1 business management unit 1 1.1 - what do businesses do?
TRANSCRIPT
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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