Understanding Business
2012-13
Contents
 Needs/Wants &
Goods/Services
 Risks
 Factors of Production
 Entrepreneurs
 Sectors of Industry
 Sectors of Economy
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Business Plan
Sources of Finance
Business Aims
Private Sector Orgs
Public Sector Orgs
Third Sector Orgs
Write down
something that
you really really
want.
3
Needs and Wants
Clip
Clip2
 A need is anything essential we must have to stay
alive. We need food, drink, clothing and shelter.
 A want is anything not so essential but something we
would still like to have. We want a television, a
foreign holiday or designer clothes.
4
Task
Show the difference between needs and wants.
You can do this using a PowerPoint, poster or a comic strip.
Software:
 Microsoft PowerPoint
 Comic Life
 Microsoft Word
 Microsoft Publisher
5
Why do businesses exist?
6
Businesses exist to satisfy
our needs and wants.
They provide:
7
Goods and Services
 A good (product) is something made by a
business that you can touch or see.
 Examples - a car, a football, a pair of boots.
 A service is something you cannot hold or touch.
Often a service allows one person to use skills
they have to help others.
 Examples - haircut, life insurance, cinema
attendant.
8
Task
We will now see slides of various businesses.
Do they provide a product or a service or both?
PowerPoint
9
Opportunity Cost
When something is Scarce and we can’t have everything we
want, we have to make CHOICES.
For example:
 which TV programmes will I watch tonight?
 which pair of jeans will I buy?
 which courses will I choose to study?
When we make a CHOICE, this means that we decide to give up something in order to get
something else. We choose the option that will give us the most pleasure and satisfaction.
The cost of choosing something is the things that we gave up to
get it. This is known as OPPORTUNITY COST.
Why Start A Business?
 You might start off with very big ideas
 Only 50% of new businesses starting up survive after
3 years.
 Given the risk, why would people want to start up a
business in the first place?
Independence –
Own Boss
Made Redundant –
Redundancy Money
To Invest
You Keep All Profits
Your Firm = Your
Deadlines
You Have A Good Idea
– Can’t Persuade
Others
Difficulty Finding
Employment
Innocent Drinks
 The story of the Innocent drinks company - the highs
and lows for the founders. It shows the motives
behind founding the company, the excitement of
start-up, and the integrated nature of the process.
The financial aspects are also briefly covered.
 http://www.bbc.co.uk/learningzone/clips/financial-aspects-of-businessstart-up/8490.html
Being Your Own Boss
 The big advantage of starting your own
business is that you get to order everyone
else around – and decide what to so with all
the profits.
 But there are problems:
Problem One
 The business may take time to
produce a profit – the owner’s
income may be small and vary from
week to week.
Problem Two
 There is no-one else to take the
blame if anything goes wrong – the
owner must be prepared to take
responsibility.
Problem Three
 Owners of new firms generally
work very long hours – for
example, completing the firm’s
accounts in the evening.
Problem Four
 As the business grows the owner needs to
learn to delegate responsibility to
subordinates – not easy if the owner has built
the firm up single-handed.
Factors of Production
 Land – natural resources eg water, trees, fruit, fish
 Labour – human workers – mental and physical effort
 Capital – money, buildings and machinery
 Enterprise – the development of ideas and drive for
implementation
Job Description
 Details about the job including: job title, main duties
and responsibilities, working conditions
Person Specification
 Qualities and skills expected of potential
candidates – usually split into essential and
desirable
Entrepreneurs
What is an Entrepreneur
 An entrepreneur is an individual who develops a
business idea and takes on the associated risks and
responsibilities.
Qualities of an Entrepreneur
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Calculated risk taker
Competitive
Confident
Creative/inventive
Determined
Good communication
Hard working
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Patient
People skills (respect)
Planning/organisation
Positive attitude
Spot problems
Willing to learn
Entrepreneur Case Study
 Watch the clip on SuperJam
 Write down relevant information about becoming an
entrepreneur.
Task – From the website below pick one other company of
your choice and write down information relevant to
becoming an entrepreneur.
www.tinyurl.com/entrepreneurvideos
Types of Business
Sectors of Industry
Primary
Organisations involved
in the extraction of the
earth’s natural
resources
Secondary
Organisations involved
in the manufacturing of
raw materials to be
turned in to finished
goods
Tertiary
Organisations involved
in the selling of goods
and providing services.
Sectors of Economy
PRIVATE SECTOR
Owned and run by private individuals/groups
Sole Trader, Partnership, Private Limited Company (Ltd), Public Limited Company
(Plc), Franchise
PUBLIC SECTOR
Owned by the taxpayer and run by the Government
NHS, Education, Police, local councils services
THIRD SECTOR
Owned and run by private individuals with the purpose of helping a group or raising
awareness for a cause.
Charities, Non-profit making organisations
Types of Business Organisation
 In the previous slide we have looked at sectors of the
economy:
 Private
 Public
 Voluntary
 If you were to start your own business it would be in
the private sector and it would be called a Sole Trader
Sole Trader
 A sole trader is the most common type of business. It is
owned, controlled and financed by one person.
 Examples of sole traders are:
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Plumber
Electrician
Mechanic
Hairdresser
However, anyone can start up their own business doing
whatever they want.
Sole Trader
In pairs write down as many advantages and
disadvantages of being a sole trader that you can think of
– 3 minutes
 Advantages
 Make your own decisions
 Profits are not shared
 No special paperwork
required
 Disadvantages
 Long Hours
 Hard to raise finance
 Unlimited Liability for
debt
 Hard to cover
illness/holidays
Planning Your Business
** The Business Plan **
Ideas for a New Business
 You have decided that you would like to start your own business
and become a sole trader. In order to begin any business you
must make a Business Plan laying out your business aims.
 First you must decide what business you would like to set up.
 Decide on 3 businesses you would like to start?
 Make a list of the pros and cons for each business?
 Choose a business and briefly detail what this business will do.
Task 1
…some ideas are on the next slide….
Possible Ideas?
Can you think of some better ones?
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Refreshment stand at local sports events
Child care
Shopping service for seniors
Pet sitting
Delivery services
House cleaning service
Selling used clothes
Jewellery making
Travel services
Musical group
Computer support: setting up computers/internet connections for others
 You might even… add value to an existing product (packaging, new
Marketing local crafts design, new customers, different size)
Task 1
Billy’s Business Plan
 It’s great having the ideas… but you must be
prepared for the hard-work and dedication taking
your business forwards.
More than the idea
Barclays Business Lounge
 It’s great having the ideas… but you must be
prepared for the hard-work and dedication taking
your business forwards.
Business Lounge Video
What is a Business Plan?
 The business plan is a tool designed to help you find and explore
opportunities. It also provides you with a way to analyse
potential opportunities continuously.
 A business plan is personal and should never be prepared
professionally by others. No one knows you or your ideas better
than you do.
 It is the process of seeking the answers to important questions
about your enterprise that are important as you try to realise
the dream of owning your own business.
Time for research
Preparation is essential
 Working within the time available, complete the template
document which will get you thinking about your business.
 You may not have all the answers at the moment, but be as
detailed as you can be…
 Next week you will start to write your business plan,
before presenting your idea in Lesson 3/4.
Task 2 and 3
Writing the Business Plan
Convince others…
 Using the Guideline Document, create your business plan.
 You will submit this business plan for marking by ‘The Bank
Manager’
 Use a fresh document and your IT skills to prepare a
professional and informative document.
Task 4
The ‘Elevator’ Pitch
Be straight to the point!
 What are the key factors about your business?
 What do people need to know?
Watch the Video…
Prepare Your
Pitch – Task 5
Business Aims and Objectives
 Why do businesses have aims?
 What aims might they have?
 How do they communicate these aims?
Business Aims and Objectives
 What is an aim?
An aim is where the business wants to go in the future, its
goals. It is a statement of purpose, e.g. we want to grow the
business into Europe.
 What is an objective?
Business objectives are the stated, measurable targets of
how to achieve business aims. For instance, we want to
achieve sales of £10 million in European markets in 2014.
Why have aims?
BRIEF Task:
Why do you think businesses have aims… discuss with
a partner and write down as many reasons as you can
in 2 minutes.
Why have aims?
Suggested Answers:
 Separate your company from others – make it stand out
 Indicate the direction the company is heading in
 Might use aims as part of a slogan
 Customer service
 Quality
 Customer support
 What employees should believe
Why have aims?
Aims are often directed at:
Customers
Competition
As you work through
this unit… think
who different
companies aims and
objectives are
directed at…
Employees
Possible Aims
BRIEF Task:
What aims might a company have… again 2 minutes to
discuss and come up with as many ideas as possible
Possible Aims
Provide a
High
Quality
Service
Growth
Survival
Suggested Answers:
Increase
Market
Share
Eliminate
Competition
Did you have any others?
Be Socially
Responsible
Value for
Money
Increase
Profitability
Do Aims and Objectives Change?
YES!
Over time due to internal and external pressures… more
about this later.
Communication of Aims?
BRIEF Task:
How do businesses communicate their aims?… discuss
with a partner and write down as many reasons as you
can in 2 minutes.
Communication of Aims?
Suggested Answers:
 Business Plans
 Company Handbook
 Company Website
 Company Letterheads/Brochures
 Annual Report
 Adverts (newspapers, TV etc)
and in its
Mission
Statement…
Mission Statement
 A mission statement is a statement that defines the purpose of a company –
what it stands for i.e. what broad products or services it intends to offer
customers.
 The mission statement also gives readers a window on the raison d’être (the
main purpose) of the company.
 An effective mission statement should be concise enough for you to
describe your company’s purpose and ideals in less than 30 seconds.
 Where would I see a Mission Statement?
Mission Statements typically appear in business plans or alternatively will appear in
the ‘Corporate Relations’ or ‘About us’ sections of websites.
Mission Statement Guidelines
 A mission statement should say who your company is, what you
do, what you stand for and why you do it.
 The best mission statements tend to be 3-4 sentences long.
 Avoid saying how great you are, what great quality and what
great service you provide.
 Make sure you actually believe in your mission statement, if you
don’t, it’s a lie, and your customers will soon realise it.
Aims/Objectives Task
 Find out more about mission statements by carrying out
the ‘Mission Statement’ task on the server.
 Using the template provided research the aims/mission
statements of organisations in the private, public and third
sector eg Coca-Cola, the BBC, and Haddington Camera Club
 Homework: write a mission statement for your business
(remember your business idea before Christmas)
Solutions to Extension Task
 Coca-Cola
Our mission is:
 To refresh the world - in mind, body and spirit
 To inspire moments of optimism - through our brands and actions
 To create value and make a difference everywhere we engage
 BBC
To enrich people's lives with programmes and services that inform, educate and
entertain.
 Haddington Camera Club
aims to provide a friendly and supportive forum for everybody interested in
photography, whether they are beginners, experienced photographers, or
somewhere in between.Club
Sources of Finance
 What sources of finance are available to businesses?
 What advantages and disadvantages does each have?
Short-Term Finance
 Bank Overdraft
 Taking out more money from a bank account than is deposited in it
 Trade Credit
 Paying for goods from a supplier at a later date (eg 30 days)
 Factoring
 Selling invoices to another company to collect the money
 Grant
 One-off payment often from government or the Prince's Trust – does not
need to be repaid.
 Retained Profits
 Profits kept back from previous years
Medium-Term Finance
 Bank Loan
 Money lent for a specific time period – paid back with interest
 Leasing
 Renting – often vehicles or equipment
 Hire Purchase
 The purchase price is paid in instalments
Long-Term Finance
 Owner’s Savings
 “the owner’s savings”
 Share Issue
 A part-ownership in a Ltd or plc (a share)
 Mortgage
 Loan secured on property
 Debentures
 Source of finance used by plcs
 Venture Capital
 Think Dragon’s Den – often used for risky ventures
Haddington Conservation Area
Regeneration
 HCARS is a grant programme supported by East Lothian Council and
Historic Scotland that makes available funds for regenerating and
improving Haddington Town Centre through repairing and
enhancing the historic fabric. The Haddington CARS is an action
point in East Lothian Council’s Haddington Town Centre Strategy
2009-2014.
 The grant is available for good quality, long lasting repair and
enhancement work on projects that are located within the CARS
Area.
 The scheme funds enhancements and repairs to shop fronts
(repainting, signage), small repairs to buildings (sash and case
window refurbishment, gutters and downpipes) as well as
comprehensive tenement repairs (masonry repairs, roofing etc.).
Choosing a Method of Finance
 If you are asked in a question to give sources of
finance for a specific type of business make sure that
your answers are relevant
 eg if asked for a source of finance for a sole trader to
expand, debentures would be inappropriate to include
in your answer.
Finance Task No. 1
 Let’s find out about the advantages and
disadvantages of each source of finance.
 You will be provided with an envelope containing a
number of cards. Match each source of finance with its
advantage and disadvantage.
Finance Task No. 2
 In groups of 3…
 Using the completed answer sheet (from Task 1)
prepare 3 A4 sheets illustrating the advantages and
disadvantages of short, medium and long-term sources
of finance.
Finance Task No. 3
 Real life?
 Using the template provided carry out some research
into the difference sources of finance available today.
Re-cap…
There are 3 Sectors of Economy that exist, they are
called…
 Private
 Public
 Third (Voluntary)
We have looked at one type of Business in the Private
Sector already, it is called…
 Sole Trader
Types of Business Organisation
(PRIVATE SECTOR)
We are now going to look at other organisations that
exist in the :PRIVATE SECTOR
 Partnerships
 Private Limited Companies (Ltd)
 Franchises (small)
Partnerships
 A partnership owned, controlled and financed by
2 – 20 people (partners).
 Partnerships are usually found in professional
practices, for example:
 Doctors
 Lawyers
 Vets
Partnership
In pairs write down as many advantages and
disadvantages of being a partnership that you can think of
– 2 minutes
 Advantages
 Can raise more capital
(from partners)
 Risks and responsibilities
are shared
 Can keep activities
private
 Disadvantages
 Unlimited liability
 Formal paperwork
required
 Disagreements amongst
partners
Liability
Unlimited Liability
Limited Liability
 The owner(s) must pay off all
debts of the business. This may
result in them losing personal
possessions.
 The owner(s) are only liable for
the debts of the company up
to what they have invested.
They can only lose their
investment.
 Sole Trader
 Partnership
 Ltd
 PLC
Private Limited Companies
(Ltd)
 A Private Limited Company is owned by shareholders,
controlled by a board of directors and financed through
selling shares.
 Shares are bought and sold privately, they cannot be sold
on the stock market.
 Examples of Private Limited Companies are:
 Eddie Stobart Ltd
 Phones 4U Ltd
 Walkers Snack Foods Ltd
Private Limited Companies
In pairs write down as many advantages and
disadvantages of being a Ltd that you can think of – 2
minutes
 Advantages
 Raise more capital
through selling shares
 Shareholders have limited
liability
 Likely to employ
specialists
 Bigger firm?
 Disadvantages
 Accounts are not kept
private
 More complex and
expensive to set up
 Have to share profits –
DIVIDENDS
 Shares can’t be sold on the
Stock Market
Franchise (small)
 This is where a new business trades on an already established
successful businesses name.
 The new business pays for permission to use the existing
name.
 The business is owned and financed by the franchisee. It is
controlled by both the franchisee and franchisor.
 Examples of small franchises are:
 Baguette Express
 Video – Festival Franchise
Franchise (small)
In pairs write down as many advantages and
disadvantages of being a franchise that you can think of –
2 minutes
 Advantages
 Already established
recognisable name
 Guaranteed customers
 Cost less to set up
 Given help setting up
 Less chance of failure
 Disadvantages
 Have to give a % of profit
to the franchisor
 Has to be run according
to the rules set out by the
franchisor
 Hard to introduce own
ideas and methods
Private Sector – Summary!
 The private sector consists of different types of
businesses owned by private individuals:
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Sole Trader
Partnership
Private Limited Company (LTD)
Public Limited Company (PLC)
Franchise
PUBLIC SECTOR
 The public sector is owned by the taxpayer (the state), it is
financed through collection of taxes, and it is controlled by
the government.
 Examples of Public Sector organisations are:
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NHS
Schools
Police
Local Councils
BBC
Public Sector
 Watch the clip on how the public sector is financed
and answer the following questions?
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Name 4 types of tax the government collects?
Name 4 services the government spends its money on?
How much does the government collect a year?
How much does the government spend a year?
What does the government have to do with the
spending gap?
Public Sector Aims
 The public sector has very different aims compared to
the private sector, it does not aim to make a profit.
 It aims to:
 Provide a quality service to everyone within a certain
area.
 Make good use of the taxpayers money, by providing
relevant services.
 Stay within a budget.
Task
 You have been given the job of BBC One Programme Coordinator, and must decide on one days programming.
 You have been given a list of programmes to choose from
to fill the day between 0900hrs and 0000hrs.
 You must:
 Choose a wide variety of programmes to meet the needs of
all viewers
 Ensure that you stay within your budget of £100,000
THIRD SECTOR (Voluntary)
 The third sector looks to benefit communities and help people less
fortunate. Organisations in this sector are owned and controlled by
private individuals.
 They are financed through selling goods, providing services and
collecting donations.
 Three types of Third Sector organisations are:
 Charities (Oxfam)
 Non-Profit Making Organisations (Sports Clubs)
 Social Enterprises (The Big Issue) *see later*
Third Sector Aims
 Third Sector organisations aim to:
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Provide support for worthy causes (British Cross)
Raise awareness of an issue (WWF)
Provide the best service and facilities (Sports Clubs)
Re-invest profits to further a cause (Eden Project)
Social Enterprise
 A social enterprise is a business that trades for a social and/or
environmental purpose.
 It will bring in most or all of its income through selling goods or
services.
 It will have clear rules about what it does with its profits,
reinvesting these to further the ‘social mission’
 Examples of Social Enterprises are:
 The Big Issue
 The Eden Project
 Jamie Oliver’s ‘Fifteen’
Social Enterprise
In pairs write down as many advantages and
disadvantages of being a social enterprise that you can
think of – 2 minutes
 Advantages
 Use local skills and life
experience
 Improve on a ‘social
mission’
 Target specific sectors of
the community
 Disadvantages
 Need specific skills,
knowledge and expertise
 Must meet their social
aims
Investigation
 Choosing one of the Third Sector
organisations prepare a brief report
to be fed back to the class that
includes:
 The organisations mission
statement. (5mins)
 How do they achieve their goals
(5mins)
 Facts and figures about the
organisation. (5mins)
 10 mins to collate information
 Feedback to class