3.1: what is business?

• a business is an organisation that exists to provide goods and services on a commercial basis to their customers
• smart objectives

  S) specific - state exactly what is needed to be achieved

  M) measurable

  A) achievable - realistic

  R) relevant to the business

  T) timely
• functional areas:

  • marketing
  • operations
  • finance
  • HR
• a mission statement is the overriding goal of the business, the reason for its existence and a vision for the future
• internal stakeholders are those who are directly involved in the business and are affected by the decisions made by the business. eg: employees, managers and shareholders
• external stakeholders are those outside the business but have an interest in it. eg: suppliers, government agencies and local communities.
• the main external factors affecting businesses include economic conditions, technological change, legal changes, social trends and environmental issues
• economic conditions can affect demand for products or services as well as costs of production
• the main types of businesses include sole traders, partnerships, private limited companies (LTD), public limited companies (PLC)
• sole trader: one person owns and runs the business with no legal distinction between themselves and the business
• partnership: two or more people own and run the business together with no legal distinction between them and the business
• economic conditions affect demand for goods and services as well as costs of production
• technological change affects how products are produced and marketed
• legal changes can impact on employment law or health and safety legislation which will effect HR policies
• sole trader - one person owns and runs the business with no limit on liability
• partnership - two or more people own and run the business with unlimited liability
• private limited company (Ltd) - owned by shareholders with limited liability
• private limited company (Ltd): owned by shareholders who have limited liability to pay off debts if the business fails
• private limited company (Ltd): owned by its shareholders who have limited liability to pay off debts if the business fails
• public limited company (plc): shares are sold on stock exchange so anyone can buy them
• a good mission statement is short, clear and relevant
• a bad mission statement is vague, unclear and lengthy
• why do businesses set objectives?

  • implement the mission
  • provide a clear focus
  • motivate employees
  • reduce uncertainty
  • provide targets
• profit -> total revenue - total costs
• fixed costs -> they do not change with the level of output e.g. rent, wages
• variable costs -> likely to change with the level of output, so they are a good indicator of the business's performance
• revenue -> units sold x selling price
• total variable costs -> costs per unit x units sold
• total costs -> fixed + variable costs
• not for profit/social enterprises are businesses with social/ethical aims that are funded by donations. they usually benefit certain societal groups in need.
• limited liability - the owner of a business is only liable for the amount they have invested, and their personal assets arent affected if your company is in debt
• unlimited liability: the owner of a business is personally responsible for all debts of the business
• ordinary share capital is the money raised by a business through the sales of shares to shareholders
• market capitalisation is the total value of all the shares in a company
• market capitalisation -> number of issued shares x shared price
• shareholders choose to invest because: they can recieve a return on their investment, capital appreciation and dividends
• high demand + low supply = high share value
• low demand + high supply = low share value
• external factors:

  Political

  Economic

  Social

  Technology

  Legal

  Environment/ethical

  Competition
• exchange rates


  Strong Pound, Imports Cheaper, Exports Dearer

  Weak Pound, Imports Dearer, Exports Cheaper