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Business Management

UNIT 1

1.1 - What do businesses do?

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What are goods and services?

Businesses make goods

Some examples of goods made

Computers Cars Washing Machines Mobile phones Sweets Clothes Seafood DVD players I-pods

Businesses provide services

Some examples of services provided

Banking Insurance Education Hairdressing Public transport Entertainment – cinema

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Goods and services can be described as

Tangible goods – can be seen,

touched and handled – eg washing machine,

car

Intangible

goods – cannot be touched or handled –

eg public transport, hair dressing

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Goods and services can be described as

Durable goods and services –

long lasting – eg clothes, education

Non-durable

goods and services – used up quickly –

eg sweets, cinema

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WHAT ARE CAPITAL AND CONSUMER GOODS?

Consumer goods

Goods sold to people (ie consumers – us) for their own use

Capital goods

Goods used by a business to make consumer goods and other capital goods

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Difference between Needs and Wants

The following are examples of goods we buy

As consumers, we buy the goods offered by a range of organisations/businesses.

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WHAT IS A NEED?

A NEED is something an individual must have in

order to survive – these are the basic needs orwants

FoodShelterClothingDrink

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WHAT IS A WANT?

It is important to distinguish between what we need and what we want

I’ll tell you what I want, What I really, really want,So tell me what you want,

What you really, really want....

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WHAT IS A WANT?A WANT is something an individual would like

tohave, or wishes for – they are not essential for survival

When a want is fulfilled it gives the consumerSatisfaction. Examples are:

I-podSports CarVideo CameraExpensive jewellery

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HOW DOES A BUSINESS KNOW WHAT WE NEED OR WANT?

A business will use Market research to identify what consumers need and want.

This information helps the business in decision making eg whether a new product/service should be developed

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Types of business organisation

Public Limited

Company

Public Ownership

Franchise

Private Limited

Company

Partner-ship

Sole Trader

Types of business

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Sole Trader

FEATURES OF SOLE TRADER

Aims is to make a profit Business owned and often run by one person May employ other people in the business Tend to be small businesses

Examples: Small shops, Car mechanics, Flower shop

Can you name 3 sole trader businesses in Oban?

Albany Stores, Esplanade Post Office, Flower basket.

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Sole Trader

ADVANTAGES:

Owner keeps all the profits

Owner controls all the decisions

Easy to set up the business.

DISADVANTAGES:

Owner bears all the responsibilities

If owner cannot work the business may suffer – lack of cash

Owner may have difficulty obtaining finance

Owner has unlimited liability.

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PartnershipFEATURES OF PARTNERSHIP

Aim is to make a profit Business between two and twenty partners Partners usually enter into a legal agreement

called a Partnership Agreement which states States share of profit Which partner has most responsibility

Partners may invest different amounts of money

This will affect their share of profitExamples: Dentists, vets and lawyers.

Can you name 3 partnership businesses in Oban?

Munros Garage, MacCamley and Laird, Stevenson Kennedy (lawyers)

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Partnership

ADVANTAGES:

Partners can share workload according to skills

Partnerships find it easier to raise finance than sole trader

Risks are shared between partners – risk of poor profit

DISADVANTAGES:

Profits shared between the partners – therefore smaller share

More people to run business – risks of disagreement

Partners usually has unlimited liability

Legal agreement needs to be set up.

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What are Shares?

Companies are owned by people who are shareholders

Anyone over 18 can buy shares

Shareholders are given a share of any company profits

The share of profits is called a dividend and is payable once or twice yearly

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Private Limited CompanyFEATURES OF PRIVATE LIMITED COMPANY Aim is to make a profit Name of the business will end with Ltd Owned by shareholders – minimum of one Shares in the company are owned privately Run by a Board of Directors Such companies are often family businesses.

Examples: MacQueen Bros had recently become a Private Ltd Company

Can you name 3 private limited companies in Oban?

Direct Footwear Services Ltd, MacQueen Ltd, Beaver Timber Ltd,

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Private Limited Company

ADVANTAGES:

Owner keeps control of the business

Private limited company can raise more finance that a smaller business

Shareholders have limited liability.

DISADVANTAGES

Profits shared between more people

A legal agreement must be set up

Shares cannot be sold to the public, so raising finance can be more difficult than for a public limited company.

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Public Limited Company (plc)FEATURES OF A PUBLIC LIMITED COMPANY Aim is to make a profit Name of the business will end with plc Owned by shareholders – minimum of two Minimum share capital of £50,000 Shares in the company can be bought and sold

on the Stock Exchange Run by a Board of DirectorsExamples: BP plc, Boots plc, Tesco plc.

Can you name 3 public limited companies operating in Oban?

Tesco plc, Boots plc, W H Smith plc

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Public Limited Company (plc)

ADVANTAGES:

Public limited company can raise more finance than private

PLC can borrow more money

Shareholders have limited liability.

DISADVANTAGES:

PLC has no control over who buys its shares

Profits shared between many more people

Expensive to set up Accounts must be

published annually.

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Limited and Unlimited Liability

Unlimited liability Sole trader or unlimited

partners have full responsible for the debts of the business.

If the business does not have enough money to pay its debts the owners or partners must pay the debts from their own personal funds.

May result in the owners having to sell their own possessions to raise the money.

Limited Liability In a Private or Public

Limited company the shareholders liability is limited to the amount they have invested, or agreed to invest in the company.

The will not have to sell their own possessions to pay the debts of the business.

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FRANCHISE

What is a Franchise? A franchise is an agreement or license between

two parties which gives a person or group of people the rights to market a product or service using the trademark of another business.

Examples of a Franchise are: McDonalds Domino Pizza Body Shop

Can you name 3 franchises in Oban?

Subway, BSM, Interflora

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Franchise

There are 2 parties to a franchise agreement:

Franchisor – the person owning the rights to the product or service being offered

Franchisee – person or group of people purchasing the rights to sell the product or operate the service.

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Features of a Franchise

The Franchisee pays to copy the business idea, image, name of an existing company

A MacDonald’s burger in Fort William will be look and taste exactly the same as one bought in Glasgow

The franchisee pays a licence and shares profits with the franchisor

Franchisee is restricted on what they can charge for the goods and what they can sell.

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Advantages of a Franchise

Reduces the risk of business failure The business has been tested and proven on the

market Allows small businessman to compete with larger

business concerns Economies of scale Support offered by franchisor – advertising etc Trade under a recognised brand. Training provided

by franchisor No previous experience required Exclusive territorial rights Back-up provided for administration and trouble

shooting.

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Disadvantages of a Franchise

Franchisee may suffer from bad service provided by another of the franchisees in a different area

Highly specialised business and limited to what the franchisor wants to do – no room to expand products

If the franchisee wishes to sell their business they must gain consent of franchisor

Franchisee may not like the interference.

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Public OwnershipFEATURES OF A PUBLICLY OWNED ORGANISATION

Main aim is to provide a service Funded by taxpayers Controlled by government Provide essential services for the whole

population Non profit making

Examples: BBC , National Health Service, Education Services

Can you give an example of a Public Ownership organisation in in Oban?

Local Government

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Public Ownership

ADVANTAGES:

Less competition

DISADVANTAGES

May not be as profitable as private sector businesses.

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What is the aim of a Charity?

Aim to care for those in need or help

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Main features of a Charity

Use donations from the public Raise funds in other ways Do not make a profit Examples include Oxfam, RSPCA,

and Save the Children

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Sizes of Business Organisations

Small businesses Often owned and run by one person Or owned and run by a partnership Sell goods or services locally Employ fewer than 50 people

Eg hairdressers, electricians, computer trainers

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Sizes of Business Organisations

Medium-sized Businesses Owned and run by a group of

people (eg partnerships, shareholders or directors)

Can sell goods and services locally and or nationally

Employ between 50 people and 250

Eg manufacturers – clothes, National car hire companies, theatres, insurance companies

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Sizes of Business Organisations

Large Businesses Owned by a large number of people

eg shareholders and run by people appointed by them - directors

Produce and sell goods and services in several locations – often in several locations

Employ more 250 people – sometimes hundreds of thousands

Eg Car manufacturers – Ford; retail food outlets - Marks & Spencer; Banks; Oil companies

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Local Business

Features of Local business organisations

Small to medium sized Services local markets Employs small number of people Has only a few outlets

For example Mathesons Furniture MacQueen Bros Alba

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National Businesses

Features of National Business organisations

Have household names Easily recognised eg logos Employ large workforce Have branches/factories in major towns and cities

For example Boots The Chemist River Island Thorntons

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Multi-National businesses

Features of Multi-national businesses

sell goods or provide services worldwideoperate in more than one country

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The Economy can be divided into 3 Sectors:

Voluntary Public

Private

Economy

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SECTORS OF THE ECONOMY

Private –

owned by sole traders, partnerships, limited companies and public limited companies –

financed by private monies from shareholders and banks

aims – To maximise profits To turn innovative ideas into successful

businesses To expand the business

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SECTORS OF THE ECONOMY

Public –

owned by the state

financed by the state, eg through council tax, income tax

aims o To provide the same quality service to everyone

in a countryo To make good use of taxpayers’ money and

provide the services that an area needs

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SECTORS OF THE ECONOMY

Voluntary –

owned by those taking part in the activities

financed by donations, gifts and fund raising activities

aims To provide support for worthy causes To provide the best service and facilities

for the members of welfare, social and sports organisations.

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SECTORS OF INDUSTRY

Tertiary Secondary

Primary

Sectors of Industry

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SECTORS OF INDUSTRY

PRIMARY SECTOR – agriculture, fishing, mining

This involves the extraction of raw materials

Oil ProductionFishingForestry

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SECTORS OF INDUSTRY

SECONDARY SECTOR –

manufacturing

This involves the manufacture of goods

Car manufacturingEngineeringShipbuilding

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SECTORS OF INDUSTRY

TERTIARY SECTOR –

service

This involves the provision of services

InsuranceHairdressingLeisurePublic TransportEducationFire Service

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PRODUCTION AND CONSUMPTION

Production is the process of making goods so that they can either be consumed, or further processed before being consumed eg before a jumper can be knitted thefarmer must produce the wool, the sheep is sheared, the wool is then washed spun, dyed, packaged and knitted into the final garment.

Consumption is when the customer purchases the goods or services produced by the business.

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PRODUCT-LED AND MARKET-LED PRODUCTION

Products and services can be supplied to the market for

a variety of reasons:

Product-led – a business makes/produces goods and provides services, basically because they are good at

it.

Market-led - a business makes/produces goods andprovides services to meet identified consumers’ needs.

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THE PRODUCTION PROCESS/CHAIN

The production process will follow several stages and

involves the transformation of raw materials intofinished articles:

INPUT – raw materials

PROCESS – Manufacturing

stages

OUTPUT– Finished goods

SOLD TOCUSTOMERS

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Example of the production chainThe production of a cake for tea:

The farmer – produces wheat

The miller – produces flour

The baker – makes the cakes and adds the cream

The retailer – sells the cakes to Ms MacIver

Ms MacIver’s son eats the cakes

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Another example of the production chain

Farmers rear sheep to obtain wool

Sheep sheared – wool - basic raw material produced

Wool delivered to spinning factory

Wool is washed, spun, dyed and packaged

Wool delivered to textile company

Skilled workers use machinery to ‘knit’ the jumper

Manufacturers package the final product

Delivered to the retailers – world wide

Retailer sells the jumper to the customer.

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Factors of production

Resources required to produce goods and services can

be divided into 4 main groups knows as the Factors of

Production.

LAND – site of factory/premises LABOUR – people employed to produce the goods CAPITAL – money required to purchase ENTERPRISE – idea provided by the owner

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LAND

Farmland – crops,animals

Buildings – land needed for housing, businesses

Water

Coal-mining to provide heat oil/gas-refineries

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LABOUR

Labour is physical and mental effort.People who use mental effort include: Teachers Bankers

People who use physical effort include: Assembly workers, eg a car production

line A baker – mixing of ingredients to make

bread and cakes

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CAPITAL

Capital is the money and the things that can be purchased with money to make and sell goods and services.

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ENTERPRISE

Enterprise means having an idea for a new business and taking risks with the other factors of production to make the business a success

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CREATING WEALTHCreating wealth occurs at each stage of the

production process.

Value is added by each producer eg miller adds to the value of the wheat by

processing it Baker adds to the value of the

processed wheat by making it into cakes

The total value of the cake is much more than the value of the raw materials used in its production

Therefore each stage creates more total wealth than the previous stage

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Wool prices are about 50 pence per kilogram and for most farmers the value of the wool does not cover the cost of shearing.

Finished product - £55!

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Topics Covered

Goods and services Tangible and intangible Durable and non-durable Consumer and capital Needs and Wants Types of organisation Sole Trader Partnership Shares Private Ltd Co Public Ltd Co Limited/Unlimited Liability

Franchise Public ownership Charities Size of Organisations Sectors of the Economy Sectors of Industry Production and

Consumption The Production Chain Factors of Production Creating Wealth