Business Management

Unit 11.2 Why do businesses exist?

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UNIT 1.2 Why do businesses exist?

In this Unit you will find out about: Reasons why businesses exist – enterprise,

profit, charity, public sector Entrepreneurship The risks faced by businesses Aims of different business organisations Costs and benefits of business Stakeholders – who are they? Impact of business on the community

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Why businesses exist?

Businesses exist for a variety of reasons:

Enterprise – to develop a good idea

Profit – To make a profit eg ASDA

Charity – to raise money for a suitable cause eg Comic Relief

Public Service – to provide a service to the community at large eg NHS, Schools

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What is enterprise? – “to boldly go”

Enterprise includes:

Turning a good idea into a business success Seeing a chance and taking it – making a success of it Seeing a better way of doing something

People setting up business for these reasons tend to enjoy thechallenge and excitement of seeing their idea work.

NB you do not need to be a sole trader to be enterprising – people

can be enterprising in the private, public or voluntary sector.

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How do businesses make a profit?

Private businesses are set up to make a profit over a

period of time and they do this by:

Selling goods to customer at a price which is more than it cost them to provide the goods or services

Sales income – Cost of sales = Profit

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What is a Charity?

A charity is a form of organisation where a group ofpeople work together to support and help others.

Fundsare raised in a variety of ways and used to improve

theliving conditions or life of others.

Examples of charities are:Comic ReliefARMSSave the Children

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What is meant by Public Service?

Public Service organisations provide some kind of help

or service to the general public.

Examples of public service are:NHSLocal government services such as roads, libraries, educationNational government services such as the police or defence

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What is an ENTREPRENEUR?

An Entrepreneur is someone who

Has an idea for a business venture Is prepared to take another’s idea and develop it Is prepared to provide finance to develop an idea Is prepared to take a risk which will in turn result

in a new produce or service

This is called enterprise

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What skills and qualities does an entrepreneur need

An Entrepreneur needs the following skills and qualities:

Is creative and energetic Has enthusiasm for the task Will use their own initiative Will take risks Is assertive Is a decision maker Can handle different aspects of the business Is a problem solver

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Who are the entrepreneurs?

Richard Branson Linda Bennett Michelle Moan

Dragon’s Den team: Deborah Meaden Duncan Bannatyne Peter Jones James Caan Theo Paphitis

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What risks face a new business?

Any new business will face risks and these include:

People not buying the product or service Profits not high enough to cover the costs in the

long term Problems with cash flow – not enough income to

cover expenses More money owed to suppliers that can be paid

back in the long term All money which has been invested is lost.

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What are the aims of businesses?

The aims of any business can be complex and depend on

many factors:

The type of business activity Personality of the owner/manage The sector of industry in which it operates The level of competition

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A businesses aims may include:

Whether it wants to

make a profit? be recognised for providing a quality service expand internationally become environmentally friendly improve conditions for its workforce increase its market share make customers happy develop employees

In general terms most businesses aim to achieve some

or all of the following:

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To beat competitors and gain more customers, therefore more profit

INCREASE MARKET SHARE

To make as much profit as possible

MAXIMISE PROFITS

To increase the size of the business eg more customers, more outlets

GROWTH

to make sure that the businesses does not fail or go out of business

SURVIVAL

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To produce quality products/services

QUALITY

To make their company/organisation the number one – a trailblazer

LEAD THE FIELD

To make sure that things are done in the best possible wah

EFFICIENCY

To have charitable aims tohelp others

IMPROVE CONDITIONS

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The aims and objectives of different types of business

help people improve the quality of service offered cut costs raise revenue to develop employees

Public sectororganisationn eg, National Health Service

help people maximize collections for cash offer a service to the community recruit more helpers open more branches/charity shops widen the scope of assistance

Charity, eg BritishRed Cross

survival – break-even maximize profits increase returns to shareholders/owners expand the product/service range expand the business – more outlets improve the quality of products/service

Private sector –profit-makingcompany, eg BT

AIMS/OBJECTIVESTYPE OF BUSINESS

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What are the benefits and costs of business?

These can be divided into 2 sections:

Social benefits and costs and

Economic benefits and costs

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Social Benefits and Costs

Social benefits:

These are the positive things which happen to a community because

of local businesses - Eg – better roads, improved housing, new schools

Social Costs

These are the negative effects on a community caused by somelocal businesses -Eg air/noise/water pollution, heavy traffic, health problems,

inconvenience arising from building works or redevelopment

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Economic Benefits and Costs

Economic benefits:

These are the positive monetary effects on a community caused bysome local businesses - Eg – increased income for local people because of local jobs, leadingto increased spending in other businesses which helps them. The standard of living is raised in the local area

Economic Costs

These are the increased community taxes on property leading to -Eg increased expenditure on the local infrastructure

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CASE STUDY

Turn to page 14 in your text bookRead the case study carefullyAnswer the questions in you jotter

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WHO ARE THE STAKEHOLDERS?

STAKEHOLDERS are people with any interest or an influence on an organisation.

They may be: People with no financial interest eg

environmental groups People with financial interest eg shareholders or

employees

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STAKEHOLDERS

Stakeholders can be:

MANAGERS of the firm INLAND REVENUE EMPLOYEES of the firm SHAREHOLDERS of the firm SUPPLIERS to the firm

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STAKEHOLDERS WILL BE INTERESTED IN

getting paid for supplying goods the reputation of the business for paying on time

SUPPLIERS

ensuring that the business performs well and increases the value of their investment – protecting their investment

SHAREHOLDERS

the activity of the business – the business pays their wages

EMPLOYEES

the activities of the business to make sure that tax rules are applied

INLAND REVENUE

running the businessMANAGERS

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STAKEHOLDERS IN A FOOTBALL CLUB (plc)

Top class player can bring inSponsorship and publicity for club

Win games Build good

reputation for club Increase income,

sponsorship etc

Players

Encourage higher ticket pricesLower running costsVote at AGM

Share of profitsMaximise profitsSee club progress in appropriate leagueWin games

Shareholders

Possible influencesPossible interestsStakeholders

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STAKEHOLDERS IN A FOOTBALL CLUB (plc)

Popularity of sportPay for televising events thus making clubs moneyMedia coverage can affect outcomes

Provide info for fans and therefore increase listeners

Raised income from advertising

Media

Influenc direction of clubNeed to balance profit. Growth of club with fans’ needs

Ensure long term success of clubMake healthy profit

Directors

Possible influencesPossible interestsStakeholders

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STAKEHOLDERS IN A FOOTBALL CLUB (plc)

Fans associations can discuss matters of interest and influence running of club

Attending matches State of ground Players’ skills Efficiency of

management

Fans

Local residents want minimised disruption to local areaMay complain to authoritiesMay not attend matches

Social cost of large stadium nearby – fans behaviour large crowdsIncreased trade in pubs, shops on match daysCommunity sports projects run by club

Local Residents

Possible influencesPossible interestsStakeholders