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Section 1: Business and the environment in which it operates (Chapter 1:…
Section 1: Business and the environment in which it operates
Chapter 1: What is business activity?
Business activity
A business is an organisation which provides goods and services.
Business activity produces an output-a good or service
Goods and services are consumed
Resources are used up.
A number of business functions may be carried out
Human resources
Financial control
Production
Businesses can be affected by external factors
Government laws
Change in consumer tastes
Competitors
Businesses aim to make a profit
Good and services
Producer goods
Consumer goods
Satisfying needs and wants
Wants
Wants are human's other desires
Needs
Needs are requirements for human survival
The purpose of business activity
Private enterprise
Businesses are owned privately by individuals or groups of individuals.
Non-profit making organisations
They aim to meet the needs and wants of their members, outhouse they aim to support
Public enterprise
Public sector (central or local government) provide goods and services. They do not normally aim to make a profit.
Business stakeholders
Any individual or group that has an interest in the operation of a business.
The government
The government has an interest in all businesses. They provide employment, generate wealth and pay taxes.
The local community
If the business does well there local community may prosper but if the business does badly, the local community may criticise the business.
Suppliers
They provide raw materials, components, commercial services and utilities to other businesses.
Financiers
Financiers lend money to a business.
Managers
They help with the running of the business. They are accountable to the owners.
Employees
They work for businesses and they depend on businesses for their livelihood.
Customers
Customers buy the goods and services that businesses sell
Owners
Small company
individuals, families, or small groups of people
Large company
Shareholders
The changing business environment
The changing business environment
Strength of competition
the economic climate
Government legislation
Population trends
Demand patterns
World affairs
Social factors
Chapter 2: Business objectives
SMART objectives
S
pecific
Stating clearly what is trying to be achieved
M
easurable
capable of numeric measurement
A
chievable
Attainable by the people involved
R
ealistic
Able to be achieved given the resources available
T
ime specific
State a time by which they should be achieved
Mission statement
Help a business to focus
Provide a plan for the future
Make clear to all stakeholders what a business is trying to achieve
Private sector objectives
Survival
Profit
maximise profit
Growth and wealth creation
Have a larger market share
Enjoy a higher public profile
May enjoy lower costs
Generate more wealth for the owners
Increase market share
Image, reputation and social responsibility
Public sector objectives
Quality of service and reducing the costs
The importance of clear objectives
Employees need motivation to keep working
Owners need motivation to keep the business going
Objectives help to decide where to take a business and what steps are necessary to get there.
It is easier to assess the performance of a business
Relationship between business objectives
Several business objectives are closely related to each other
Business may have more than one objective.
Chapter 3: Sole traders, partnerships and franchises
Features of a partnership
Between 2 and 20 people jointly own a business
Deed of partnership
Legal document that states partners' rights in the event of a dispute
Features of a sole trader
It has one owner but can employ any number of people
Advantage
Owner has complete control
It's simple to set up with no legal requirements
All the profit is kept by the owner
Disadvantage
Have unlimited liability
May struggle to raise finance
Long hours and very hard work
Unincorporated and incorporated businesses
Unincorporated
There's no legal difference between the owner and the business
Incorporated
There's a separate legal identity from that of its owners.
Entrepreneurs
People who take risks and set up business
They have to make all the key decisions
They are responsible for organising other factors of production
They are innovators because they try to make money out of a business idea
Entrepreneurs are risk takers