Business in the real world

• Goods:

  • Physical (tangible) products such as burgers, cars, laptops
• Services:

  • Non-physical items such as hairdressing, NHS, banks, insurance
• Needs:

  • Essential for us to live
• Wants:

  • Things which we desire
• Four Factors Of Production:

  • Land: A business needs land or a building
  • Labour: A business needs workers
  • Capital: A business needs money to start and run
  • Enterprise: An entrepreneur is needed to bring it all together and run the business
• Three Business Sectors:

  • Primary: Extraction of raw materials e.g farmer, coal mining
  • Secondary: Turning the raw materials extracted at the primary stage into finished goods
  • Tertiary: Provide a service and sell the goods and services e.g. NHS, shops
• Characteristics of an entrepreneur:

  • Determination, passion, creative, motivated, takes risk, organised, persistent
• Objectives of an entrepreneur (reasons for starting a business):

  • Be their own boss
  • Flexible working hours
  • Pursue hobby/interest
  • Earn more money
  • Identified a gap in the market
  • Dissatisfied with current job
• External Influences on a Business:

  • Political
  • Environmental
  • Social (trends changing)
  • Technology
  • Legislation (laws)
  • Economy (unemployment, interest rates)
  • Competitors
• Stakeholders:

  • Owners, employees, customers, local community, suppliers, government etc.
  • Stakeholders sometimes have conflicting views and can influence the decisions a business makes
• Business Ownership Structures:

  • Sole Trader
  • Partnership
  • Private Limited Company (LTD)
  • Public Limited Company
• Unit 1 Formulas:

  • Sales Revenue = selling price per item x number sold
  • Total variable costs = variable cost per item x number sold
  • Total costs = fixed costs + total variable costs
  • Profit = sales revenue - total costs
  • Cost per unit = total costs ÷ number sold
  • Percentage change = change (difference) ÷ original amount *100
• Aims and Objectives:

  • Aim: General and what a business hopes to achieve as a result of its work
  • Objectives: State in more detail how an aim will be achieved. Objectives should be SMART (Specific, Measurable, Achievable, Realistic, Time-based)
• Factors influencing business location:

  • Proximity to target market
  • Cost
  • Availability of raw materials
  • Availability of labour
  • Infrastructure in area
  • Competition
• Business Plans:

  • Main sections: personal details, mission statement, aims and objectives, details of product/service, market research, production details, expected costs and profit, financial documents (break even, cash flow forecast, balance sheet, income statement)
• Expanding a business:

  • Organic (internal) growth: franchising, open new stores, embrace e-commerce, outsource, develop new products
  • External (inorganic) growth: merger & takeovers
• Advantages of Sole Trader:

  • You make all the decisions
  • You have total control
  • You keep all the profits
  • Can offer flexibility
  • You can keep your business affairs private
  • Easy to set up
• Disadvantages of Sole Trader:

  • Unlimited liability
  • Access to capital (money) can be harder
  • May not have skills in every area to run business as well as it could
  • If you don't work, you don't earn
• Advantages of Partnership:

  • Extra capital
  • Different partners can bring different skills
  • You can keep your business affairs private
• Disadvantages of Partnership:

  • Unlimited liability
  • Disagreements
  • Profit needs to be shared
• Advantages of Private Limited Company (LTD):

  • Limited liability
  • Can be easier to raise capital
  • Can't be taken over
  • Different shareholders could bring knowledge
• Disadvantages of Private Limited Company (LTD):

  • More legal formalities than sole trader and partnership
• Advantages of Public Limited Company:

  • Limited liability
  • Can be easier to raise capital
  • Usually well-known organizations with a good reputation
• Disadvantages of Public Limited Company:

  • Expensive to set up
  • Company has to publish its accounts every year
  • Unwanted takeovers are possible