Business-UNDERSTANDING BUSINESS

• Factors of production


  • Land
  • Labour
  • Capital
  • Enterprise
• Land


  The natural resources a business uses such as water, forests and the land itself. The reward for land is rent.
• Labour


  The employees of the business. The reward for labour is wages.
• Capital


  The resources a business owns such as machines, tools and factories. It is also the money invested in the business. The reward for capital is interest.
• Enterprise


  The idea for the business. The person who brings together the other 3 factors of production. The reward for enterprise is profit.
• The outputs of business activity are the goods and services, which we want
• Goods


  Tangible items we can see and touch such as clothes, food and a laptop
• Services


  Intangible things that are done for you such as hairdressing, banking and education
• Types of goods


  • Durable - Items which we use again and last for a long time e.g. mobile phones, laptops and trainers
  • Non-durable - Items we normally use once or are used quickly e.g. food, drink and newspapers
• Businesses aim to provide goods and services to satisfy their needs and wants
• Needs


  Items required for survival including food, clothing and shelter
• Wants


  Items that are not essential, for example entertainment, holidays, mobile phones etc.
• Wealth is created by a business by adding value to a product as it goes through the production process
• Cycle of business


  1. Producing goods

  2. Satisfying consumer wants
• Sectors of industry


  • Primary - Businesses that grow products or extract resources from the ground
  • Secondary - Businesses involved in manufacturing and construction
  • Tertiary - Businesses that provide services
• Sectors of the economy

  • Private - Owned by individuals and aim to make a profit
  • Public - Owned by Government and aim to provide a service
  • Third - Non-profit making organisations that aim to help people in need
• Customer satisfaction


  • Providing the highest quality product/service
  • Ensure employees are trained and knowledgeable
  • Recruit suitable, helpful and friendly staff
  • Have a customer care strategy
  • Have a complaints procedure
  • Have after sales service
• How to maximise customer service

  Effective customer service is about both gaining and retaining customers. Good customer services should lead to satisfied customers.
• How to measure customer service

  • Sales/profit levels
  • Customer feedback
  • Employee motivation levels
  • Level of staff turnover
• Importance of customer service

  Increase customer loyalty, give the business a good reputation, help maximise sales and profits, and increase market share
• If a business does not provide good service staff are more likely to leave, increased number of complaints and a decrease in sales and profits
• Sole trader


  • Owned and controlled by one person, easy and cheap to set up, owner makes all decisions and keeps all profits, but has unlimited liability and difficulty raising finance and taking time off
• Partnership


  • Owned and controlled by 2 or more people, workload and decision making is shared, partners can specialise, easier to take time off, but partners have unlimited liability and there may be disagreements
• Private limited company


  • Owned by shareholders, shareholders have limited liability, profits are shared, control is not lost to outsiders, but more complicated to set up and more difficult to raise finance than a public limited company
• Public sector organisations


  Owned and controlled by the government, aim to provide services to the public and operate within a budget, financed by tax
• Types of public sector organisations

  • Public corporations - Owned and run by the government
  • Central government - Provide national services like the NHS and defence
  • Local government - Provide local services like education and housing
• Third sector organisations


  • Aim is not to make profit but to raise money for good causes or provide facilities for members, most are charities
• Social enterprises


  Focus on improving quality of life and helping social/environmental problems, funded by banks, donations and grants, any profits are put towards social/environmental aims
• Entrepreneur skills and qualities

  • Communication
  • Leadership
  • Decision making
  • Determination
  • Creativity
• Local councils


  Set up by Central government and run by locally elected councillors. The day to day running of services is organised by managers and employees and local councils aim to meet the needs of local people and businesses.
• Services provided by local councils

  • Education
  • Housing
  • Leisure and recreation
  • Street lighting
• Funding for local councils

  • Council taxes
  • Government grants
  • Fees for facilities such as sports centres
• Entrepreneur skills and qualities

  • Communication
  • Leadership
  • Decision Making
  • Determination
  • Creativity
• Communication


  Effective communication with customers, suppliers and employees is essential
• Leadership


  Being able to lead and motivate workers
• Decision Making


  Deciding which products or services to supply, how to raise finance, what price to charge etc
• Determination


  Successful entrepreneurs do not give up easily. They are determined to succeed and keep trying no matter what happens
• Creativity


  Being innovative and coming up with new ideas
• An entrepreneur is someone who has an idea for a business and turns it into a reality
• Examples of successful entrepreneurs

  • Steve Jobs
  • Walt Disney
  • Sir Tom Hunter