Unit 1 (1.1, 1.2, 1.4) Flashcards
What is a business
An organization that uses resources to produce goods and services that satisfies the needs of consumers
Business Outputs
Goods
- Tangible products sold by businesses
Services
- Non-tangible - e.g. banking, education
Primary Sector
Extraction, harvesting and conversion of natural resources for use by firms
- E.g. coffee, metals, fruit
Secondary Sector
Manufacture and production of products from raw materials
- E.g. clothing, mobile phones, input for other companies (e.g. steel)
Tertiary Sector
Service industry, e.g. banking, insurance, education, tourism
Quaternary Sector
Businesses involved in intellectual, knowledge based activities regarding information
- E.g. R&D, ICT, drug research
Entrepreneur
(Definition)
Someone who:
- Takes the financial risk
- Starting and managing a new company
- In return for profit
Challenges and opportunities for starting up a business
Challenges:
Financial Problems:
- Lack of own start up capital
- Lack of cash flow (liquidity)
- Dont have enough money to pay your bills
- Lack of customers
- Strong Competition
- Poor Marketing - unwanted product, wrong pricing, etc.
- Hiring the wrong people and managing them poorly
Opportunities:
- Money
- Inheritence - taking over the family business
- Autonomy - be your own boss - can choose hours, salary, etc
- Challenge - personal satisfaction and self-esteem
Business Plan
Document that sets out the business idea, its goals and objectives and other details of how the business will operate
Elements of the Business Plan
Executive Summary - covers the main parts of the business plan
Marketing and Sales:
- What product?
- Why will customers buy the product
- How the business will sell to them
Human Resources:
- Details of the management team
- Staff to be required
- Operations Management
- Location of shop/factory
- IT systems, machinery, etc
Finance:
- Where capital will come from
- Projected profits and cash flow for 1+ years
Public Sector
Firms who are owned and controlled by the Government
- Hospitals, police, public schools
Private Sector
Firms that are owned and controlled by the people/business
Sole Trader
When one person owns and control the business
- Unincorporated and Unlimited liability
- Gets to keep all profit
- All the decision making
- Have full control of the business
- They may hire employees to help them run the business
Partnership
2 or more people combine to form a business enterprise. They may combine their finances, run the business together, share the risk and the profit
- Share start up capital
- Share responsibility
- Share profit
- They are unincorporated and have unlimited liability
Unincorporated
Owner is same legal entity as company
Incorporated
Company and owners are different legal entities
Privately - held Company (Private Limited Company)
- Incorporated
- Limited liability
- Owned by shareholders
- Shares cannot be sold on the open market
- Often has small amount of shareholders that holds high % of shares
- Shares can only be sold with the agreement of other shareholders
Publicly-held Company (Public Limited Company)
- Incorporated
- Limited liability
- Owned by shareholders
- To “go public” mean to go from private to public-held company
- IPO - Initial Public Offering = Stock market flotation
- Will sell a % of the company to raise finance
- Shares can be bought freely on the stock market
Social Enterprise
A business that makes revenue and profits but also has social and/or environmental objectives as part of its business model
Its objectives:
- Makes some profit (so don’t go bankrupt)
- Benefit society
Private Sector For Profit Social Enterprise
Similar to other private sector businesses that make profit
Differences:
- Some of the profit is used to benefit society rather than paid out to the owners
- They try to run their business in socially responsible ways
Public Sector for Profit Social Enterprises
Government-run businesses operating similar to the private sector.
They aim to:
- Make profit (or avoid large losses)
- Raise tax money through profits
- Provide essential goods and services
Cooperative
- For profit social enterprises owned and controlled by its members and run for the common benefit of it members
- Decisions can be voted by members democratically
Non-profit Social Enterprise
Business that are run not for the purpose of making profit but to benefit society
Non-Governmental Organisations (NGO)
Business with a social mission which operates out of the Government control
Stakeholder
A person or organisation who is interested in or impacted by the decisions of a business
Internal Stakeholders
- Shareholders (investors)
- Owners
- Employees
External Stakeholders
- Bank
- Pressure Groups
- Customers
- Government
- Supplier
- Competitors
Types of conflicts
- Managers vs consumers
- Managers/employees vs shareholders
- Shareholders vs pressure groups
Managers vs consumers
- Managers may want to raise the price of the product
- Consumer would not want to price rise
Managers/employees vs shareholders
- Shareholders want high divident payouts
- High dividend payout may lead to lower bonuses for managers/employees
Shareholders vs pressure groups
- Shareholders might not be worries about environmental harm if it means higher profits
- Pressure groups would be concerned
Unlimited liability
- Unincorporated (sole trader, partnership)
- You can lose more than you put into the business
Limited liability
- Incoporated (public & private companies)
- You can only lose the amount that you put into the business
Pros of Sole trader
- Gets all profit
- Have all decision making power
- Flexible
- Easy to set up
Cons of Sole Trader
- Unlimited liability
- Owner is responsible for all areas - workload and stress
- Less start-up capital so hard to expand
Pros of Partnership
- Each partner may share the work and specialize
- More capital allows expansion
- More input in decision-making
Cons of Partnership
- Unlimited liability
- Decision-making - more time, less control and disagreements
- Profits are shared
Pros of Private company
- Limited liability
- Can raise more finance than sole traders/partnership
- Can hire specialist managers in each department
- Finances are still private
Cons of Private company
- Profits are shared with all owners
- Cannot sell shares to the general public, making shares less attractive to investors
- Legal requirements of being a company
Pros of Public company
- Limited liability
- Raise large amounts of capital
- Easy for shareholders to trade shares, making shares more attractive
- Can hire specialist managers in each department
Cons of public company
- Costly legal requirements of going public (IPO)
- Lack of financial privacy - everyone can look at your finances
- Short-termism of shareholders - they will demand profits and dividends
Pros of Social Enterprises
- Benefit society and also generate profit
- Are self-sustaining - don’t need to depend on taxpayer money or donations
- Motivation for employees
Types of Business (Diagram)
Added Value
Businesses ‘add value’ when output > input worth.
e.g. car is worth more than the sum of all parts
Producer cooperative
e.g. farmers - can negotiate better prices on buying inputs (e.g. fertilizers) and selling price
Consumer cooperative
Consumer-owned, democratically run, serving members’ needs.
Employee cooperative
A place owned by employees
Cons of social enterprise
- Funding
- Greenwashing
- Growth can pose challenges
- More difficult to stick to your core beliefs
