
Advantages
Risks are spread over multiple businesses therefore if one fails, the
others still make money.
The size of the conglomerate allows it to do many things cheaper
Easier access to capital due to large values of assets
Disadvantages
Management can be difficult & complicated
The parent company may use some of the other businesses as “cash
cows” & take large sums of money from the business causing them
to be financially strapped.
PRINCIPLES OF BUSINESS
09/11/21
▪
MANAGEMENT
Management can be defined as a social process entailing responsibility for the
effective & economic planning & regulation of the operations of an enterprise,
in fulfilment of a given purpose or task.
Production
➢ Purchasing of Raw Materials
➢ Manufacturing of the goods
➢ Conducting quality control
➢ Ensure proper storage of stock
Management may also be defined as the bringing together of all the resources Responsibilities of Management
(human & non-human), in an effort to meet the goals of an organization.
Management of a business enterprise is responsible to:
Management must carry out its functions efficiently for a business to be
successful.
Its owners
Its employees
Functions of Management:
Its customers
▪ Planning: defining goals/objectives for the future
The society
▪ Organizing: bringing together the factors of production to accomplish
Its Owners-Sole traders have no responsibility to other owners but are
the goals that have been set.
responsible to themselves to secure a fair rate of return/investment. In the
▪ Staffing: filling the vacancies with the right people
▪ Leading: getting people to perform assigned tasks in an efficient manner other forms of business organizations, it is management’s responsibility to
consider the interests of those who have given them their authority.
▪ Motivating: influencing workers to give off their best
Owners/shareholders are very dependent on the integrity of management, in
▪ Controlling: monitoring employees’ activities: ensuring that the
whose hands they have placed the power to direct the course of the
organization is achieving its set goals & making connections as
organisation. It is therefore management’s prime concern to direct the
necessary.
organisation well, & to secure a fair rate of return on investment.
▪ Delegating: assigning duties to subordinates.
Other important functions od management are: Communicating, Directing &
Coordinating.
Functional Areas in a Business
A typical firm has different departments/functions such as:
▪
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Personnel
Finance & Accounting
Marketing
Production (if it’s a manufacturing concern)
Responsibilities of the following Functions
Personnel
➢ Recruitment of staff
➢ Training
➢ Motivation of Workers
➢ Keeping employee records
▪ Finance/Accs
➢ Producing final accounts of business
➢ Making payments on behalf of the business
➢ Advising management on financial matters
➢ Receiving all monies due to the business
▪ Marketing
➢ Conduct market research
➢ Advertising & sales promotion
➢ Distribution of the product
➢ Pricing of the product
▪
The Employees-Management’s responsibility to the worker is immediate. They
are responsible to the people who spend half their lives in the workplace.
Some specific responsibilities are:
•
•
•
•
•
•
•
Fair remuneration, i.e payment for work done
Vacation time
Compensation for injuries sustained on the job, in Workmen’s’
compensation
Unemployment compensation, i.e severance pay, maternity benefits
Adequate security
Adequate protection, if working with dangerous equipment
Satisfactory working conditions.
Its Customers-Managements is responsible to its customers to provide a
good product service, to which the customer is entitled. It is their duty to
honour guarantees given on a product, since satisfied customers continue to
buy. Customer complaints should be attended to & solved fairly.
The Society-The social responsibility to management refers to their
obligation to the good of a society in a meaningful way. It involves voluntary
actions on the part of a firm which contributes to improving the quality of life
of the society as a whole.
Some specific responsibilities are:
eads to, efficiency, high quality & lower prices
t of citizens through the sponsorship of research & relationships.
The Government
To abide by the laws of the land by paying taxes & making deductions from
employees’ salaries e.g National Insurance & Income Tax. To help reduce
unemployment & contribute to the economic growth of the country by
producing a product.
PRINCIPLES OF BUSINESS 11/11/21
Leadership may be described /defined as the process of influencing the
activities of an organized group in an effort to provide goal -setting and goal
achievement.
N.B; In business, leadership involves combining personal leadership abilities
and good management techniques.
Qualities
The qualities needed to be a good manager are:
Knowledge or {know how} of the enterprise and of business in general.
Dedication and the ability to work hard and long hours.
Efficiency: or good manager must be efficient.
The ability to get the cooperation of subordinates and employees.
A good sense of humor.
Good leadership qualities.
Unquestionable integrity
Tactics
The ability to select the right persons for the right jobs.
The ability to work with people and to influence people to get tasks
performed.
What are the 3 Main Leadership Styles/ Management Styles?
Autocratic leadership
Employee- centered leadership
Democratic Leadership
Autocratic Leadership is based on the authoritarian school of management
which holds the view that management should do the thinking, give the
orders, and closely control activities through personal supervision.
Authority is here closely associated with power. Management sees its
authority as the right to manage, to command and act, coupled with ability
to supply, or withhold what people want, to hire and fire, to promote or not
to promote, to control wages, output etc. Authorization administration is
also associated with capitalization of planning and control, and with the
situation where the administrator is either reluctant or unable to delegate
responsibility to others. Such management style stifles initiative and
innovation at the middle management level. Employees are little motivated
to do their job well under authoritarian leadership.
Employee Centered Leadership is based on the concept that the leader is
the representative of the group and carries out what the group wants
done. He fulfils the wishes of the group and exerts what we the group
desires him to have. Whenever management is small, e.g. a small firm with
a few directors, the employee- centered style of leadership may be both
appropriate and effective. A small group working closely together needs
little formal leadership, only occasional guidance. In such situations the
chairman may function as a good reflector of the group’s thinking and be
able to carry out what the group wants done.
Democratic Leadership is more a middle ground. The leader takes
initiative on his own, but he is also receptive to the group he leads but
does not dominate. He ensures that everybody in the group receives fair
treatment and is encouraged to take part, yet he remains capable of
making decisions. This type of leadership gives the leader the necessary
authority to control, while at the same time providing an open democratic
atmosphere in which others may express their views and vote according
to their conversations. Examples of situations when the autocratic style of
leadership may be necessary includes:
➢ Crisis situations: assume you are working in one of the nation’s
finest restaurants & a fire broke out in the kitchen. The manager
immediately shouts a command for all employees to evacuate the
building.
The manager’s autocratic leadership style is acceptable in this crisis
because it is urgent that all persons receive this warning. A command
must be given in the interest of saving lives & there is no opportunity for
consultation or feedback from followers. In urgent circumstances, people
may want to be told what to do & the autocratic style of leadership may be
preferable. The relevant factors here are limited time & the urgent nature
of the task to be accomplished.
Another situation in which autocratic leadership is permissible is in the
training of employees who are now joining the business/being introduced
to new systems of operations. In terms of accessibility of information &
possession of knowledge & how the task of sharing the information with
the people who need it. The leader has to ensure that the relationship
fostered will be one of mutual trust & respect so that the employees will
be motivated & responsive to the training.
Laisses Faire Leadership- Laisses Faire is a French phrase meaning to allow others to do. A laisses faire leader allows employees to complete tasks on their
own. This leader states the final goal that has to be achieved & delegates all authority & decision-making processes to the employees. Another name for this
leadership style is Free Reign because the leader gives the employees the freedom to organize themselves as they see fit. The leader provides no direction,
supervision/feedback. The LF leader expects employees to complete the delegated task on time as he/she is ultimately held accountable for completion.
The free reign leadership style should be used carefully by leaders & is recommended in certain situations, which include the following:
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When employees are experts & process the knowledge, experiences & skills to successfully complete tasks, & the leader has confidence in their abilities
to do so.
For situations of research& design where people are given free reign to conduct tasks to discover something new.
For simple tasks that the leader trusts workers to perform w/o supervision. For example, a manager may allow the administrative assistants to
decorate the offices for Christmas.
Democratic Leadership
The democratic leader permits employees to participate in decision making, creating a “we” not “them” environment. He/she encourages employees to share
their ideas on new & existing matters. Even though final decisions are ultimately made by the leader, the employees feel like they are a part of the decisionmaking process & are motivated to achieve goals that are set. This is the reason why this style of leadership is also called participative.
The democratic leader delegates authority & responsibility to subordinates. Two-way communication is engaged/encouraged & employees are given the
opportunity to listen & be heard. This style of leadership fosters mutual trust between the leader & the employee.
PRINCIPLES OF BUSINESS
17/11/21
Organisational Structure and Principles Of Sound Organisation
Subordinate: An employee ranked below another employee in terms of office
hierarchy.
Organisation Structures: An organisational structure shows the way in which
Lateral: A movement along the same level on the organizational structure.
the department of a business are set up and how the employees report to and
Vertical: An up or down movement along the organizational structure.
relate to each other.
Formal Organisation: The structure that the management of the company
Principles Of Management:
establishes.
The problem as to what constitutes sound management has been the subject
of much study and debate by writers on management. The principles outlined
below are considered to be a very important aspect of any organization.
Informal Organisation: The informal organisation refers to unplanned groups
and associates that emerge as people work together and share common
interests and skills.
Hierarchy: A group of people organised vertically into successive ranks with
Principles Of Sound Organization:
Unity Of Direction: Each group of organizational activities that have the same
objective should be directed by one manager using one plan.
Span Of Control: The number of people who report to one manager in the
The Scalar Chain: The line of authority from top management to the lowest
ranks represents the scalar chain. All communications should follow this
chain, but if following the chain creates delays, cross- communications can
be allowed if agreed to by all parties and if superiors are kept informed.
hierarchy.
Unity Of Command: Each person should answer only to one supervisor.
Chain Of Command: The flow of authority, responsibility and accountability from
Simplification, Specialization And Standardization: These concepts should be
introduced and encouraged whenever possible in an organization.
each level subordinate to the one above.
Authority: The power or right to give orders or make decisions.
the highest level of the organisation to the lowest.
Order: People and materials should be in the right place at the right time.
PRINCIPLES OF BUSINESS
Equity: Managers should be kind and fair to their subordinates.
Teamwork
Discipline: Employees need to obey and respect the rules of the organization.
Good discipline is result of effective leadership, a clear understanding between
management and works regarding the organization’s rules and the judicious
use of penalties for infractions of rules.
A team is a group of two or more persons selected by management to work
together to carry out an assigned task. It’s often adopted when a major
project is to be completed.
Subordination Of Individual Interests To The General Interest: The interest of
anyone employee or group of employees should not take precedence over the
interests of the organization as a whole.
Renumeration: Workers must be paid a fair wage for their services.
Authority: Managers need to be able to give orders. Authority gives them this
right. Responsibility goes along with authority. Whenever authority is
exercised, responsibility arises.
Stability Of Tenure Of Personnel: High employee turnover is inefficient.
Management should provide orderly personnel planning and ensure
replacements are available to fill vacancies.
Initiative: Employees who are allowed to originate and carry out plans will
exert high levels of effort.
Esprit De Corps: Promoting team spirit will build harmony and unity within the
organization.
Motivation is an essential part of management functions. Since success rests
ultimately in the hands of the employees, management must lead and inspire
these upon whom it relies on to implement its policy and make the organization
work. Motivation is done through the following:
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A pleasant working environment
The promise of job security
Proper channels of communications
Providing avenues for self- expression
Recognition of the ability of workers
Proper leadership style
Wages, the levels as well as the system of paying
23/11/21
Benefits of Teamwork
Pools of ideas & expertise
Staff motivation
Improvement in the quality of work
Continuity in carrying out of projects e.g if a member leaves the
team, the project continues
Increase in the amount of work done. (productivity)
Disadvantages of Teamwork
It takes more time to make decisions
It takes more time to complete tasks
Teams may be feeling powerless if ideas generated are not
considered by management
Some members of the team might make little efforts (free riders)
There may be tension if some individuals do not get along with each
other.
Organization Charts
The formal relationship between people & the department of an organization
is exhibited using an organization chart. It specifies the formal authority &
communication network of the organization.
The Chart
Indicates each employee’s area of responsibility, & to whom each
report.
Outlines broadly, the tasks to be done
Makes the division of work clear
Indicates lines of authority & promotion
The 4 MAIN types of relationships that can be shown on an Organization
Chart are:
➢
➢
➢
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Line Relationship
Staff
Functional
Lateral/Horizontal Relationship
Line Authority/Relationships
A manager has authority over line subordinates. He can give orders, make
decisions, direct & control subordinates.
Unity of Command
Each employee should have only one superior. He can delegate authority.
It is consistent with the chain of command which runs from top to the bottom of
any organization. Instructions are passes ‘down the line’ in the organization e.g
production managers are line managers responsible for the work of the
production department.
Line authority is based on a direct flow of authority from top management to
the lowest level of workers in an organization. (Hierarchy)
PRINCIPLES OF BUSINESS
26/11/2021
Communication
Communication is the process of transmitting information by two or more
persons, by the use of words, letters, and symbols.
Staff Authority/Relationships
There is Formal Communication [prescribed by the organisation] and Informal
Communication [grapevine
A manger/department gives specialist advice to another manager department.
Communication Process Involves]
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Specialist don’t have the authority to command,
To make or influence decisions in the department. He can only provide
advice. Workers receive daily supervision from a line manager, but a staff
manager advises, suggests, and recommends only.
A’ staff ‘person does not have the authority to direct subordinates unless a
line manager delegates this responsibility to him. Sometimes conflict may
arise between line manager and staff personnel. Line managers may
accuse ‘staff’ personnel of assuming line authority, providing unsound
advice, for failing to view the organisation as a whole.
Egs. Of Staff Authority Are.
[1] Service departments such as Legal Services, Computer services,
Research dept.
[2] Specialist /Advisory position e.g. Secretary or executive assistant to
the manager [to maintain logical relationships on the chart]
Functional Authority
Managers are appointed to all functional departments in the organisation. They
have alternate responsibility for their own department. Some functional
managers, have a great deal of executive authority, that is, they are given the
powers to make rules and regulations concerning not only their own
department but other departments in the organisation. They therefore have the
right to give orders in departments other than theirs. For example, the
personnel manager has the authority to dismiss another manager’s
subordinate [if he has done something g wrong] since he is in charge of the
personnel function throughout the organisation, likewise, the finance manager
has authority over all departments on financial matters.
Lateral/Horizontal Relationship
Exist between personnel who are on the same level in the organisation. Persons
who are on the same level in an organisation are free to communicate with each
other.
The
The Flow of Communication in the organisation
Vertical flow is represented by upward and downward communication
Horizontal flow is between staff at the staff level.
Methods/Medium of Communication
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Oral – word of mouth, telephone contact, meetings.
Written – memos, manuals, reports
Visual – charts, diagrams, posters
Electronic – email, text messaging, fax
Causes Of Communication Failure
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Use of Technical jargon
Noise [physical noise, distraction]
Failure to speak/ write clearly
Inappropriate channel chosen
Disinterest in the subject matter.
Improvements in Communication
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Move away from autocratic leadership styles to more democratic
Informal relationships [e.g., group activities, staff gatherings] can a
encourage better formal communication.
Choosing the right medium of Communication
Ensure that the communication is understood, through feedback.
POB NOTES
FOrM FOUR
TErM TWO
PRINCIPLES OF BUSINESS
14/01/22
Entrepreneurship
Steps for establishing a Business
An entrepreneur is a person who undertakes the risks involved in starting and
running a new business. He organizes the other factors of production, to
produce goods and services, in an attempt to make a profit.
Role of an Entrepreneur
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•
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To bear the risks of operating a business
To create and market new goods / services
To plan, develop and market their ideas
To provide or access funds to operate the business
To organise the ither factors of production
To monitor and evaluate the performance of the business so as to
improve the business operation and to ensure that the goals of the
business are being met.
Characteristics of an Entrepreneur
Steps for establishing a Business
•
Conceptualization
The Entrepreneur must be innovative and creative; conceptualizing
(thinking of) and developing new ideas. He must be capable of spotting a
market opportunity.
•
Market Research
To probe and investigate the market, to determine if the idea is feasible
(i.e., is there a market? Is it sufficient in size, customers, competitors?
Etc)
Market research is process of collecting and analysing data, about the
demand for a g/s, in a specific market.
Characteristics of a Typical Entrepreneur
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Optimistic
Resourceful
Persevering
Goal – oriented
Persistent
Flexible
Innovative
Creative
Prosperity to take calculated risks
Reasons for wanting to start a Business
•
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Desire financial independence. Some are also satisfied to know that “I am
free and independent. I can come and go as I please”.
Self – expression: To put into action the skill, knowledge and ideas that
have been building within an industry.
Self – fulfilment and self – actualization: To achieve personal growth
To be their “own boss” and provide jobs for others and themselves.
For Security: To know that they’re secure in their own business and noone can fire them.
Community Service – the satisfaction of making a contribution to the
betterment of the community and being recognized for it.
Legacy – the satisfaction of knowing
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There are two main types of market research:
Primary research – is data collected by the researcher for the first
time. It is original data obtained from people in the target market. E.g.,
The use of questionnaires, interviews, surveys.
Secondary research – is the use and analysis of data that already exist.
This data is considered second – hand data since it was originally
collected for another purpose. E.g., market reports, census,
government publications, sales reports.
Identification of Resources
To determine the needs of the business in terms of other factors of
production (land, labour, capital). Are these available, where and from
whom?
Creation of a Business Plan
This is a plan covering all aspects of the proposed business. It helps the
entrepreneur clarify what they are expecting to achieve.
•
Acquisition of Funds
Capital is the money invested in the business. The entrepreneur needs to give
sufficient thought to the capital needs of the business. Sources of capital
include personal funds, private investors, equity – sale of shares, debt – loans.
The business plan is usually presented to a bank or other financial institution,
to obtain a loan for ‘start – up’ capital.
One source of capital is Venture Capital. This is capital provided to small
businesses by specialist organizations or sometimes wealthy individuals.
They are prepared to lend ‘risk capital’, to those businesses that might find it
difficult to raise capital from other sources (because they are considered
risky e.g., ‘high tech’ businesses, software businesses). Venture capitalists
take great risks and could lose all their money – but the rewards can be great
Collateral or security is required to obtain a loan from a bank or financial
institution. These are assets that the banks puts a lien on. Failure to repay the
loan means that the lender can exercise a legal charge against the property
secured. Collateral may be in the form of property, insurance policies that
have cash value, shares, fixed deposits, etc.
The Content of the Business Plan
There is no set formula for a business plan, but it’ll usually contain the
following details:
o
o
o
o
Executive Summary- Details of the owners, name & address of
business, aims & objectives of the business.
Operational Plan/Analysis- Production, purchasing, selling e.g.
goods/services to be sold, costs & prices to be changed.
Market Plan/Analysis- Who the intended customers are: their needs,
size of the market, competition, etc. the proposed marketing strategy
(the 4p’s)
Financial Plan/Analysis- How the business will be financed, financial
forecasts, (finding income & expenditure).
Elements of the Business Plan
A guarantor (also called cosignatory) is the third party between the borrower
and the lender and guarantees repayment if the borrower defaults in any way.
•
Operation of the Business
Once all the factors of production are in place, the entrepreneur organizes
them in the right proportion to ensure an efficient business operation.
Planning a Business
To achieve its objectives, a business needs a plan. There’s a necessity for
long-term (up to 10 years plans), medium term (1 year to 5-year plan), and
short-term planning (up to 1 year plans) in operating a business.
The Business Plan
A business is a detailed written statement that describes the nature of the
business, who is responsible for the business; how it is going to get the
necessary capital & what profit it hopes to make.
It is prepared by the entrepreneur prior to opening a business.
Purpose of the Business Plan
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It forces the entrepreneur to carefully think through all the possible
issues & problems with starting & developing a business.
To show to the bankers/other lenders, to persuade them about the
viability of the business.
To allow interested parties (possible investors; partners) to make
informed decisions about the business.
Small business with a carefully thought-out business plan is more likely
to succeed than those without one.
A Feasibility Study
All business plans are feasibility studies; but not all feasibility studies are
business plans.
Difference between a Business Plan and a Feasibility Study
Business plans are used when planning a new business, whereas a feasibility
study is used to determine whether any planned project e.g., launching a
new product, expanding the factory) are feasible (viable, practical, likely to
be successful).
In other words, a business plan is only done at the commencement of a new
business, whereas feasibility studies can be done throughout the life of the
business.
•
An executive summary in a business plan:
➢ Is the name used to describe the business plan in its entirety?
➢ Sets out in a succinct way the key aspects of the plan.
➢ Outlines the key decisions that business managers will make in an
enterprise.
➢ Focuses on the business market and the management team.
• The function of collateral is to:
➢ Provide funds to a borrower
➢ Enable the lender to take interest from the borrower.
➢ Increase the size of the funds that can be borrowed.
•
A feasibility study will enable an entrepreneur to:
➢ Decide whether to start up a new enterprise.
➢ Borrow money in order to buy start – up equipment.
➢ Choose how to market the products.
➢ Identify a business name for a new business.
PRINCIPLES OF BUSINESS
25/01/22
Planning is the most important function of management. Planning is a decisionmaking process by which an organization decides what it wants to achieve,
how it intends to achieve it & what manner/process of determining what an
organization needs to do & how best to get it done.
•
o
o
o
o
•
•
Importance of Planning
Planning gives direction/provides a guideline
Planning forces managers to look ahead & anticipate possible danger. This
helps to make better decisions.
Planning helps to avoid mistakes & waste resources
Planning helps to set the standard for control purpose i.e., it provides a
measurement on target to compare what actually happens in the
business.
Elements/Features of a Business Plan:
Executive Summary- This gives a concise but clear picture of the MAIN
parts of the Business Plan. It should identify the business, its main
objectives/goals, the owners briefly describe the products & the
government regulations that affect the business. Some executive
summaries state the main SWOT (strengths, weaknesses, opportunities &
threats). This section is what convinces someone that they should read
the remainder of the plan. It should convince a potential lender &
investor.
NOTE: SW- internal & OT- external
•
o
o
o
o
o
o
o
o
Operational Plan/Production Plan
Describes goods/services
Suitability of location for production/operation
Describes the type/level of production
Describes labour skills
Quality Control
Technology Requirement
Raw Materials & other Inputs required & sources of these
Ethical issues related to production
•
o
o
o
o
o
o
o
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Marketing Plan
Organization of the Marketing Department
Market Research
Product Strategies i.e. design, branding, packaging, etc.
Pricing Strategies
Distribution Strategies
Promotion Strategy
Consumer Strategy
Ethical issues related to marketing strategies
•
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o
o
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Financial Plan
Purposes for which finances needed
Collateral
Projected Performance
Financing Requirement
Ethical issues related to financing.
•
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Organizational & Management Plan
Organizational Structure
Human resources (available & required) & the duties,
responsibilities of each.
•
A Feasibility study is an analysis of the viability of a business idea, &
an examination of the different aspects of operating a business. It
will show whether the business idea is a worthwhile/ lucrative
business.
It will examine & conduct research on market demand, profitability,
target markets, production methods, operating expenses,
distribution channels, competition, cash flow, resources required &
legal requirements.
o
NB: If the Feasibility study shows that you have a viable business operation,
ONLY then the Business Plan would be prepared. The business plan will
mostly be based on information gathered from the feasibility study.
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•
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•
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The MAIN factors determining the Location of a business are:
Supply/availability of a suitable/good supply of labour /workers.
Closeness to market
Closeness to Raw Materials
Infrastructure e.g., adequate supply of water, electricity, airport,
roads.
Political stability
Industrial Concentration
Attraction to Linkages
Geographical determinants
Access to Transport
Government Intervention
PRINCIPLES of BUSINESS
28/01/22
LOCATION of INDUSTRY
When choosing a site to locate a factory, an entrepreneur must consider:
•
•
•
•
•
The costs involved. The firm must produce its product at a competitive
price and must ensure that its costs are manageable – e.g., costs of land.
Geographical determinants: that is deposits of minerals, climatic
conditions, dictate where certain commodities are to be produced.
(Particularly agricultural products)
Nearness to raw materials: where the weight of the raw material to be
used, and thus the transport cost is more than the weight of the finish
product, it might be best to locate near to the source of the raw materials.
Nearness to market: where the finish product is bulky, and expensive to
transport, it is likely to be produced near to the market.
N.B: PRIMARY/EXTRACTIVE INDUSTRIES.e.g. Agriculture and Mining are
usually located where the raw materials are, while SERVICE INDUSTRIES
e.g., Banking tend to be located close to the market.
What Government can do to influence the location of industry in a country:
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Financial incentives to firms e.g., grants for buildings and equipment at
special rates.
Ready built factories for sale or for lease on favourable terms at
industrial estates, with infrastructure already laid down.
Grants for the training of newly recruited workers.
Prevention of industrial development in areas considered as residential
(zoning and planning laws) to prevent pollution and congestion.
The availability of suitable labour: industries are likely to locate
themselves near to where there is good supply of suitable labour, or
where there is cheap labour that can be trained.
Attraction to(a) industrial concentration &
(b) linkages industries: that is firms tend to locate themselves (a) to
where the industry of which they are part of is located: (b) near other
businesses on which they depend.
Government Intervention: (i.e.) firms locate themselves sometimes when
the government dictates the factory site. E.g., Industrial Estates/provision
of factory shells: zoning laws: reduce overcrowding in cities.
Political stability of the country: foreign entrepreneurs tend to consider
how politically stable a country is and locate their factory where there is
political stability.
Infrastructure: entrepreneurs consider how adequate the supply of water
and power is, the country’s harbours, airports, roads, telephone, etc. are
before locating themselves.
Transport access: sitting near to good roads, sea or air links help to keep
distribution costs down.
PRINCIPLES OF BUSINESS
02/02/22
A contract is a legally binding (hence enforceable by law), agreement made
between two or more persons/parties, their intention being to create legal
relations & not merely to exchange mutual promises.
A contract is an agreement between two or more persons intended to
create a legal obligation between them & to be legally enforceable.
A legal obligation means that law recognizes the agreement, therefor it is
legally binding & will be enforced if one party breaks/breaches the
agreement. The innocent party is entitled to a remedy or compensation.
An agreement takes place when two minds come together with a common
intention.
NOTE: Every contract is an agreement but not every agreement is a
contract. For example, Domestic Agreements & Social Agreements made
between family members & friends respectively, aren’t legally
binding/cannot be enforced in a court of law.
For a contract to be legally enforceable/valid the following
features/elements/characteristics must exist:
o
o
o
o
o
o
o
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Offer & Acceptance- Agreement
Consideration- both parties must give something/agree to give up
something (sacrifice) for what they gained/will gain (benefit).
Capacity/Contractual Capacity- parties involved must have the
mental/contractual capacity to enter a contract e.g. sound mind, age
of majority.
Legality/Lawful Purpose- the subject matter of the contract must not
be contrary to law/to perform an immoral act. An illegal contract
can’t be enforced. The contract must be to carry out a legal act.
Genuine consent of the parties- there must be agreement between
parties (consensus) & each party must have entered the contract of
his own free-will
Good faith- not be under influence /duress,, mistake,
fraud/misinterpretation
Possibility of performance- it must be possible to perform/deliver
Intention to create legal relations- that is legally binding.
An offer is a proposal/bid made by one person/party to another
person/party. An offer may be accepted or rejected by the person to
whom it was made. An offer can be expressed (stated
orally/written)/implied from the conduct (action & behavior) of the person
making the offer.
The parties to an offer are:
➢ Offeror- the person making the offer
➢ Offeree- the person to whom the offer is made & who is free to
accept/reject the offer.
An offer must be definite & can be revoked/withdrawn before acceptance.
Acceptance must be unconditional that is therefore willingly
accepted/agreed to as the offer is stated & it must be communicated.
A counter offer is an alternative offer made by the offeree to the offeror. A
counter offer isn’t acceptance & is really a rejection of the original offer. A
counter offer would need acceptance before a contract can come into being.
o
Offer + Counter offer= New offer.
A counter offer has the effect of destroying the original offer.
An offer needs to be distinguished from an invitation to treat. Whereas an offer
will lead to a binding contract if there’s acceptance, an Invitation to
Treat/Trade can’t be accepted as it is merely an invitation for offers/an
invitation to make an offer/an offer to make an offer.
An invitation to treat/trade is the preliminary stage in the development of a
contract & places neither seller nor the buyer under legal obligation. It’s NOT
an offer in itself, but an invitation to negotiate/trade/make an offer.
Examples of invitation to treat/ invitation to trade are:
o Items displayed in a store on the shelves of a supermarket with a price
tag on them. The customer makes an offer to purchase the goods. The
trader will decide whether to accept the offer.
o Advertising the price of something for sale/ advertisements e.g., in the
newspapers.
o Catalogues.
o Auctions.
An offer must be distinguished from an Invitation to Treat. An ‘invitation to
treat’ means an invitation to make offers. Thus, when an auctioneer requests
bids he invites the assembly to make offers to him.
An offer is accepted by the auctioneer by the fall of the hammer.
Revocation must be communicated to the offeree (directly or in
directly). Once the offeror has shown an intention revoke (by his
words/ or conduct) and notice has reached the offeree, then
revocation is effective.
The offeror cannot revoke his offer after the offeree has accepted.
Acceptance is final and would give rise to a contract.
Acceptance must be unconditional (accepted in all its terms). Any
attempt to accept the offer with a modification of its terms is NOT
acceptance but a refusal and a counter offer. A counter offer will itself
require acceptance before a contract emerges.
o In an auction sale, the bid is the offer. Acceptance is made when the
auctioneer lets his hammer fall after a particular bid.
o Acceptance must be within the time stipulated or within a reasonable
time, and without any notice of revocation of the offer.
o An offer ends and lapses when:
• It is revoked by the offeror,
• Rejected by the offeree,
• Where the stipulated time or a reasonable time has expired
• On the death of either the offeror or offeree.
o
o
Use of the post:
• The offer is complete when it actually reaches the offeree. An offer
lost in the post is NO offer at all.
• Acceptance is effective/effected when the letter of acceptance is
actually posted. An acceptance lost in the post, and which never
reaches the offeror is STILL valid and a contract existed from the
time of posting by the offeree.
Where good are displayed in a shop window or on shelves in a self-service
store, the display is constructed as an invitation to treat, not an offer to sell.
Where a customer picks up an article in a self-service store & takes it to the
cashier’s desk to pay. The taker’s action is an offer to buy. It is for the cashier
to accept the offer & take the purchase money in payment.
The postal rule will apply only when the parties agreed that they will use
the post as a means of communication.
PRINCIPLES OF BUSINESS
There are FOUR (4) MAIN ways that a contract can be terminated/
discharged/ come to an end, namely:
05/02/22
Rules Governing Offer and Accepting:
o
o
o
o
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An offer must be communicated to the party.
An offer may be made to a specific/definite person or generally/ to the
world at large.
The offeror may attach any conditions to the offer, but he must do so (and
bring these conditions to the offerees notice) at the time of making the
offer, if the offeree is to be bound by the conditions.
Acceptance must be communicated and is NOT valid until it has been.
Silence is NOT acceptance, even if the offeror indicates that he will
consider silence to be acceptance. However, where the offer requires
performance of an act e.g. in the case of an offer by advertisement, then
performance of the act may amount to sufficient communication.
The offeror may revoke his offer at any time before acceptance (unless
valuable consideration has been given to keep the offer open for a certain
time).
Discharge/Termination of Contract
•
•
•
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Performance – the parties to the contract did all that was
required;
Agreement – the parties agreed that the contract should be ended;
Breach – this is where one of parties to a contract did not do what
they were supposed to do or performed in a sub – standard
manner; and
Frustration – after the contract was entered into, unforeseen
circumstances made performance impossible e.g., Severe illness;
death; the subject matter of the contract was destroyed by fire
etc.
SPECIALTY CONTRACTS
Specialty contract – this is a special kind of contract which must be done in a
special way or must take a special form (FORMAL CONTRACT) and is NOT valid
unless it is made out in writing & is signed, sealed & delivered. After the seal
has been placed on the contract, no one can dispute the Terms & Conditions of
it. Also referred to/called ‘Deeds’ or contracts under seal e.g.:
Hire
Purchase, Mortgage, Sale of Land, & Insurance.
Sale of Land – merely agreeing to buy and sell land is not enough to convey
ownership.
Hire Purchase – is a form of buying on credit. Through a rent arrangement
between the OWNER/SELLER (who rents the goods) and the HIRER buys the
goods, a hire Purchase contract is entered into.
SPECIALTY CONTRACTS/FORMAL CONTRACTS
o
o
o
o
o
Hire Purchase (H.P) Contracts
The MAIN provisions/features of a H.P contract are-:
o
Essential Features/ Characteristics of a Specialty Contract:
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o
o
o
o
Generally, all the features of a simple contract (excepting consideration)
e.g., offer and acceptance, possibility etc., MUST exist for a specialty
contract to be valid.
Must be in written form (deed).
Must be signed by the parties involved.
It must be witnessed (counter – signed by the witness).
Usually the seal is applied, or the document is stamped.
It must be delivered.
All parties to the contract must receive a copy
Parties are bound to the details of the contract, so it is in the parties ‘
interest to be fully aware of all the facts, including the fine print; and
At times specialty contracts may be a legal document prepared by a
lawyer.
The main reasons for the written nature of specialty contracts are:
To ensure that all the details of the contract are clearly stated &
unambiguous, and
To prevent fraud by one or both parties to the contract.
o
o
o
o
o
o
o
o
o
MAJOR DIFFERENCES between SIMPLE CONTRACTS and SPECIALTY CONTRACTS:
SIMPLE CONTRACTS/INFORMAL CONTRACTS
o
o
o
o
o
Highly informal in nature and used for simple matters e.gs. purchase of a
good by cash, travelling by taxi etc. and are entered into on a daily basis in
the life of an individual.
Can be made orally, written or by conduct
Must have CONSIDERATION to be valid
Documents (if any) do not need to be witnessed
Does NOT require legal advise
Highly formal in nature and are used for complex matters e.g. sale of
land, sale of car etc. and are entered into only a few times during the
life of an individual.
MUST be written (signed, sealed and delivered)
Need NOT have consideration to be valid
Documents when signed must be witnessed
Usually requires legal advice
o
o
o
o
Goods must be of merchantable quality i.e. fit for the purpose/
ordinary uses for which it is intended.
The hirer (buyer) must be told of the actual cash price as well as the
H>P price of the goods.
A contract has to be signed by both the buyer and the seller. One copy
of the contract must be given or posted to the buyer.
It is the duty of the seller to let the buyer know the cash price as well
as the H.P price at the start of the transaction. The buyer must not be
fooled or cheated.
The goods do not belong to the buyer until he has paid ALL the
installments.
The buyer cannot re-sell the goods whilst still paying the H.P
installments.
The buyer may put an end to the H.P contract at anytime by writing to
the seller.
The goods must be returned to the seller. No money would be
refunded to the buyer.
If returning goods to the seller and they are damaged, the buyer is
liable for fixing them otherwise he can be sued in the court of law for
damages.
If the buyer has already paid installments up to 75% of the total H.P
price, the seller cannot repossess the goods.
If the goods are faulty and the fault is discovered whilst the H.P
contract is still in force and whilst the guarantee is also in force, then
the fault is the prime responsibility of the seller and not the buyer. But
if the fault is discovered after the guarantee period has expired
although the contract is still in force, then the responsibility rests
with the buyer.
If the buyer is suddenly unable to pay the installments, without giving
the seller any reason at all, the seller can repossess the goods. If the
buyer offers a reasonable excuse for not continuing the installments,
then he may be allowed some time to elapse so that he can continue
his payments.
If the buyer becomes bankrupt, the seller can repossess the good and
the buyer would lose all past payments.
If the seller discovers that the buyer had given him wrong or
misleading information to secure the H.P. contract and the goods, the
seller can repossess the goods from him and forfeit/
Guarantees (or if there are none) must be made known to the hirer.
Guarantee- is a promise/assurance that something is of a specified quality
and durability (that it will perform adequately for a given length of time).
Warranty – is basically a written guarantee that a manufacturer issues to the
purchaser of a product, agreeing to repair or replace it if necessary, within a
specified period of time.
It is a guarantee of quality. It includes the terms and conditions relevant to
repairs or exchanges in the event that the product does not function properly.
The terms usually begin at the date of purchase.
Warranties have exceptions that limit the conditions under which the
manufacturer is obligated to rectify a problem. Common household items may
have warranties that only cover the product for up to one year while expensive
items usually have warranties for several years. Most warranties only cover
problems arising from defective parts or workmanship.
Warranties generally apply to products that have not been modified or altered
after purchase. If a vehicle owner uses nonstandard parts that affect the
vehicle’s original functionality, the warranty may become invalid. The buyer
may have to pay an extra amount for a warranty.
PRINCIPLES OF BUSINESS
07/02/22
INSURANCE
Some insurance companies in Trinidad & Tobago are: ALGICO (American Life &
General Insurance Company Limited); Guardian Life, SAGICOR, TATIL, &
Maritime.
Insurance is an Aid-to-Trade/Service Industry/Commercial Service/Indirect
Service. It is an Aid-to-Trade because without it, people would be discouraged
from going into business & taking risks & the growth of trade will be slowed
down. Insurance is the way/means of spreading the cost of large losses over
large numbers to reduce the cost to the individual.
Need for Insurance
At some time in our life, we all need insurance. Many years ago, if your house
was burnt down/your possessions were stolen, that was just too bad & you
simply lost everything. If a trader lost goods in a shipwreck/fire it was
considered bad luck. In modern economies however, insurance provides
protection against loss by paying compensation.
Protection that’s offered by insurance is based on the practice of the Pooling
of Risks. Nobody knows who is going to have bad luck, so insurance
companies collect small amounts of compensation to those unlucky persons
who suffer a misfortune. This is called the Pooling of Risks.
Insurance companies are large investors that invest from the pool of funds
provided by the insured. They invest in all types of securities & earn
considerable amounts which help them pay claims & dividends, cover all
their costs, & make profit.
Probability of Loss- insurance companies must be able to estimate
accurately, how likely it is/the probability that a business place will be
damaged.
By employing the professional assistance of an Actuary, who uses records &
statistics of losses accumulated over a period of years, an insurance
company would be able to make this estimate.
Insurable Risks- these are risks that can be insured against & it is possible
to calculate a probability for this e.g., burglary, fire, flood, etc. the
simpler/easier it is to calculate the risk/probability, the easier it is to
insure against losses. Example: it is much easier to insure against injuries
sustained by driving in P.O.S, than riding a camel across the snow in Alaska.
Non-Insurable Risks- these risks can’t be insured against e.g. losses &
possible business failure because of poor management. It may be impossible
to access/to calculate a probability of these risks/they may be against the
public’s interest.
The Parties to an Insurance Policy/Contract
Insured- this is the person who has an insurance policy (contract)
with an insurance company.
Insurer- this is the insurance company
A third party to an insurance policy/contract would be anyone besides the
insured & the insurer.
Principles of Insurance- these are important to ensure that there’s
consistency in treatment when claims are being handled by insurance
companies.
The Principles of Insurance governing an insurance policy are:
•
Utmost Good Faith
Insurable Interest
Indemnity
Subrogation
Proximate Cause
Contribution
Utmost Good Faith- the insurer must have all the facts that will enable
him to decide on whether to accept the risk, what conditions to impose
& what premiums to charge.
The insured must be informed of all the terms of the insurance, so that
they know what coverage he is entitled to receive if the insured risk
should occur. Intentional withholding of relevant info. Can result in
invalidation of contract. Failure to disclose all relevant facts may cause
The policy to be deemed void (i.e. without any legal effect/can’t be enforced in a
court of law) & the insured wouldn’t only lose all the premiums paid but would
have to bear the full extent of the loss for himself.
•
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Insurable Interest- the insured must personally be the one to suffer the
loss. The insured must have a financial interest in what is being insured
(property in which an individual isn’t expected to have financial interest,
there is no insurable interest (an insurable interest exists when the
insured stands to suffer financial loss from the occurrence of the event
against which it is insured).
Indemnity- the aim of insurance is to compensate (indemnify) the insured
so that they are placed in the same position after a loss/misfortune as he
was in before. The exceptions are cases of death & certain kinds of injuries
such as the loss of a leg from personal accident.
NB: this principle is important as it removed the element of gambling for profit
from insurance. If a person Over-insures in one company, he will be indemnified
only to the equivalent of his loss.
o
o
Types of Insurance that a Businessman can purchase for his Business
Insurance is very important to every business regardless of its size.
Damage to/loss of buildings & equipment by fire/flood means the loss
of business & profits while the premises/machines are being
repaired.
Types of insurance for Businesses:
o
Adjustor/Assessor- is a person employed by an insurance company to
determine the extent & value of the damage.
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Subrogation- the situation may arise where the insured has certain legal
rights against third parties who were liable for the occurrence of the
event. By virtue of subrogation, the insurance company is entitled to take
over these rights to protect itself.
Proximate Cause- this principle states that a claim will only be paid if the
loss suffered was a direct result of the insured risk happening e.g. if a
person has a personal accident policy which includes death benefits, a
claim arises only if his death is caused by an accident.
Contribution- if a risk is insured with more than one company then any
loss would be shared between the that is each company would make a
contribution.
o
o
•
NOTE: Indemnity, Subrogation & Contribution are interrelated principles of
insurance.
Importance of Insurance to the Economy
o The Development of Business- insurance provides protection against
many of the risks involved in trade & thereby encourages the setting
up & growth of business. By removing a large number of risks off the
shoulder of the businessman, insurance allows him to concentrate on
running his business, insurance is also a source of capital for business
e.g. loans to businesses from an insurance company.
o Funds for Investment- a large sum of money is collected by insurance
companies annually in premiums. Much of this money (especially life
assurance premiums) is invested in stocks & shares. This provides
important capital for industry, & the income received by insurance
companies helps to keep down the cost of insurance.
Protection for Individuals & their Property- Insurance
provides protection for people & their property against
many of the risks in life, including fire, theft & accidents.
Economic Development- Insurance companies provide
jobs/employment for many individuals. Thus, they help to
reduce the level of unemployment & increase the standard
of living of the citizens in a country.
o
o
o
o
Motor Vehicle Insurance (3rd Party & Full Comprehensive)
➢ Comprehensive- this covers all risks & injuries to driver &
third parties & assessed damage to vehicles/property of
third parties. The insured can’t claim for damage to his own
vehicle.
➢ Third-party risk- this is compulsory by law. Third-party
insurance includes claims from passengers travelling in
the insured vehicle & from any other persons injured
because of an accident, & also any claims for damage to
another vehicle/the property of third parties. The insured
can’t claim for damage to his own vehicle.
Fidelity Guarantee Insurance- provides coverage to employers
for financial losses sustained as a result of theft/dishonesty by
employees e.g. in situations of embezzlement/misappropriation
of finances.
Fire Insurance- fire policies cover the insurance risk of both
the building & its contents. There’s generally a ‘loss of profits’
clause on the fire risk policy, because the profitability of the
company is affected while it is closed for business. Fire policies
usually cover damage due to flood, earthquakes, hurricanes &
other natural disasters/acts of God. The premium paid for a
fire insurance policy will depend on the value of the property
insured & the risk involved.
Bad Debt Insurance- these policies cover the risk which
business face that money owed them (from debtors) will not
always be paid.
Public Liability Insurance- this type of insurance policy
provides coverage/protection for accidents occurring to
customers due to negligence of the employer.
Workmen/worker’s/Employer’s Compensation Liabilitycovers injuries from accidents to employees while on the job
through the negligence of the employer (wage compensation &
medical benefits).
Burglary- this type of policy compensates the firm for loss
resulting from goods being stolen & damage to property
through an actual break into the premises as opposed to
simple stealing.
o
o
Plate & Glass Insurance- this policy covers the cost of replacing large shop
windows. It also covers serious injury to staff/customers from the breakage of
such windows. These policies also include a ‘loss of profits’ clause as there is a
loss of advertising display resulting from the breakage.
Goods in Transit- this type of insurance provides coverage/protection for
loss/damage to goods which are being transported from one place to another
by sea/air.
Record Keeping- in business is defined as the process of creating, collecting &
maintaining records/documents which act as evidence of business transactions.
Full & accurate business keeping is essential in a business for several reasons.
Reasons for Record Keeping Include:
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To keep track/monitor the progress of business activities to see whether the
business is making a profit, manage expenses, evaluate the business strategy.
To provide a financial history to banks & other lending institutions when
accessing loans
To prepare & file tax returns
To provide written records of transactions in business to aid decision making
To identify sources of Revenue & Expenditure in the business
To evaluate the firm’s present performance against set targets/against past
performance with the objective of identifying gaps in performance.
To provide written records of transactions in business to aid in better
decision-making.
Reasons for Record Keeping:
o
o
o
o
o
Informs decision-making
Helps evaluate performance
Provides a way to safeguard & retrieve information
Tracks accountability
Demonstrates regulatory compliance
Types of Business Documents include:
o
o
o
o
o
o
o
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Purchase Requisition
Pro Forma Invoice
Purchase Order
Invoice
Credit Note
Debit Note
Statement of Account
Stock Cards
EXTRA NOTES
POB NOTES
FORM FOUR
TERM THREE
PRINCIPLES OF BUSINESS
20.04.22
Production can be defined as the transformation of
inputs/resources/F.O.P’s into an output of goods & services to satisfy the
needs & wants of consumers.
The Process of Production
The Levels of Production
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Subsistence Level
Domestic Level
Surplus Level
o
At subsistence level, the production of goods is undertaken, so as to
provide the basic needs of an individual & their family. An economy
based on subsistence production is usually agrarian, as it produces
mainly agricultural products.
Domestic/Local level of production is where the production of good &
services in the country is enough to satisfy the demands of the
population. It forces/enables the country to rely on its natural
resources rather than importing from other countries.
Surplus level of production, is where the production of good & services
in the country is enough to satisfy the home demand & a surplus is
leftover which can then be exported to foreign countries to earn
foreign currency.
o
o
•
•
Primary Production/Extractive Industries- are those forms of productive
activity which are involved in taking from nature, what nature has
provided (natural resources) & making it into a form which can be used by
man. They are called primary as it represents the first stage in the
production process. They make available, the raw material which is
necessary for production to take place. E.g. agriculture, mining, fishing,
hunting, quarrying, lumbering.
• Secondary Production/Manufacturing & Construction Industries➢ Manufacturing Industries are those forms of productive activity which
involve using the raw material made available by the Extractive
Industries & making out of it useful products. They’re called
Secondary, as they represent the second stage in the production
process. They use raw materials already provided, & tweak it in some
way to make it more useful. E.g. food processing, garment
manufacturing, the making of paper, the cement industry.
➢ Constructive Industries are those forms of productive activity
involved in using many different products made by the manufacturing
industries & re-organizing them into totally different products. E.g. the
building of roads, highways, bridges, railways, ship building.
• Tertiary Production/Service Industries- is also known as the
tertiary/services sector & can be seen as the link between the
manufacturer & consumer. The service sector can be divided into direct &
indirect services.
➢ Indirect Services also referred to as commercial services/Aid-toTrade provide the means by which goods & services change ownership
from producer to consumer i.e., the buying & selling of goods in local &
foreign trade. Indirect services include banking, transportation,
insurance, finance, communication, advertising.
➢ Direct Services are different from the aids to trade as they are
demanded for their own sake & are essential for the well-being of the
community e.g. tourism, entertainment, nursing, hairdressing, etc.
Aids – to – Trade/ Commercial Services/ Indirect Services/ Services
– to – Trade are those services which businesses depend on to help
them overcome or deal with the problems/ difficulties that they face/
experience on a daily basis e.g. Insurance, Banking etc.
(A)
Commercial Services that assist businessmen to overcome difficulties/
problems they face on a daily basis:
•
INSURANCE-Firms can take out insurance to provide
protection for/ insure against many of the ‘RISKS’ they face e.g., fire,
burglary, dishonest workers, accidents, bad debts etc.
•
TRANSPOPRT-Firms can bridge the ‘DISTANCE’ between themselves and
their customers/suppliers.
•
COMMUNICATION & ADVERTISING-Firms can provide and receive
‘INFORMATION’ to and from their Present customers, potential
customers, suppliers etc.
•
BANKING- Firms can get ‘FINANCE/ FINANCING needed e.g. a loan for
expansion.
•
WAREHOUISING-at the ‘TIME’ goods are produced, they may not be
needed by the market/ consumers, so they must be stored.
LAND? NATURAL RESOUIRCES? GIFTS FROM GOD? FREE GIFTS FROM NATURE
Land includes geographical areas of land, as well as all the natural resources
that can be extracted or produced from the land: from the ground below the
surface, and from rivers, lakes, seas, and oceans. Therefore, natural
resources include fertile soils, sunlight, beaches, sand, water, plants, trees,
animals, fish, oil, gases and minerals.
Natural resources can be further classified into ‘renewable ‘resources.
Renewable resources are replaced naturally as they are used up or can be
reproduced by human activity (for example, the replanting of bamboo trees
once they have been harvested). However, non-renewable resources are finite
or fixed in supply, and will not be replaced as they are used up. For example, oil
and coal deposits took many millions of years to form and all be gone once they
have been used. It will be difficult to reproduce rainforests if they are cut down
at a faster rate than they can reproduce or be replanted. Consider how many
animal and marine species have already become extinct or are close to
extinction due to human activity.
Renewable Resources are those which can be replaced either by natural
processes, or by the efforts of man.
Non – renewable resources are those which cannot be replaced.
Renewable resources are those which can be replaced either by natural
processes, or by the efforts of man.
•
➢
➢
➢
➢
➢
➢
•
➢
➢
➢
➢
Renewable
Fertile land (renewable by reclamation and use of fertilizers)
Fish (by scientific fish farming)
Forest (by reafforestation)
Water (by nature)
Wind (by nature)
Sunshine
Non-Renewable
Oil
Pitch
Bauxite
Gypsum
Each country in the world has different natural resources in varying quantities.
Some have relatively few natural resources & have to import those they need,
so they depend on other factors of production to earn revenues.
In Caribbean countries, natural resources have been managed to create
different industries, & these earn valuable foreign exchange. The natural
beauty of beaches, brilliant sunshine, flora & fauna & natural wonders attract
international tourists. Fishing is an important industry in many Caribbean
islands because they are surrounded by sea. Revenue is also earned from
other natural resources extracted directly from the earth, such as oil, bauxite,
sand, gravel, limestone & lumber.
Island
The Bahamas
Natural Resources
Beaches, barrier reef
Antigua & Barbuda
Beaches, sunshine
Barbados
Coral reefs, beaches,
caves, coastal
landforms
Wildlife, flora &
limestone, barrier
reef
Mountains,
rainforests, rivers,
hot springs, whale
watching
Fertile soil, fish,
shrimp, bauxite, gold,
umber, diamonds
Belize
Dominica
Guyana
Jamaica
Trinidad & Tobago
Bauxite, gypsum,
limestone, beaches,
water, rich soil
Asphalt, crude oil,
natural gas, fertile
soil
Main Industries
Tourism/hospitality,
financial services
Tourism, education,
tourism investment,
banking, financial
services
Tourism/hospitality,
financial services,
information services
Tourism/hospitality
Agriculture, ecotourism
Sugar production,
fishing & fish
processing, rice, gold
mining
Tourism/hospitality,
agriculture, bauxite,
gypsum industry
Oil production,
liquefied natural gas
production,
agriculture, asphalt
production.
PRINCIPLES OF BUSINESS
23.04.22
PRINCIPLES OF BUSINESS
25/4/22
Cottage Industries
SMALL FIRMS
Cottage Industries- are small scale industries usually centered in the home/a
community center, where there is a pronounced use of manual labor (by hand)
to make a traditional product.
A small firm is a firm where the amount of capital/finance is less than
$250,000. Less than twenty people are employed and the amount of
sales/turnover/sales revenue is $250,000 or less annually.
Usually family members and friends are involved in production and raw
materials are obtained from local suppliers. Examples of cottage industries
are making of baskets (Termite Weaving), crochet, knitting, calabash bags,
mats, pottery, souvenir items, leather sandals, jams and jellies, delicacies such
as kurma, fudge, tamarind balls, etc. batik and tie dye.
Main Characteristics Of A Small Firm
Main Characteristics of Cottage Industries
•
•
•
•
•
Home based-productiontakes place in the home/local community
centre.
Mainly manual- to complete production tasks. Use of machinery & tools
Small scale- size of the population/firm is very small
Use of local raw materials- to reduce wastage of raw materials.
Use of family members, friends as labor
Advantages/Benefits of Cottage Industries
Self help
Use of spare time fruitfully
Using raw materials which would otherwise be wasted
Addition source of income without having to leave the house. Ideal for
housewives, the unemployed, retirees.
Promote local industry/enhances tourism
Source of valuable foreign exchange earnings.
Disadvantages of Cottage Industries
Obtaining raw material since nowadays much of the raw material has to
be imported. E.g beads, glue, paints, etc.
Lack of knowledge about available research facilities e.g. CARIRI
Lack of capital for further investment
Lack of managerial expertise
Costs e.g. transportation, advertising
Difficulty in marketing.
•
Small amount of capital/finance
•
Annual sales no more than $250,000
•
Less than 20 employees
•
Occupies a small area/land space
Small Firms Survive/Are Important Because:
•
Small firms provide employment for the owner & members of the
community. They contribute this to the economic growth & development of
a country.
•
Small firms provide personal/customized services. Personal
services are best provided by small firms egs. Hairdressing, dressmaking,
etc. these firms usually cater for the unique neds & wants of their
customers/clients & there is a close relationship between the owner(s) &
the workers & customers.
•
Small firms provide services that large firms can’t provide. A
parlour may provide trust/credit to some customers & sell items in
smaller quantities than a large supermarket. Egs. 1 egg, ½ butter, 1 hops
bread. Small firms like parlours may open earlier & close later than large
supermarkets. They may even open on most public holidays.
Labour Intensive and Capital-Intensive Production
Labour Intensive Production means that there is a significant/pronounced
use of the factor of production LABOUR relative to the other factors of
production in the production process. This can be found easily in the
developed & individualized countries egs food canning, bottling industries &
assembly of motor vehicles.
PRINCIPLES OF BUSINESS
29/4/22
SKILL LEVEL
Managerial &
Preterminal labour
PRODUCTIVITY/EFFICIENCY OF LABOUR
Production can be defined as the actual number of units a product produced
e.g. 100 pens
Productivity/Efficiency is defined as Output per unit of RESOURCES used or it
can be defined as what can be produced against the Factors of Production.
This concept of productivity can be applied to any F.O.P, but it usually refers to
the F.O.P, LABOUR.
Skilled labour
Factors That Determine/Influence/Effect The Productivity Of Workers
o
o
o
o
o
o
o
o
Health of workers- a healthy worker is a productive/efficient worker.
Working conditions- if workers have proper ventilation, adequate lighting,
a clean environment, they can be a more productive/adequate worker.
Level of Education & Training- Education determines the training ability of
workers. Workers with at least basic education are easier to train than
ones who are uneducated.
Level of Wages & Salary- if workers are paid a proper wage/salary they’ll
be more productive than workers who are underpaid.
Recruitment, selection & placement procedures- if workers are hired &
placed in positions for which they are adequately qualified, they will be
more productive than workers who aren’t. workers hired for a job must
have the right personality, skills, intelligence, qualifications, etc.
Motivation- egs. Incentives, such as employee of the year awards, paid
holidays, etc.
Management- staff relationship
If workers have proper tools & equipment (capital) to work with they can
be more productive/efficient.
NB: Productivity/Efficiency Can Be Calculated By This Formula =
output/inputs.
Labour/Workers/Employees/Human Resources
Labour is considered by many economists as the fundamental need of
production. They argue that there can be no production without labour,
whether it be:
➢ Manual: Working with the hands. E.g., lifting, carrying, etc.
➢ Mental: Working with the brain. E.g., managing, accounting, being a
doctor. However, the same argument holds true for Natural resources.
Labour May Be Classified As:
Skilled: having a special ability to do a particular job. Skills may be acquired by
training & experience.
Semi-Skilled: a particular ability that is only partially developed.
Unskilled: having no special ability.
Semi-Skilled
Unskilled labour
DEFINITION
High levels of Internal
Skills & the ability to land
subordinates within an
organization, with good
communication &
conceptual skills, high
levels of education,
qualification & experience
are required
High levels of education, in
the workplace helps
determine if they’re
required to complete
complicated tasks that
require a combination of
education, skills, &
experiences; additionally,
they’re highly paid
High levels of experience,
but usually not having high
levels of education; able to
produce good work in
large volumes, able to
complete routine tasks
very well.
Little or no experience,
training/education
required to complete
simple tasks usually of a
routine nature.
EXAMPLES
Business owners,
accountants,
engineers, and
veterinarians.
Computer Operators
Waiters,
stenographers, factory
floor workers, machine
operators, caterers,
doubles vendors
Garbage collectors,
street cleaners, dish
labour
washers/loaders
The Supply of Labour/Labour Supply/Labour Force may be defined as all
these persons who are of working age who are either employed or
actively seeking employment.
Factors Which Affect the Labour Supply
The supply of labour at any one time is determined by 1. The size of the
population, 2. The age-distribution of the population, 3. Social benefits with
special regard to whether married women go out to work or stay at home,
4. The compulsory school-learning & development age & whether retired
personnel are allowed to work.
PRINCIPLES OF BUSINESS
6/5/22
LINKAGE INDUSTRIES
A Linkage industry is defined as an industry which is linked to/dependent
upon/related to/connected to another industry for its supply of RAW
MATERIALS/MARKET
THERE ARE 2 TYPES OF LINKAGES:
➢ Forward Linkages: Firm moving forwards towards its Market/Customers
E.g., sugar > Confectionary products/rum industry
Timber > building of houses/offices
Tomatoes > canning of tomatoes (tomato juice/sauce/ketchup)
➢ Backward Linkages: Firm moving backwards to its SUPPLY OF RAW
MATERIALS
Farm equipment < Agriculture industry
Packaging paper
Products, furniture, etc. < fast food industry
Bottles/cans < Food/drink processing industry
Machinery < leather craft industry
➢ Resolve upstage of the country’s resources. Forge closer links
between regional industries.
➢ Encourages economic growth & development since the raw material is
used to produce another product.
PRINCIPLES OF BUSINESS
10/5/22
MECHANIZATION & AUTOMATION
▪ Mechanization refers to the usage of machines in the process of
production as opposed to manufacturing by hand.
▪ Automation carries merchandise a step further. By means of
electronic control, processes are carried out with speed & little/no
interruption.
ECONOMIC EFFECTS OF MECHANIZATION AND AUTOMATION
▪ Machines speed up work (production by increase); output will increase
& ensure standardization which will all lead to a fall in the cost of
production.
▪ Fewer people are needed to operate machines, this can lead to
unemployment.
• In developing countries, the increase in output which results from using
machines may not always be absorbed by the market.
▪ Where the supply of a product is sourced using machines may not be
very economical since they’re likely to be in off season.
▪ Surplus products can be expected to earn foreign exchange
▪ Machines can be very costly/expensive to maintain & replace.
Agricultural Industry < tourism industry
PRINCIPLES OF BUSINESS
11/5/22
Social Effects of Mechanization And Automization
Examples of Regional Linkages:
Timber (Guyana) > Construction Industry
Asphalt (Trinidad) > Road Construction
Nutmeg/other spices (Grenada) > Food processing industry (Trinidad)
How Can Linkages Be Encouraged?
•
Educating businesses about the benefits of buying locally or in the region.
➢ Trade Firm where businessmen can showcase their goods
➢ Training of labour force in skills required by the industries
➢ Making capital available to businessmen to establish linkage industries.
Advantages/Benefits of Linkage Industries
Linkage industries are important in the labour at both national & regional levels
because they:
➢ Provide increased employment & improved standard of living
➢ Encourages less dependence on imported inputs. (Regional selfsufficiency); other islands Can use the inputs (resources) of another.
➢ Assists in the development of the region at a faster pace
• People are not required to have new skills, so new training programmes &
courses become necessary.
▪ It is argued that automation has downgraded the value of human
brainpower & natural skills. It creates a people who are overly
dependent on machines.
▪ Idle time caused by unemployment may result in increased crime.
▪ Boredom can lead to absenteeism, low productivity & low morals.
▪ Boredom occurs when an employee performs a small task hundreds of
times daily in the automation process.
▪ Machines may cause people to lose individual & personal interest &
pride in their own work.
Growth Of a Business
There Are 4 Main Ways A Firm Can Grow:
▪ Working/utilizing the existing plant & machinery harder & more
efficiently & as close to capacity as possible.
▪ Expanding the present capacity by relocating/moving the furniture
into a bigger site.
▪ Merging with another firm- a merge is when 2 or more firms join to
form a single business.
▪ Horizontal merge occurs when 2 or more firms at the same stage of
production join.
Different Stages of production, joint together e.g., a cheese processing firm
buys a dairy farm.
• Take over another business. This is different from a merge because the firm
that was taken over didn’t agree to this development. This is achieved by
buying a controlling interest in the firm that is being taken over.
PRINCIPLES OF BUSINESS
12/5/22
Benefits Of Growth or Why Do Firms Grow:
o
o
o
o
o
Firms grow so they will be better able to meet the demands for their
products.
To reduce costs and increase profitability
To be able to enjoy economies of Scale
They may be able to reduce competition & become market leaders
Greater likelihood of survival.
Economies Of Scale
Economies of scale- refers to the advantages/benefits which firms will enjoy
over small firm due to their efforts to grow in size.
The MAIN economies of scale (internal) that large firms can enjoy over small
firms are:
o Technical Economies- large firm can buy and use the best and most
advanced tech/machinery
o Managerial Economies- large firms are able to attract and employ more
highly skilled personnel/workers. They will also be able to pay better
salaries than overall firms and offer opportunities for promotion.
o Marketing Economies- large firms own more assets than small firms
which can be used as Collateral. They’ll find it easier & cheaper to borrow
money from banks, etc.
Disadvantages Of Growths
o They become too complexed/difficult to manage
o Ladies of internal communication may become difficult
o Customers may find the large organization too personal
o Mass production & automation (high use of technology) may lead to
boredom for workers.
Effects Of Growth
Increased scale of production (more output)
Communication may be more difficult
Organization structure changes in the chain of command and span of control
Capital increased financing/funds
Labour- more labour needed if labour intensive and vice versa
Technology = increased use of automation e.g., carpenters, etc.
PRINCIPLES OF BUSINESS
13/5//22
MIGRATION
Migration is the movement of part of the population from one region to
another or from one country to another.
The effect of migration on the labour force is of major concern to
developing countries when it involves a large proportion of
professional/highly educated/skilled/specialized people leave one country
to live in another.
Reasons For Migration
▪
▪
▪
▪
▪
▪
▪
Lack of suitable jobs in the country, so people affected migrate to seek
out employment opportunities.
To seek out better living conditions or better standard of living
For domestic reasons- where one’s family is living in another country
To seek out opportunities where one’s professional skills may be more
needed and rewarded better and utilized to its full potential/capacity.
Developed countries are assumed to have more scope for
professional enhancement
For reasons surrounding one’s health
For reasons surrounding climatic conditions.