Business Paper 1

• Business


  An organisation that provides goods or services to customers in exchange for payment
• Reasons why businesses exist

  • To provide goods
  • To provide services
• Goods


  Physical items like books or furniture
• Services


  Actions performed by other people to aid the customer, e.g. barbers and plumbers
• Types of goods/services businesses provide

  • Needs (things you can't live without, like water and food)
  • Wants (things you would like to have, but can survive without, like holidays and jewellery)
• Reasons businesses are set up

  • Someone starts making a good or providing a service that they think customers will want to pay for
  • To distribute goods (e.g. buy products from a manufacturer and sell them on)
  • To benefit other people (e.g. organise volunteers to help children learn to read)
  • To fulfil a business opportunity (e.g. start a franchise)
• Primary sector


  Produces raw materials - any natural resources which are used to make goods or services
• Secondary sector


  Manufactures goods - turns raw materials into finished goods
• Tertiary sector


  Provides services
• Many businesses are part of more than one sector
• Enterprise


  Identifying new business opportunities and taking advantage of them
• Entrepreneur


  Someone who takes on the risks of enterprise activity
• Possible reasons why someone might become an entrepreneur

  • Financial reasons (earn more money)
  • Identify a gap in the market
  • Want independence/flexibility
  • Follow an interest
  • Dissatisfied with current job
• Qualities of a successful entrepreneur

  • Hardworking
  • Organised
  • Innovative
  • Willing to take calculated risks
• Factors of production


  Resources needed to make products - land, labour, capital, enterprise
• Opportunity cost


  The benefit that's given up in order to do something else
• Sole trader


  A business with just one owner
• Advantages of sole traders

  • Easy to set up
  • You get to be your own boss
  • You alone decide what happens to any profit
• Disadvantages of sole traders

  • You might have to work long hours and may not get many holidays
  • You have unlimited liability
  • You're unincorporated (business doesn't have its own legal identity)
  • It can be hard to raise money
• Partnership

  A business owned by two or more people
• Advantages of partnerships


  • More owners means more ideas, skills and expertise
  • More people to share the work
  • More capital can be put into the business
• Disadvantages of partnerships


  • Each partner is legally responsible for what all the other partners do
  • More owners means more disagreements
  • Profits are shared between the partners
• Sole traders and partnerships have unlimited liability - the owners are liable for all the firm's debts
• The owners of sole traders and partnerships are liable for all the firm's debts
• These structures (sole traders and partnerships) are easy to set up which makes them great for small businesses. But they do come with risks
• Limited companies


  Businesses that have a limited structure, more expensive to set up than sole traders and partnerships, but carry less financial risk for the owners
• Limited company


  Has a separate legal identity from the owners, so any money, property, tax bills, etc. in the company's name belong to the company, not the owners
• Limited liability


  If anything goes wrong (e.g. somebody sues the company or it goes bust) it's the company that's liable, not the owners. The owners only risk losing the money that they have invested
• Shareholders


  The more shares you own, the more control you get
• Private limited companies


  Shares can only be sold if all the shareholders agree, shareholders are often all members of the same family, have 'Ltd.' after their name
• Advantages of private limited companies (Ltd.)

  • Limited liability - you can't lose more than you invest
  • The company can continue trading after a shareholder dies - unlike partnerships
  • Easier for a Ltd. company to get a loan or mortgage than it is for a sole trader or partnership
  • For someone to buy shares, all the other shareholders have to agree, so the owners keep a lot of control over how the business is managed and how many people get to share the profits
• Disadvantages of private limited companies (Ltd.)


  • More expensive to set up than partnerships because of all the legal paperwork
  • The company is legally obliged to publish its accounts every year (although they don't have to be made public)
• Public limited companies (PLC)


  The company shares are traded on a stock exchange, and can be bought and sold by anyone
• Advantages of public limited companies (PLC)

  • Much more capital can be raised by a PLC than by any other kind of business
  • Helps the company to expand and diversify
  • Also have the benefits of having limited liability, and being incorporated
• Disadvantages of public limited companies (PLC)

  • It can be hard to get lots of shareholders to agree on how the business is run, each shareholder has very little say
  • It's easy for someone to buy enough shares to take over the company if they can convince shareholders to sell
  • The accounts have to be made public - so everyone (including competitors) can see if a business is struggling
  • More shareholders means there's more people wanting a share of the profits
• Smaller businesses (sole traders and partnerships) tend to have unlimited liability, while larger businesses have limited liability (they'll be "Ltds" or "PLCs")
• Sole traders and private limited companies (Ltds) tend to give an entrepreneur more control than partnerships or PLCs
• Businesses don't have to keep the structure they start off with - the structure can change over time
• Not-for-profit organisations aren't aiming to make a profit for their owners
• Not-for-profit organisations need to generate enough income to cover their costs, but any surplus is put back into the business or used to fund projects that help the community