3.1.1 The purpose and nature of businesses

Worksheet

From AQA

• Purpose of business

• Reasons for starting a business

• Basic functions and types of business

• Business enterprise and entrepreneurship

• Dynamic nature of business

Lesson objectives

Students should be able to:1. understand what a business is and the reasons for starting a business (including

producing goods, supplying services, distributing products, fulfilling a business opportunity and providing a good or service to benefit others)

2. understand the difference between goods and services, needs and wants 3. understand the meaning of factors of production – land, labour, capital, enterprise4. define opportunity cost5. define the three sectors of primary, secondary and tertiary and give examples of

types of business that operate in each sector6. understand the term enterprise and what is meant by an entrepreneur7. outline the characteristics of an entrepreneur, such as hard working, innovative,

organised and willingness to take a risk8. outline the objectives of an entrepreneur, including to be their own boss, flexible

working hours, to pursue an interest, earn more money, identify a gap in the market and dissatisfaction with current job

9. understand that businesses face a constantly changing business environment due to changes in technology, economic situation, legislation and environmental expectations

Starter

• What do you need? List items here:

• What do you want? List items here:

• Why are these different lists?

Needs vs wants

• There are some goods we (as humans) need:– Water– Shelter– Heat / light– Food

• There are some goods we (as consumers) want:– Garden furniture– A gold watch

• A business will need to work out what customers need and want so they can satisfy those needs

PURPOSE OF BUSINESS

What is a business?

• A business is an organisation which trades to make money, these come in all shapes and sizes

• The business could be one person – an electrician for example, who goes to customers’ houses and fixes their electrics in return for money

• The business could be a giant supermarket chain, for example ASDA, which sells food and other goods for money

What is a product?

• A product is anything that is capable of satisfying customer needs, it is tangible and can be touched

• Examples:– Cars– Washing machines– Nail varnish– X box consoles– Mobile phones

Can you think of other examples of products?

What is a service?

• A service is an act that a business person carries out for you in exchange for money, for example:

– Dental treatment

– Accountancy

– Travel agents

– Gardening

– Cleaning

– Hairdresser

• You cannot “touch” a service it is intangible

Can you think of other examples of services?

Identify the goods and services

A B

C D

Factors of production

• To produce goods and services 4 things are needed:

• Land – somewhere to produce the goods e.g. a farm

• Labour – people to work in the business e.g. farm workers

• Capital – money to get the business started

• Enterprise – This is the drive or motivation from the owners to start a business

• These are the 4 factors of production

Identify the factor of production

B

Opportunity cost

• The problem:

• Land, labour, capital and enterprise are limited resources

• However our wants are unlimited

• This causes scarcity

• As business people we need to decide how best to use those scarce resources, we make choices

When making

important

decisions in

business, the

cost of not

selecting an

alternative is

an opportunity

cost

REASONS FOR STARTING A BUSINESS

Reasons for starting a business

• To produce goods – for example Duncan is an accountant but in his spare time he enjoys working with wood, he decides he would like to make furniture and sell it. This way he can turn his hobby into his job.

• He starts a business to produce furniture

Reasons for starting a business

• To supply a service –for example Sandrine works as a cleaner in a school. She decides to start her own cleaning business so that she can be her own boss and keep the profit.

• She starts a business to supply a cleaning service

Reasons for starting a business

• To distribute products –Logan works in his Uncle’s cycle shop at the weekends while he is at college. When he finishes college he decides to set up a business as a UK distributor for recumbent cycles .

• The cycles are made in Ireland, imported into the UK and Logan’s business sells and delivers them to the cycle shops to be sold on to customers.

Reasons for starting a business

• To fulfil a business

opportunity – Ellen has decided to start a café and thinks it would be easier to buy a franchise. She considers the options and in the end she chooses Muffin break.

Reasons for starting a business

Providing a good or service to

benefit others – social

enterprise

• A social enterprise is a business which has the objective of trading to help people or the planet, rather than making a profit

• Morgan has decided to start a social enterprise. She has spend two years volunteering at a homeless shelter and now things she has found a way to produce and trade goods made at the shelter to help fund more craft activities in the future.

Social enterprises can help people

• Aim to tackle the effects of poverty

• Provide jobs and tackle unemployment

• Help children with a social need

• Tackle the issue of an aging population

• Help the homeless

• Education and training initiativesQuestion:

Can you

think of

other social

needs?

Social enterprises can help the planet

• To reduce pollution

• To tackle deforestation

• To halt climate change

Question:

Can you think

of other

environmental

needs?

BASIC FUNCTIONS AND TYPES OF BUSINESS

Primary sector

The primary sector extracts raw materials from the planet

For example; mining diamonds, coal or other precious metals, chopping down trees for wood

In the primary sector goods such as; wheat and barley could be grown on farms

Other goods could be collected such as; strawberry picking or fishing

Secondary Sector

In the secondary

sector goods are manufactured from raw materials into finished goods

For example plastic, metal and other materials are made into cars

Eggs, butter and sugar are made into cakes

Tertiary Sector

• The tertiary sector is all the support services for business

• Examples are lorries and transport of goods

• The tertiary sector also includes shops, retail, banking and insurance

Name the sector

A B C D

E F G H

BUSINESS ENTERPRISE AND ENTREPRENEURSHIP

Enterprise

• This can be defined as: A company or business. It also can mean a complex project.

Entrepreneur

• An entrepreneur can be defined as: A person who starts a business and takes on financial risk in the hope of making a profit

This is Janice B Gordon, she

is an entrepreneur, listen to

her new business pitch here

and find out what her

business idea is:

VIDEO

ARTICLE

Characteristics of entrepreneurs:Hard working

• Entrepreneurs may have to put many hours in to make the business work

Nicki started Cake Hole in a village in Derbyshire.She is in her 3rd year at the shop and works on her own.She is currently working 120 hours a week to make a go of the business.

Have a look at her amazing

cakes here: Website

Characteristics of entrepreneurs:Initiative

• Initiative means; inventiveness, ingenuity, and resourcefulness.

• Many entrepreneurs may start a business because they have a good idea and want to take it to market.

• Watch the Wand Company present in the den: VIDEO

Have a look at

their website

and see what

they have made

now…

WEBSITE

Characteristics of entrepreneurs:Organised

• Piccolo is a baby food company run by Cat Gazzoli who also has to juggle the business with bringing up a 3 year old.

• VIDEO ARTICLE

Characteristics of entrepreneurs: Risk taker

• Many entrepreneurs stake everything on their idea and may lose their own savings in their quest to start their own business.

• Kirsty was a single mum who worked two jobs and came up with her dairy free ice cream:

• Watch her Dragons’ Den story here: VIDEO

Could you be an entrepreneur?

Entrepreneur objectives:To be your own boss

• A reward of setting up your own business is that you could be your own boss

• Being your own boss means you get to make the major decisions in the business

• You can also change the business if you want to

• Many people would like to have this degree of control in their working lives, which motivates them to start their own business

Kath Kidston, she

started her empire

from a small shop in

London

Entrepreneur objectives:Flexible hours

• One advantage of running a business is that you could take holidays when you want

• This means you could have holidays out of peak times when prices are cheaper

• You can work the hours that fit in with you life – you get work life balance

• VIDEO

Entrepreneur objectives:To pursue an interest

• Opening a business can bring a great sense of satisfaction to the owner

• If your work is something you love, it will give clarity, drive, and happiness to all aspects of your life.

• If your work is meaningful, you’ll be more likely to stick with it in the long run, which means you’re more likely to be successful as a result

• If you are passionate about something (football, horses, playing Xbox) wouldn’t it be great to turn this into a business?

Entrepreneur objectives:To earn more money

• A reward of setting up your own business is you get to keep all the profit that the business makes

• The limit of the profit that you could make is only held back by you

• If you put the hard work in you will possibly make more money than if you were on a fixed salary working for someone else's business

Entrepreneur objectives:To identify a gap in the market

• Kelli, 37, and Laura, 33, who have no previous experience of business, created the refillable, roll-on, mess free sunscreen applicator with product design students at Cardiff Metropolitan University.

• And now Solar Buddies, a small roller-ball applicator which retails at just over £8, has been snapped up by JoJo MamanBebe - loved by the Duchess of Cambridge and Victoria Beckham - and also a few smaller retailers around the UK.

• VIDEO

Entrepreneur objectives:Dissatisfaction with current job

• Alexis from Hackney, loves cooking and experimenting with food

• But desperate to make ends meet she worked for a year cleaning offices

• She then had a 'eureka' moment and set up a healthy food range

• LINK TO ARTICLE• LINK TO WEBSITE

DYNAMIC NATURE OF BUSINESS

Dynamic business environment

• Business faces a constantly changing environment – to which it must adapt

• This is due to:

– Changes in technology

– Changes in the economic situation

– Changes in legislation (laws)

– Changes in environmental expectations

Which of these do you think would have the biggest impact on a

small business?

Constantly changing business environment due to: Changes in technology

Since the invention of the Internet in 1990 businesses have found a new cheaper way to reach the consumer – online

Video on Amazon

Have you ever bought anything from Amazon?

Changes in technology

• Small businesses are now able to set up and sell virtually anything online due to websites such as ebay, etsy and ebid

Video on eBay

Have you ever bought anything from eBay?

Constantly changing business environment due to: Changes in technology

New technology advancements in VR (virtual reality) mean there are lots of new products on the gaming market

Constantly changing business environment due to: Changes in technology

Changes in technologyAdvancements in robotics will mean dozens of new products in the futureThis may also have an impact on numbers of jobs and job roles

Constantly changing business environment due to: Changes in technology

Changes in technology

Businesses can use social media to find out what consumers want and need so that they can produce products and services to meet those wants and needs

How many social media

sites and apps can you

name?

Constantly changing business environment due to: Changes in technology

Constantly changing business environment due to: Economic situation

Inflation rates

• Inflation is: The rate of increase in prices for goods and services– If these go up in the

UK then raw materials required to make goods may increase

– This will increase the costs of the business

– This will have an impact on profit

What is the

current rate of

inflation?

Constantly changing business environment due to: Economic situation

Interest rates

Interest rates are the cost of borrowing UK interest rate: This is set by the Bank of England. When this rises the cost of borrowing increasesA rise interest rates will impact a business because if they have loans or overdrafts these will now cost them moreAlso their customers may now have less money as the cost of their borrowing has increased, so sales may suffer

What is the

current UK

interest rate?

Constantly changing business environment due to: Economic situation

Unemployment rates

• The rate of unemployment in the UK is those people without a job who have been actively seeking work in the past 4 weeks and are available to start work in the next 2 weeks.

• More unemployed means that a business will have more applicants per job that they advertise

• More unemployed also means that many households will be on lower incomes so sales and profits may fall

What is the

current UK

unemployment

rate?

Constantly changing business environment due to: Economic situation

Exchange rates

• Exchange rates are: the cost of one currency expressed in terms of another e.g. $ to £

• Exchange rates change when the demand for a currency goes up or down. Demand could change for many reasons, such as increased business activity or rising interest rates in a country

• If the pound is strong (increases) then a business that imports will find that the goods become cheaper, however if they export the goods will become dearer (SPICED)

What is the

current £ to Euro

exchange rate?

• Employment laws

• The National Living Wage is higher than the National Minimum Wage - workers get it if they’re over 25.

• The Government's National Living Wage was introduced on 1 April 2016 for all working people aged 25 and over, and is set at £7.20 per hour.

Constantly changing business environment due to: Legislation

• Health and safety laws

• Health and Safety at work Act 1974

• All workers have a right to work in places where risks to their health and safety are properly controlled

• Health and safety is about stopping you getting hurt at work or ill through work

• The employer is responsible for health and safety, but the employees must help

Constantly changing business environment due to: Legislation

• Consumer laws

Consumer Rights Act 2015

Goods must be; as described, fit for purpose and satisfactory quality

This will have an impact on costs for a business as they need to make sure the goods are “satisfactory quality”

Constantly changing business environment due to: Legislation

Making environmentally friendly goods

• From Toyota’s Prius to Nissan’s Leaf to Tesla’s Model S, car manufacturers are competing to produce ever more fuel efficient, environmentally friendly models

Constantly changing business environment due to: Environmental expectations

Saving trees by planting rainforests and

reducing paper waste

To halt deforestation and protect the rainforests of the world, businesses are putting back what they take out and being smarter with their paper usage.

For example; Since 2004, Sainsbury’s has planted 2.2 million trees, the equivalent of four Sherwood Forests.

Companies are monitoring closely their waste paper and recycling as much as possible.

Constantly changing business environment due to: Environmental expectations

Sample questions

Sample question 1

Answer question 1

Sample Question 2

Answer question 2

Revisionstation

Written by Sarah Hilton ©