Understanding business

• Why businesses exist


  • To provide a good or service to customers
  • Make a profit
  • Fulfil customer's needs and wants
  • Fill a gap in the market
• Factors to consider when choosing a business location

  • Close to raw materials to reduce transport cost and carbon footprint
  • Close to customers for easy access
  • Close to parking for convenience
  • Not a lot of competition nearby
  • Close to labour market to attract staff
• Factors of production


  • Land (natural resources)
  • Labour (workforce)
  • Capital (buildings, machinery, equipment, finance)
  • Enterprise (business idea)
• Entrepreneur


  A person who is willing to take the risk to see whether or not their idea will work
• Skills entrepreneurs should have

  • Good communication skills
  • Good leadership skills
• Qualities entrepreneurs should have

  • Hard working
  • Able to rise to the challenge
  • Able to not give up easily
  • Able to find solutions to overcome problems
• Prototype


  A first model of the product produced for testing and may be further developed
• Durable good


  Can be used more than once, e.g. a car
• Non-durable good


  Can only be used once and doesn't last a long time, e.g. food, paper
• Provision of service


  Business organisations, especially in the public sector, may have the provision of a service as their main objective
• Goods


  Tangible, products that we can see, touch and pick up
• Products


  The goods produced by a business. They are tangible products
• Services


  Not physical objects that can be touched. Provided for us by people who are trained to carry out these tasks
• Consumption of services


  The purchasing of goods and services
• Sectors of industry


  • Primary (extraction of raw materials)
  • Secondary (manufacturing)
  • Tertiary (providing services)
• Sectors of the economy

  • Private (owned by private individuals, aim to make profit)
  • Public (owned by government, aim to provide public services)
  • Third (non-profit, aim to benefit specific groups)
• Objectives of private sector

  • Increased profits
  • Satisfy shareholders
  • Be socially responsible
  • Provide a good service
  • Have a good image
• Objectives of public sector

  • Use tax payers money efficiently
  • Meet government targets
  • Be socially responsible
  • Have good image
  • Provide a good service
• Objectives of third sector

  • Increase donations
  • Attract more volunteers
  • Have a good image
  • Be socially responsible
  • Raise awareness of issues
• Customer service


  The service customers receive before, during and after purchasing a product
• How to provide good customer service and increase customer satisfaction


  • Offer quality products at reasonable prices
  • Get customer feedback
  • Have a customer care strategy
  • Use good quality raw materials and equipment
  • Hire and train quality staff
  • Provide good after sales service
  • Give customers value for money
  • Have a return policy
  • Provide quick response to complaints
• Why customer satisfaction/good customer service is crucial

  • Improves reputation
  • Reduces customer complaints
  • Can help become market leader or increase market share
  • Improves customer loyalty
  • Increases sales and profits
  • Can create a Unique Selling Point
• Methods of maximising customer satisfaction

  • Market research
  • Providing quality staff training
  • Customer care strategy
  • After sales service
  • Quality products
  • Customer complaints procedure
• Sole trader


  A business owned and managed by one person, with the owner's own money as the main source of finance. Has unlimited liability.
• Advantages of sole trader

  • Relatively easy and cheap to set up
  • The owner makes all the decisions
  • The owner keeps all the profits
  • Decisions are made quickly
  • No special paperwork is needed
• Disadvantages of sole trader

  • Harder to get loans from banks
  • Unlimited liability for debts
  • Long working hours with few holidays
  • Owner has no-one to share work and responsibility
  • Difficult to provide cover for holidays and illness
• Partnership


  A business that has between 2 and 20 owners, managed on a day-to-day basis by the partners, with partners' own savings as the main source of finance. Owners have unlimited liability.
• Advantages of partnership


  • Partners can bring in different ideas/expertise
  • Can raise more capital
  • Workload can be shared
  • Stronger position to gain outside finance
• Disadvantages of partnership


  • Partners have unlimited liability for debts
  • Profits have to be shared between partners
  • Disagreements among partners on how to run business
  • Partnership Agreement has to be drawn up
• Private limited company


  Owned by shareholders, not allowed to offer shares to the public, with limited liability and selling shares as the main source of finance.
• Advantages of private limited company

  • Shares can be sold in exchange for money
  • Shareholders have limited liability
  • Profits only shared between shareholders
  • Can choose who invests
• Disadvantages of private limited company

  • Financial information available to public
  • Shares cannot be sold to general public
  • Annual reports must be produced
  • Legal procedure takes longer and is more expensive
• Influence of stakeholders on a private limited company

  • Managers through decisions and motivating staff
  • Employees through work standard and industrial action
  • Shareholders through voting rights and investment
  • Bank through loan approval and interest rates
• Local government organisation


  Set up by central government and run by locally elected councillors, required to provide good service within budget, managed by a Board of Directors appointed by government
• Non-profit-making organisation


  Charities set up to raise money for good causes, owned and controlled by a Board of Trustees, with any proceeds given to their cause, funded through donations
• To be recognised officially as a charity, the organisation must have one or more of four main purposes
• aff-


  increases productivity
• Stakeholders who can affect productivity

  • Employees
  • Shareholders
  • Bank
• Employees


  • Through their standard of work
  • Through different forms of industrial action such as strike
• Shareholders


  • Through their voting rights at the AGM
  • Through the level of investment made