BUSINESS

• Why do people want to set up their own business?

  • Personal ambition/satisfaction
  • Interest
  • To keep a family business running
  • Reward for own efforts to make profits
  • Can exploit an opportunity/identify a gap in the market to increase wealth
  • Provide a service to local community
  • Use skills
  • Be own boss/to be in control
  • No work available
  • Use qualifications
  • Encouragement by external/government agencies to set up own business
  • To use redundancy pay to take advantage of the opportunity to set up a business
  • Easy to set up
• Business Enterprise


  The formation of a new business or development of a new good or service to be introduced to the market
• Entrepreneur


  • A person who sets up a business by taking on the financial risks in the hope of making a profit
  • They are responsible for bringing together the other factors of production, land, labour and capital, to create a business
• Functions of an Entrepreneur

  • They set up a business
  • They run (manage) the business - success depends on their efforts
  • They have the idea/show the initiative/innovation
  • They take the risks/face the uncertainties/suffer the consequences of failure
  • They invest/put money into the business
  • They earn the profits/earn an income to fund their lifestyle to further invest
• Motives of Entrepreneurs


  • Generate a profit
  • Provide employment for self
  • Financial security for self and family
• Non-financial Motives of Entrepreneurs


  • Self satisfaction/challenge
  • Be own boss
  • Fill a gap in the market
  • Create employment for others
• Social enterprises


  • Those whose prime objective is to do good in society rather than to make a profit
  • Surplus revenue is used to support a specific cause eg. a children's charity or community group
• Rewards of being an Entrepreneur

  • Be their own boss
  • Flexible working hours
  • Pursue an interest
  • Good customer feedback
  • Earn more money (profit)
  • Dissatisfaction with current job
  • Greater work life balance
  • Self-esteem from building something new
  • Self-satisfaction
  • Provide employment for self and others
• Risks of being an Entrepreneur

  • Financial loss of income and money invested
  • Low sales
  • Unexpected costs eg rise in rent
  • Unexpected events e.g. new competitor
  • Potentially long hours and stress
  • Loss of security
  • Pressure on friends and family
  • Damage to reputation if fail
  • May lose home
• Sectors of Industry


  • Primary: Where the raw materials are produced, eg farming, mining, forestry
  • Secondary: Where the raw materials are manufactured into goods, e.g. factory
  • Tertiary: Businesses in this sector provide a service, e.g. retailer, hotel, school
• Chain of Production


  This process links the primary, secondary and tertiary sectors together in the production process
• Factors of Production


  • Land: The natural resources that are needed to produce goods
  • Labour: Physical and mental element that is needed to produce goods and services
  • Capital: The money (working capital) and fixed capital that is needed to produce goods and services
  • Enterprise: These people have the ideas to start a business and organise the other 3 factors of production
• Consumers


  The final users of goods and services. They are at the end of the distribution channel
• Needs


  • Food
  • Water
  • Warmth
  • Clothing
  • Shelter
• Wants


  • TV
  • Mobile phone
  • Holidays
  • Cars
• Goods


  • Consumer Goods: Goods which are produced for the final consumer
  • Producer (Capital) Goods: Goods which are produced for other businesses to be able to produce other goods and services
• Durable Goods


  Consumer goods which are not used at once and do not have to be bought frequently because they last for a long time
• Non-Durable (Single Use) Goods


  Goods which are immediately consumed or which have a lifespan of less than three years
• Services


  Things you cannot touch they are non-physical intangible items
• Types of Services


  • Personal Services: Services provided for individuals
  • Commercial Services: Services that provide mainly to businesses
• Markets


  Where buyers and sellers meet in order to exchange goods and services, often for money
• Retailers


  Sells goods to consumers. Small retailers buy their stock from wholesalers but large-scale retailers buy directly from manufacturers
• Functions of a Retailer

  • Display goods
  • Promote goods
  • Sell to consumers/sell goods and services
  • Give customers advice/provide customer service
  • Deal with faulty goods/complaints
  • Distribute goods/deliver goods
  • Buy from wholesalers / manufacturers/suppliers
  • Break bulk/buy in large quantities and sell in small quantities
• Public Sector


  Organisations owned and controlled by the government
• Aims & Objectives of the Public Sector

  • Provide a service
  • Improve accessibility to others
  • Avoid wasteful duplication of resources
• Private Sector


  Businesses run by private individuals
• Unlimited Liability


  Means that the owners of a business are responsible for all of the debts of a business. Personal belongings may need to be given up to pay the debts of the business
• Sole Trader


  Businesses owned by one person who has unlimited ability. Other people can be employed but there is only one owner
• Advantages of a Sole Trader

  • Profit can keep all profit/ no need to share
  • Making decisions without consulting others/will be speedy
  • Own boss-free to choose / any example
  • Independence can work at own pace
  • Easy to set up few formalities therefore cheaper to set up
  • Have a job may not be able to find one elsewhere
• Disadvantages of a Sole Trader

  • Unlimited liability responsible for debts of the business
  • More responsibility relies heavily on their own ability to make decisions may work long hours and have limited holidays as there is no one to cover them
  • Limited sources of resources
• Partnerships


  • A business that is owned by between 2 and 20 people
  • A business that is owned/run by at least 2 people
  • An unincorporated business
  • A business with unlimited liability
• Advantages of a Partnership

  • Raise more capital than sole traders may not be able to raise sufficient capital alone
  • Extra skills/expertise in business
  • More people to make decisions may lead to success
  • Shared responsibility and more flexibility reduce pressure on individuals such as duties/working hours
  • Easy to set up may involve no legal requirements
• Disadvantages of a Partnership

  • Partners may disagree-time used up in discussion decisions take longer
  • Profits will be shared compared to a sole trade where the owner can keep all profits to themselves
  • Some partners may not work as hard as others may demoralise lead to arguments
  • The owners will still have unlimited liability-the partners will be held responsible for the debts of the business
• Deed of Partnership


  A legal document which is an agreement between partners that sets out the rules of the partnership, such as how profits will be divided and how the partnership will be valued if someone wants to leave
• Limited Liability


  When the owners of a business are not responsible for the debts of a business. Personal belongings will not need to be given up to pay the debts of the business. The owners however will lose the money they invested in the business if it fails
• Private Limited Companies (LTD)


  Businesses which are owned by shareholders who have limited liability. Their shares are not available to others except with the agreement of other shareholders
• Advantages of Private Limited Companies

  • Limited liability-liable only for money invested if business fails the owner will not lose personal possessions
  • Continuity-business will not end if one of the shareholders/owners leave
  • More capital by selling shares may be easier to get bank loans
  • Specialised management-shareholder/owners/managers can do the work they are skilled at
  • Divorce of ownership and control possible the owner may not spend all time managing
  • Invited shareholders + able to maintain control
• Disadvantages of Private Limited Companies

  • Legal procedure in setting up takes time and costs money
  • Having to disclose the accounts financial information filed with the Registrar can be looked at by the public/competitors
  • Profits have to be shared with the other shareholders
  • Slower decision-making especially if all shareholders have to be consulted
• Public Limited Companies (PLC)


  Businesses which are owned by shareholders who have limited liability. Their shares are available to others by selling to the general public often on the Stock Exchange
• Advantages of Public Limited Companies

  • Limited liability-liable only for money invested if business fails-the owner will not lose personal possessions
  • Continuity-business will not end if one of the shareholders/owners leave
  • More capital-by selling shares on the stock exchange may be easier to get bank loans
  • Specialised management-shareholders/owners/managers can do the work they are skilled at
  • Divorce of ownership and control possible the owner may not spend all time managing
  • Invited shareholders are to maintain control