Business Management Nat 5

• Factors of production

  Land, Labour, Capital, Enterprise
• Land

  The natural resources of the world
• Labour

  The people employed by a business to make the product
• Capital

  The man-made resources that are needed to make a product
• Enterprise

  The person/people that combine all of the factors of production
• Sectors of Industry

  Primary, Secondary, Tertiary
• Primary sector

  Businesses that are involved in extracting or exploiting natural resources. e.g. Farming, Mining
• Secondary sector

  Businesses that are involved in manufacturing and construction - they take natural resources and turn them in to goods that can be sold later. e.g. car production, house building
• Tertiary sector

  Businesses that are involved in providing services rather that goods. e.g. shops, banks
• Private sector

  Sole Trader

  Partnership

  Private Limited company
• Sole Trader

  Owned by one person

  Controlled by one person (the sole trader) who makes all the decisions

  Financed by Bank Loans, Government grants
• Advantages of a Sole Trader

  They are easy to set up and do not need to complete lots of legal paperwork

  All profits are kept by the owner

  The owner can choose when to work and when to take holidays

  All decisions are made by the owner and can be made quickly without having to consult other people
• Disadvantages of a Sole Trader

  There is no one to share the workload and responsibility with

  Raising large amounts of startup capital can be difficult as the business might be seen as more of a risk compared to a larger, more established business

  The sole trader has unlimited liability which means if the business fails, the sole trader is personally responsible for any debts

  Work may stop if the owner is on holiday
• Partnerships

  Owned by 2-20 partners

  Controlled by partners who make agreed decisions

  Financed by Bank loans, Government grants
• Advantages of Partnerships

  Workload, responsibility and decision making can be shared amongst the partners

  Different partners bring different experiences and skills

  Finance can be raised more easily as each partner brings capital into the business

  Customers and suppliers might see a partnership as being less of a risk to deal with compared to a sole trader
• Disadvantages of Partnerships

  Any profit that the business makes has to be split between the partners

  Arguments may occur between partners which could slow down decision making

  The partners have unlimited liability which means if the business fails, the partners are personally responsible for any debts

  A legal document known as a partnership agreement needs to be created which is time consuming to draw up
• Private Limited Company

  Owned by shareholders

  Controlled by a board of directors

  Financed by Government grants, Issuing shares
• Advantages of a Private Limited Company

  Shareholders have limited liability which means they will lose money invested in the business but not their personal assets if the business fails

  Control of the company is not lost to outsiders

  Expertise is brought to the company by shareholders and directors

  Easy to raise additional capital by selling shares in the business
• Disadvantages of a Private Limited Company

  Profits must be split with other shareholders

  Annual accounts must be produced and published

  A legal process must be followed when setting up

  Decision making is difficult as there are so many shareholders
• Public Sector


  Owned by government and tax paying public

  Controlled by elected officials

  Financed by taxes and national insurance
• Third sector


  Social Enterprise

  Charities

  Voluntary organisations
• Social Enterprises

  Owned by private individuals

  Controlled by a board of directors

  Financed by Bank loans, Government grants
• Charities

  No ownership, set up as a trust

  Controlled by a board of trustees

  Financed by Sponsorship, Donations
• Voluntary Organisations

  Owned by its members

  Controlled by an elected committee

  Financed by membership subscriptions (subs), fees
• Private Sector objectives

  Maximising Profit

  Increasing market share

  Survival

  Customer satisfaction

  Provision of a service

  Enterprise

  Social responsibility
• Public sector objectives

  Customer satisfaction

  To improve society

  Social responsibility

  Provision of a service
• Third sector objectives

  Increasing market share

  Survival

  Customer satisfaction

  Provision of a service

  Enterprise

  Social responsibility

  To improve society
• Methods of ensuring good customer service

  Provide the highest possible quality product. This ensures the end product is of a high quality

  Making sure employees are trained will ensure employees are knowledgeable when answering customer queries

  Having a customer complaints procedure will ensure the customer and the business know how complaints will be dealt with

  Offering an after-sales service by contacting the customer a few days after they have received a product will enable the business to check and see everything is working as expected
• Methods of evaluating customer care

  Face-to-face survey

  Customer focus group

  Customer suggestions box

  Websites

  Mystery shopper
• Benefits of customer satisfaction

  Customers will be satisfied with the products of service being provided...the business can increase their market share through word of mouth

  Loyal customers will continue to shop with the business...the business can continually increase their sales

  The business will be able to increase their customer loyalty...the business will be able to promote new products easily

  The business can receive a good reputation...the business can attract new customers

  The business can charge higher prices for their products...the business' profits will increase
• Internal factors

  Availability of finance

  Human resources (Employees and management)

  Current technology
• Lack of finance impact

  A machine cannot be bought...products will not be of a high quality

  Staff cannot be paid or new employees cannot be recruited...the business will not be able to retain or hire high quality staff

  Raw materials to be used in production cannot be bought...production can be delayed
• Management impact

  If managers are inexperienced...they could make poor decisions for the business
• Employees impact

  Employees may not have the correct skills to carry out the job...there will be a low quality output

  Employees may feel unhappy in the workplace...the business can receive a bad reputation
• Current technology impact

  The organisation may not have the technology available for e-commerce (online selling)...the business will not be able to increase their market share

  The organisations technology could break down...there could be a delay in production
• External factors

  Political

  Economic

  Social

  Technological

  Environmental

  Competitive
• Political Factors

  Changes in laws - The government can increase the minimum wage...organisations will have lower profits due to increased costs

  Introduction of new grants - The government may introduce new grants to help reduce unemployment...it can be used to help organisations expand into new areas

  Change in VAT rates - The government may increase VAT on products...the business will increase their selling price and customers may go elsewhere
• Economic factors

  Interest rates - If there is a drop in interest rates it would be cheaper for businesses to borrow money...businesses can grow

  Recession - If a country is in recession, unemployment may be high...customers will not spend money, decreasing sales
• Social factors

  Healthy lifestyle - The business will be required to carry out more market research as consumers want to be healthier...costs will increase

  Consumers tastes and fashion - these may change...the organisation will need to update their product to remain competitive

  People live longer - Due to an aging population, organisations can tailor products to older customers...sales revenue will increase
• Technological factors

  New technology - An organisation may introduce new technology into the organisation...the organisation will have to train all employees

  Out of date technology - If a business does not keep up with new technology, they can fall behind their competitors...they can reduce their market share

  Social media - Many organisations now use social media to communicate with customers...they can increase their customer awareness