3.1 What is business

• Mission statement

  A written declaration of the business direction and aims
• SMART (objectives should be…)

  Specific, measurable, achievable, realistic, time-based
• Why businesses set objectives

  Measures performance, motivational for employees, ensures focus on company aims
• Profit

  Revenue - total costs
• Total costs

  Variable costs (e.g fuel) + fixed costs (e.g rent)
• Private sector


  Sole traders, PLCs, Ltds, Partnerships
• Sole traders


  One person running the business, effective and quick decision making, disadvantage of unlimited liability, harder to raise finance, lack of economies of scale
• Unlimited liability

  When owners are liable for business debts with their personal assets, may have to sell their car, re-mortgage their house
• Limited liability


  When owners are not personally responsible for business debts, this is ideal
• Private limited company (Ltd)

  Can keep financial information private, sells shares but not to the public on the stock exchange limiting possible capital. Shareholders have limited liability, companies have a seperate legal identit.
• Partnerships

  Can raise greater amounts of finance than a sole trader, support with making decisions but can disagree, unlimited liability
• Public limited company (PLC)


  Large companies which sell shares on the stock exchange, economies of scale and buying in bulk with a discount, banks more likely to loan, no privacy of information, expensive administrative costs
• Not-for-profit organisations

  Charities of mutuals, business aims to help the public
• Charities

  Raise money to help the community e.g Cancer research
• Mutuals

  A pair of organisations raising money for a specific group of people
• Public sector

  Ran by the government, occupations such as the police, army, teachers and NHS workers.
• Why choose and change business forms?

  Formalities and expenses

  Size and risk

  Objectives (e.g growth)

  Circumstances

  Takeovers
• Role of shareholders

  Have a role in decision making, they receive dividends (rewards for investing) which fluctuate according to the performance of the company. Shareholders hope that their shares increase in value over time, this is called capital growth.
• External environment PESTLE

  Competition, market conditions, economic factors, demographic factors, environmental issues and fair trade.
• Turnover 


  Total costs + profits