understanding business

• Factors of production


  • Land
  • Labour
  • Capital
  • Enterprise
• Land

  Raw materials a business uses. E.g. coal
• Labour


  The workforce of the business. e.g. employees
• Capital


  The manmade resources. E.g. machinery
• Enterprise


  The idea behind the start of a business. The person who brings the other 3 factors of production together
• Sectors of industry


  • Primary
  • Secondary
  • Tertiary
• Primary sector


  Involved in extracting raw materials from earth. E.g. fishing
• Secondary sector


  Involved in manufacturing the product. Can use materials gained from the primary sector
• Tertiary sector


  Involved in offering services to the public. E.g. NHS
• Sectors of economy


  • Private
  • Public
  • Third
• Private sector


  Owned by private individuals. Funded by owners personal savings. Key aim - make a profit
• Public sector


  Owned by the government. Controlled by councillors. Key aim - use tax-payers money efficiently
• Third sector


  Owned by private individuals. Not-for-profit organisation. Key aim- benefit special groups that need help
• Good customer service

  • You gain a good reputation so new customers will want to shop with you. This increases market share.
  • You attract potential investors. This means you can expand your business.
  • You get loyal customers so repeat purchases are made. This increases your sales revenue
• Poor customer service


  • Bad reputation can put off new customers from shopping with you. Discourages potential investors.
  • More time spent dealing with complaints so productivity is lost.
  • Other businesses will not want to work with the business so it limits opportunities for growth.
  • Dissatisfied customers will not return to the business so a decrease in market share
• How to achieve good customer service

  1. Train staff so they are more knowledgeable to answer customer queries.

  2. Provide high quality products.

  3. Have a customer complaints procedure to handle complaints more efficiently.

  4. Offer a refund policy.

  5. Have an after sales service to help assist customers after their purchase
• Measures of customer service

  • Mystery shopper
  • Surveys
  • Suggestion boxes
• Sole trader


  Owned by 1 person, Controlled by owner, Funded by sole traders personal savings
• Advantages of sole trader

  • Easy to set up, Get to keep all profit to yourself, Make all decisions by yourself, Own boss
• Disadvantages of sole trader

  • If owner is absent due to health problems/ holidays, issues arise, Harder to raise finance alone, Unlimited liability. Owner is personally liable for all business debts
• Objectives of sole trader


  • Survive
  • Make a profit
  • Socially responsible
• Partnership


  Owned by 2 or more people, Controlled by partners, Funded by partners investments
• Advantages of partnership


  • Decisions are made together with partners. Reduces stress on owners, Workload is shared, Losses are shared
• Disadvantages of partnership

  • Unlimited liability - partners are personally liable for business debts, Decision-making may take longer as everyone has to agree. Business may find it difficult to respond quickly, Profits are shared between partners, timely/ costly to set up partnership agreements
• Objectives of partnership


  • Survive
  • Socially responsible
  • Make a profit
• Private company


  Owned by shareholders, Controlled by the board of directors, Funded through selling shares
• Advantages of private company

  • Benefits from limited liability. Reduces personal risk for shareholders, Can keep the ownership of the business close-knit as shareholders are invited in
• Disadvantages of private company

  • timely/ costly to set up documents required to be a limited company, Harder to raise capital as shares are sold privately, Profits are split between shareholders in the form of dividends
• Public company


  Owned by shareholders, Controlled by the board of directors, Funded through selling shares
• Advantages of public company

  • Benefits from limited liability. Reduces personal risk for shareholders, Likely to get approved for finance due to size/ reputation of the business, Easier to sell shares
• Disadvantages of public company


  • If business grows too big, may be difficult to manage, Legal procedures to set up plc can be costly, Have to publish annual reports every year
• A decrease in the income tax rate


  Customers have more disposable income. This means the business will have more sales
• An increase in the interest rates


  Businesses will borrow less and invest less
• A change in trends


  Businesses need to change their products to fit the current trend. This leads to wastage
• As new technology comes out


  The business will need to adapt to use it. This leads to higher staff training costs
• Bad weather


  Packages get lost on the way to customers. This can lead to unsatisfied customers requesting a refund
• Your competitors charging a low price


  You need to charge similarly or lower to them. This means you won't lose customers to them
• Influence of human resources


  • Monitor quality of staff output and give feedback on how to improve, Provide a programme of training so staff gain skills and can prepare for future promotion, Carry out regular staff appraisals to identify strengths and weaknesses, Provide financial rewards for staff that meet their targets, Involve staff in decision making to make them feel involved
• Advantages of good human resources

  • You get a good reputation for having high quality products made by competent staff, Increased productivity by motivated staff, Staff more likely to do overtime due to high morale, Low staff turnover due to happy employees
• Disadvantages of poor human resources

  • Poor quality products made by unmotivated staff, Develop a bad reputation for poor quality products. Puts off new customers, Staff take more time off due to low morale, costs increase for overtime wages covering their work, Unhappy staff resign and harder to recruit new staff