Topic 1

• Define business

  businesses combine factors of production to produce goods and services to satisfy customer wants and needs
• Identify the four factors of production

  Land: location

  Labour: workers involved

  Capital: machinery

  Enterprise: risk of starting a business
• Difference between goods and services

  Goods: tangible items that have a physical existence

  Services: intangible that is provided by other people
• Purpose of business activity

  identify needs and wants of people and other businesses

  They purchase factors of production, produce the goods in order to satisfy the needs of customers and make a profit
• consumer goods

  good that can be directly consumed for satisfying human wants and needs
• capital goods

  goods used to produce other goods
• economic problem

  when there are unlimited wants in the world but limited resources to produce those products to satisfy the wants
• opportunity cost

  the next best alternative given up by choosing an item
• added value

  the difference between the selling price of a product and the cost of bought-in materials
• adding value

  increasing the difference between the selling price and the cost of bought-in material
• Ways to increase added/adding value

  increase selling price - can deter consumers (good design, convenience and speed, packaging, quality, brand name, USP)

  Decrease cost of bought in materials
• dynamic business environment

  legal changes

  change in economy

  new competition

  technological changes
• Why some businesses fail

  • lack of knowledge
  • lack of cash
  • poor management skills
  • poor reocord keeping
• branding

  differentiating a product by developing a brand name, logo, trademark, etc for it
• local business: small businesses that are located in a specific area

  national business: businesses that have operations all across a country

  international business: businesses that have operations in more than one country

  multinational business: businesses that has its headquarters in one country but factories in other countries
• entrepreneur

  a person who operates, organizes and takes risks for a new business venture
• intrapreneur

  an employee that takes direct responsibility for turning a new idea into a profitable business venture
• qualities for successful entrepreneurs/intrapreneurs

  independent

  risk taker

  good communicator

  multi skilled

  leadership skills

  innovative

  hard worker
• Barriers to entrepreneurship

  •  Identifying successful business opportunities Sourcing capital Determining a location  Competition  Building a customer base
• business risk and uncertainty

  all business decisions involve risk, but uncertainty cannot be foreseen or predicted
• Role of business on economic development

  • increases competition
  • decreases unemployment
  • increases gdp
  • grows and survives business
  • technological change
  • exports
• Business plan

  a document containing the business objectives and important details regarding the finance, operations and owners of the new business
• Key elements of a business plan

  • executive summary
  • description of business opportunities
  • marketing and sales strategy
  • management and personnel
  • operations
  • financial forecast
• Purpose of business plan

  To help gain finance

  To reduce risk by planning carefully
• Benefits and limitations of business plan

  clear guidance

  helps in decision making

  helps in gaining finance

  
  

  causes false sense of reality, too much reliance overlooks that its just based on predictions

  must be detailed or can delay investor agreements

  can make business inflexible as they may reject opportunities just because it doesnt follow the plan
• primary sector

  extracts natural resources from the earth and converts them into raw materials to be used by other businesses
• secondary sector

  uses raw materials extracted by the primary sector to manufacture goods
• tertiary sector

  provides services to consumers and other business sectors
• quantenary sector

  the industry based on human knowledge which involves technology, information, financial planning, research, and development.
• .

  
• private sector

  business owned by an individual, not the government
• public sector

  businesses owned by the government, not individuals
• industrialisation

  the growing importance of secondary sector in developing countries
• Advantages of industrialization

  increase in GDP

  higher exports

  decrease in unemployment

  tax increase for firms
• Disadvantages of industrialisation:

  -increase in pollution

  -poor working conditions

  -increase is movement of people to towns causing house problems

  -import costs increase
• reasons for deindustrialisation

  • increase in tertiary sector spending
  • depletion in natural resources
• sole trader

  a business in which one person provides the permanent finance and in return, has full control of the business and is able to keep all of the profits.
• advantages:

  -easy to set up as no legal formalities

  -owner has complete control

  -owner keeps all the profits

  disadvantages:

  -unlimited liability

  -competition

  -lack of continuity

  -owners investements
• partnership

  a business is formed by two or more people with shared capital investment and responsibilities
• advantages:

  -shares decision making

  -shares capital

  -shares losses

  -fewer legal formalities

  disadvantages:

  -unlimited liability

  -profits are shared

  -no continiuty

  -loss of indepenance

  -cannot raise capital by selling shares