Business activity

• Entrepreneur

  Someone who starts their own business
• Reasons why people choose to start their own business

  • To be your own boss
  • To pursue your own personal interests
  • To earn an income
  • To do something positive for society
• Examples of needs

  • Food
  • Water
  • Shelter
  • Clothing
  • Medicine
• Examples of wants

  • A car
  • An iPhone
  • A TV
  • A chocolate bar
  • A fake tan
• Characteristics of a successful entrepreneur


  • Creative
  • Risk taking (calculated risks)
  • Determined
  • Confident
  • Able to learn from past failures
• Risks of starting your own business

  • Might have invested your own savings
  • Might have given up a job with a steady income
  • Might be very stressful / affect your health
  • Long hours = lack of holidays & strain on personal relationships with friends & family
• Rewards of starting your own business


  • Possibly a higher wage / salary than previous job
  • Might be able to sell the business for a profit if it's successful
  • Being your own boss
  • The personal satisfaction of being successful
• It is important to create a business plan for a new business venture
• Reasons why it is important to create a business plan


  • More likely to get investors (e.g. bank, partner, shareholders)
  • Reduces the risk of failure because decisions are based on research
  • To identify what resources are needed so that a more accurate budget / cash flow forecast can be made
• Components of a business plan


  • Aims & objectives
  • Marketing plan
  • Human Resource plan
  • Production plan
  • Finance plan
• Sole Trader


  A business owned and run by one person
• Advantages of a Sole Trader


  • Low start-up costs (less regulations & paperwork than Ltd & plc)
  • The owner keeps 100% of the profit
  • The owner makes all of the decisions
  • The owner can keep their finances private (unlike Ltd & plc)
• Disadvantages of a Sole Trader


  • Unlimited liability – the owner is personally responsible for the debts of the business
  • Lack of continuity – if the owner dies, the business dies
  • A lot of responsibility on one person; long hours, lack of help/skills from others
• Partnership


  A business owned and run by 2-20 people
• Advantages of a Partnership

  • Low start-up costs (less regulations & paperwork than Ltd & plc)
  • Each partner may have a different speciality / skill
  • Workload and debts can be shared amongst the partners
  • Easier to raise finance than a Sole Trader as each partner can invest
  • Owners can keep their finances private (unlike Ltd & plc)
• Disadvantages of a Partnership

  • Unlimited liability – partners are personally responsible for the debts of the business
  • There could be disagreements between partners which slows down decision making
  • Profit has to be shared between partners (unlike Sole Traders)
  • Partners have less control than a Sole Trader
  • Cannot raise as much capital / finance as an Ltd / plc
• Private Limited Company (Ltd)


  A business owned by shareholders. Shares are sold privately to friends and family.
• Advantages of a Private Limited Company (Ltd)


  • Limited Liability – the owners (shareholders) are NOT personally responsible for paying the debts of the business
  • Finance can be raised by selling shares
  • Continuity – the business continues to exist even if one of the shareholders dies
• Disadvantages of a Private Limited Company (Ltd)


  • Profits have to be given to shareholders in the form of dividends
  • The business has to publish its accounts every year
  • Higher set-up costs than Sole Trader & Partnerships
  • Cannot sell as many shares as a plc – so capital / finance is still limited
• Public Limited Company (plc)


  A business owned by shareholders. Shares are sold to the public on the Stock Exchange.
• Advantages of a Public Limited Company (plc)


  • Limited Liability – the owners (shareholders) are NOT personally responsible for paying the debts of the business
  • Finance can be raised by selling shares
  • Continuity – the business continues to exist even if one of the shareholders dies
  • The business is run by a board of directors who normally have experience and areas of expertise
• Disadvantages of a Public Limited Company (plc)


  • Profits have to be given to shareholders in the form of dividends
  • The business has to publish its accounts every year
  • Higher set-up costs than Sole Trader & Partnerships
  • There is a threat of a takeover if 51% or more of the shares are bought by someone else
• Main objectives of most businesses


  • To survive
  • To make a profit
  • To expand
• Reasons why businesses should set objectives


  • So that all employees are working towards a common goal
  • To help measure the success of a business at the end of the year
  • So that employees can be given clear and relevant targets, and rewarded when they meet them
• Objectives of different businesses


  • A brand new shop in your home town: To survive
  • A medium-sized business with 10 stores across the UK: To make a profit and expand
  • A multinational business with stores around the world: To maximise profits and achieve global domination
• New businesses


  Struggle to generate enough income (sales revenue) to cover their costs in the first year or two, may face stiff competition from other, larger businesses
• Medium-sized business


  • 10 stores across the UK
• Multinational business


  • Stores around the world
• To make a profit and expand


  Once a business has got past the 'survival' stage, it might look to make a profit and expand; profit is important in order to reward those that took the risk of investing (e.g. shareholders); Expanding means the business has the potential to make even greater profits in the future
• To maximise profits and achieve global domination


  Businesses like Apple, Amazon and Ford seek to use their size and power to maximise profits (see economies of scale below) and become a household name in as many countries as possible
• Increasing market share (in a current market)


  A business might attract new customers by using advertising and special offers. For example, Tesco might use BOGOFs, price reductions and a loyalty card to attract new customers.
• Developing new products


  A business might expand its range of products to a) sell new products to existing customers and b) attract new customers. For example, Dyson started by selling vacuum cleaners. Now, they sell washing machines, hair dryers, and fans.
• Gaining new customers (in a new market)


  A business might try to attract a completely new target audience. For example, Tesco & Dyson both started in the UK to begin with & both have expanded into new markets (foreign countries).
• Horizontal takeover


  To takeover / merge with a company in the same line of business; e.g. one supermarket joins with another. Benefits: One less competitor in the market = less need to advertise / lower prices / compete. Economies of scale (see below) e.g. may be able to get discounts from suppliers for buying in bulk = lower cost per unit.
• Backward vertical takeover


  To takeover / merge with a company which can supply you with goods; e.g. a crisp manufacturer takes over a potato farm. Benefits: Take control over own supply chain to ensure good quality, prices, and lead times (prompt deliveries).
• Forward vertical takeover


  To takeover / merge with a company which you can sell your goods to; e.g. a brewery takes over a pub. Benefits: A guaranteed market for sales.
• Diversification


  To takeover / merge with a company in a completely unrelated industry; e.g. a car manufacturer takes over a fashion brand. Benefits: If one market fails (e.g. a decline in car sales) then the business has another area to fall back on (don't keep all of your eggs in one basket!).
• Economies of scale


  The reduction of unit costs that occurs as a business grows in size (put simply, the benefits a business gets by growing larger). Types: Purchasing economies, Marketing economies, Financial economies, Technical economies. Lower unit costs are good because: a) A business makes a larger profit margin on each unit sold. OR b) A business is able to reduce its prices to customers and be more competitive.