BUSINESS IN THE REAL WORLD

• Purpose of business


  Producing goods, supplying services, distributing products, fulfilling a business opportunity, providing a good or service to benefit others
• Reasons for starting a business

  • Producing goods
  • Supplying services
  • Distributing products
  • Fulfilling a business opportunity
  • Providing a good or service to benefit others
• Basic functions and types of business

  • Goods
  • Services
• Business enterprise and entrepreneurship

  Enterprise - the willingness to take risks and start a new business

  Entrepreneur - someone who starts and runs a business, often taking on financial risks in the hope of profit
• Characteristics of an entrepreneur


  • Hard working
  • Innovative
  • Organised
  • Willingness to take a risk
• Objectives of an entrepreneur

  • To be their own boss
  • Flexible working hours
  • To pursue an interest
  • Earn more money
  • Identify a gap in the market
  • Dissatisfaction with current job
• Businesses face a constantly changing business environment due to changes in technology, economic situation, legislation and environmental expectations
• Legal structures that businesses adopt

  • Sole traders
  • Partnerships
  • Private limited companies (ltd)
  • Public limited companies (plc)
  • Not-for-profit organisations
• Limited liability


  A legal structure that protects the owners from being personally liable for the business's debts
• Main aims and objectives for businesses

  • Survival
  • Profit maximisation
  • Growth (domestic and international)
  • Market share
  • Customer satisfaction
  • Social and ethical objectives
  • Shareholder value
• Role of objectives in running a business

  They provide direction and a framework for decision making
• The objectives set will differ between businesses due to factors such as the size of the business, level of competition faced and type of business (not-for-profit organisations)
• The objectives set may change as businesses evolve, for example larger more established businesses may focus on becoming the dominant business in the market, international expansion, increasing shareholder value and ethical and environmental considerations
• The success of a business can be measured in other ways than profit
• Main stakeholders of businesses

  • Owners
  • Employees
  • Customers
  • Local community
  • Suppliers
• Stakeholders' main objectives


  • Maximising pay for workers
  • Minimising environmental impact on local community
  • High dividend payments for owners
• Businesses may face conflict between stakeholders due to their differing objectives
• Factors influencing the location decision of a business

  • Proximity to the market
  • Availability of raw materials
  • Labour
  • Competition
  • Costs
• Purpose of business planning

  Important in setting up a new business, raising finance, setting objectives and detailing how functions of a business will be organised
• Main sections of a business plan

  • Executive summary
  • Business description
  • Market analysis
  • Operations plan
  • Management team
  • Financial plan
• Variable costs


  Costs that change in proportion to the output or sales volume
• Fixed costs


  Costs that do not change with the level of output or sales
• Total costs


  The sum of fixed and variable costs
• Revenue


  The total amount of money received by a business from sales
• Profit


  The difference between a business's total revenue and its total costs
• Methods of expansion


  • Organic growth through franchising, opening new stores and expanding through e-commerce
  • External growth through mergers and takeovers
  • Outsourcing
• Economies of scale


  • Unit cost advantages gained by businesses when they increase in size or output
• Diseconomies of scale


  • Disadvantages that businesses may experience as they get larger, such as poor communication, coordination issues and reduced staff motivation
• Businesses increase the risk of diseconomies of scale occurring due to poor communication, coordination issues and reduced staff motivation as they grow
• Purchasing economies of scale


  Cost savings from bulk buying
• Technical economies of scale

  Cost savings from using more efficient production methods