Business paper 1

• The purpose of business activity and enterprise

  Spotting an opportunity, developing an idea for a business, satisfying the needs of customers
• Characteristics of an entrepreneur


  • Creativity, risk taking, determination, confidence
• The concept of risk and reward

  Risks and rewards involved in starting your own business
• The purpose of planning business activity

  Reducing risk, helping a business to succeed
• The role, importance and usefulness of a business plan


  Identifying markets, help with obtaining finance, identifying resources a business needs to operate, achieving business aims and objectives
• Types of business ownership

  • Sole traders
  • Partnerships
  • Private limited companies
  • Public limited companies
• The concept of limited liability


  The owners/shareholders are not personally responsible for the debts of the business
• The suitability of differing types of ownership in different business contexts

  Start-ups and established businesses
• Aims and objectives of businesses

  • Profit
  • Survival
  • Growth
  • Providing a service
  • Market share
• Why different businesses may have different objectives

  As businesses evolve, their objectives may change
• Internal and external stakeholder groups

  • Owners
  • Employees
  • Customers
  • Suppliers
  • Government
  • Local community
• The effect business activity has on stakeholders


  The effect stakeholders have on business
• Organic growth


  Increasing output, gaining new customers, developing new products, increasing market share
• External growth


  Mergers, takeovers - including horizontal, vertical, diversification
• Businesses exist to satisfy the needs of customers. They provide goods and services at a price that people are willing to pay. In return, the business will be rewarded with profit.
• Enterprise is seeing an opportunity to provide a product or service that people are willing to buy.
• 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
• Needs and wants


  • Needs: food, water, shelter, clothing, medicine
  • Wants: a car, an iPhone, a TV, a chocolate bar, a fake tan, etc.
• Characteristics of a successful entrepreneur

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

  • Risks: might have invested own savings, might have given up a steady job, might be very stressful, long hours, changing consumer tastes
  • Rewards: might be able to earn a higher wage/salary, might be able to sell the business for a profit, being your own boss, personal satisfaction of being successful, independence
• Reasons why it is important to create a business plan for a new business venture

  More likely to get investors, reduces the risk of failure, to identify what resources are needed
• Components included in a business plan

  • Aims & objectives
  • Marketing plan
  • Human Resource plan
  • Production plan
  • Finance plan
• The role of a business plan

  Identifying markets, helping with finance, identifying resources that a business needs to operate, achieving business aims & objectives
• Sole trader


  A business owned and run by one person
• Advantages and disadvantages of sole traders

  • Advantages: low start-up costs, owner keeps 100% of profit, owner makes all decisions, owner can keep finances private
  • Disadvantages: unlimited liability, lack of continuity, a lot of responsibility on one person, skill shortage, shortage of capital
• Partnership


  A business owned and run by 2-20 people
• Advantages and disadvantages of partnerships

  • Advantages: low start-up costs, partners may have different specialities, workload and debts can be shared, easier to raise finance
  • Disadvantages: unlimited liability, disagreements between partners, profit has to be shared, partners have less control
• Deed of partnership


  A document setting out the operations of the partnership, including amount of capital to be invested and how profits will be shared
• Sleeping partners


  Provide capital for the business but take no part in the running of the business. Their liability is limited to the amount of capital they have contributed.
• Limited liability partnerships


  The owners' liability for the debts of the business is limited to the amount of money they put into the business
• Private limited company (Ltd)


  A business owned by shareholders, where shares are sold privately to friends and family
• Advantages and disadvantages of private limited companies

  • Advantages: limited liability, can raise finance by selling shares, continuity, control over share sale
  • Disadvantages: profits have to be given to shareholders, have to publish accounts, higher set-up costs, limited capital
• Public limited company (plc)


  A business owned by shareholders, where shares are sold to the public on the Stock Exchange
• Advantages and disadvantages of public limited companies

  • Advantages: limited liability, can raise large sums of finance by selling shares, continuity, run by experienced board of directors
  • Disadvantages: profits have to be given to shareholders, have to publish accounts, higher set-up costs, threat of takeover
• Main objectives of most businesses

  • To survive
  • To make a profit
  • To expand/grow
  • Increase market share
  • Providing a service
• Reasons why businesses should set objectives

  So all employees are working towards a common goal, to help measure the success of the business
• Private limited company


  • 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 private limited company

  • Profits have to be given to shareholders in the form of dividends
  • The business has to publish its accounts every year – meaning that anyone (e.g. competitors) can see the financial state of the business
  • Higher set-up costs than Sole Trader & Partnerships – Memorandum & Articles of Association
  • 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/Growth
  • Market share
  • Providing a service
• Reasons why businesses should set objectives

  • So that all employees are working towards a common goal (& gives them something to strive towards)
  • To help measure the success of a business at the end of the year (did we meet our objectives?)
  • So that employees can be given clear and relevant targets, and rewarded when they meet them (this helps motivate employees)