TOPIC 1 - introduction to business management

• Business


  Decision-making organization established to produce goods and/or provide services
• Goods


  • Physical products: e.g. food, clothes, furniture, cars and smartphones
• Services


  • Intangible (can't touch) products: e.g, haircuts, tourism, public transport, banking, insurance education, and healthcare
• Intangible


  Unlike goods, services are not physical in their nature
• Inseparable


  The service received is attached to the people who deliver the service and the processes used to deliver the service
• Perishable


  Services do not last but are usually consumed at the time of purchase
• Variable


  Services are heterogeneous, i.e, each customer experience is unique
• Land


  Natural resources needed to produce goods and services. Examples include water, timber, sand, minerals, metal ores, plants and animals
• Labour


  Human effort used to produce goods and services. Often referred to as human resources
• Capital


  Non-natural (or man-made) resources used in the production process. Examples include tools, machinery, motor vehicles, physical premises, and infrastructure. As these are all funded by money, capital resources are sometimes referred to as financial resources
• Entrepreneurship


  Knowledge, skills and experiences of individuals who have the capability to manage the overall production process. Entrepreneurs have the ability and willingness to take risks in order to produce goods and provide services to customers, profitably
• Main functions of a business

  • Human resources
  • Marketing
  • Finance and accounts
  • Operations
• Primary sector


  Business activity involved with the extraction of natural resources
• Primary sector activities


  • Metal ores and coal mining
  • Oil and natural gas drilling
  • Rubber extraction
  • Farming
  • Livestock management
  • Fishing
• Secondary sector


  Business activity involved with the manufacturing or construction of finished products
• Secondary sector activities


  • Transforming primary sector output into finished goods
  • Assembling component parts of motor vehicles, laptops, or smartphones
• Goods


  Tangible product which means you are able to touch and hold the physical product
• Services


  Intangible product which means you can't touch the product
• Tertiary sector


  Business activities that involves providing services to customers, this includes consumers and business clients
• Quaternary sector


  Business activity involving the creation or sharing of knowledge and information using computer and digital information technologies
• Entrepreneurs


  • Risk takers, create ideas, innovative and establish new inventions, learn from your mistakes, leadership (e.g Elon Musk, CEOs, Laurna Jane etc)
• Opportunity cost


  What you have given up, forgone (giving up), - the cost of the alternative - the cost of the option foregone - limited with resources - business need to make a choice because of limited resources, can't have everything they want
• Market force


  Decide a price of a product
• Demand


  Referring to a consumer's desire to purchase goods and services and willingness to pay for the good or services
• Supply


  The quantity of items a supplier makes available to customers. Prices and the consumption of goods and services are largely influenced by supply and demand. According to the law of supply, rising demand encourages suppliers to expand their product
• Sole Trader


  An individual who runs and owns a personal business. E.g include self-employed, decorators, plumbers, mechanics, restauranteurs. An important legal point about sole trader is that the business is unincorporated which means that the owner is the same legal entity as the business. Sole trader has full responsibility for all losses/ liabilities if the business fails
• Advantages of a Sole Trader


  • Easy to set up - no legal formalities
  • Owner has complete control
  • Owner keeps all profits
  • Able to choose times and patterns of working
  • The business can be based on the interest or skills of the owner - rather than working as an employee for a larger firm
• Disadvantages of a Sole Trader

  • Unlimited liability - all of owners assets are potentially at risk
  • Owner is responsible for all aspects of management
  • Difficult to rise additional capital
  • Long hours often necessary to make business pay
  • Lack of continuity - as the business does not have separate legal status, when the owner dies the business ends too
• Partnership


  A profit-seeking business owned by two or more people. Like Sole Traders partnerships are financed mainly from personal funds of each owner. Partnership are popular with professions such as law, medicine, and accountancy. The success - and errors of any one partner are considered to be the responsibility of them all including debts
• Advantages of a Partnership

  • Partners may specialise in different areas of business management
  • Shared decision making
  • Business losses shared between partners
  • Greater privacy and fewer legal formalities than corporate organisations (companies)
  • Profits are shared
• Disadvantages of a Partnership

  • Unlimited liability for all partners (with some exceptions)
  • As with sole traders, no continuity and the partnership will have to be reformed in the event of death of one of the partners
• Company


  Incorporated (has its own legal entity). Companies can have multiple owners, each owning a fraction or small units of the company known as shares. Companies differ from sole traders & partnerships on the areas of liability, legal personality and continuity. Shareholders/owners of companies possess limited liability, that is, no claims against shareholders' personal assets can be made should the company fail
• Advantages of a Private Company

  • Shareholders have limited liability
  • Separate legal personality
  • Greater status than an unincorporated business
• Disadvantages of a Private Company

  • Legal formalities involved in establishing the business
  • Capital cannot be raised by sale of shares to the general public
  • Difficult for shareholders to sell shares
• Advantages of a Public Company

  • Limited liability
  • Separate legal identity
  • Continuity
  • Ease of buying and selling of shares for shareholders - this encourages investment in plcs
  • Access to substantial capital sources due to the ability to issue prospectus to the public and to offer shares for sale
• Disadvantages of a Public Company

  • Directors influenced by short-term objectives of major investors
  • Legal formalities in formation
• Private Company


  Can sell shares only to family or friends (invited)
• Public Company


  Shares are listed on the Stock exchange, which means that everyone can buy shares
• Shareholders


  Have invested money into a company and they are incorporated
• Shares


  Represent ownership of a company. When an individual buys shares in your company, they become one of its owners. Shareholders choose who runs a company and are involved in making key decisions, such as whether a business should be sold