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Topic 1

Introduction to financial capability, workand enterprise

Learning outcomes

After studying this topic, you will be able to:

� describe what makes a business successful;

� explain what makes a business stand out from others.

Introduction

In the first two units of this course, we explored personal finance, theindividual and society, and the practice of managing money. In this unit wewill look at how businesses manage money, exploring the relationshipbetween how individuals manage their finances and how businessesmanage theirs.

We start by looking at what we mean by a ‘business’; how we can defineand measure business success; and what makes a business stand out fromthe rest. In later topics we will look at:

� the role of ‘entrepreneurs’;

� the tools businesses use to manage their money;

� how taxation and criminal activities (ie fraud and theft) affect businesses;

� the effect individuals have on businesses, and vice versa;

� the impact business has on society; and

� how the behaviour of individuals, as both customers and employees,affects society.

Discuss

This unit is about financial capability, work and enterprise.The starting point is answering a simple question: what is abusiness? How would you explain what a business is?

1© The London Institute of Banking & Finance 2018

1.1 What is a business?

A business or enterprise is an organisation that produces products (ie‘goods’) or services, which are sold to individual customers (or ‘consumers’)or sold to other businesses that need them. Every society depends onsuccessful businesses to provide the jobs, products and services that itscitizens need. Most businesses are privately owned, but they can also berun by charities or voluntary groups, or be government agencies. They oftenstart with someone’s simple idea for a new product or service that theythink lots of people would buy if given the chance.

Businesses range from one-person operations (a self-employed drivinginstructor, for example) to huge international corporations (like Microsoftor Apple). There are many thousands of businesses in the UK, and theycome in a wide variety of types, shapes and sizes.

A sole-trader business A medium-sized business

Just as individuals have their own aims and goals that they want to achievein life, each business also sets out to achieve certain things. These arebusiness objectives; and the success of a business can be measured bylooking at how good it is at achieving its objectives. We will now explorewhy people start businesses, and what objectives different businesses areaiming to achieve.

Discuss

How many businesses can you think of that you wouldconsider successful?

Can you draw up a list and say why you consider them to besuccessful businesses?

2 © The London Institute of Banking & Finance 2018

Unit 3


Topic 1

1.2 What do businesses set out to achieve?

Your list of successful businesses may have included well-knowncompanies, such as Virgin, Tesco, BP, Marks & Spencer, Facebook, Nike orNext. You may consider them to be successful because they are well known,or because they have all grown into national or international organisations.But there are millions of businesses all over the world that would also claimto be successful, despite not being ‘household names’. We therefore needto ask: what are the different objectives that businesses try to achieve?

Managing and running a business, or starting a new business from scratch,involves a lot of hard work and stress, and there is always the risk of failurejust around the corner if you don’t get it right. So why do people start theirown businesses, or pursue a career in business? Why do people want theresponsibility of running a company?

Any of the above phrases may have popped into your head, and they are allvalid answers.

To make money To make a profit

Because they enjoy it

Because they aregood at it

To provide aservice

Consider the following quotes from two successful entrepreneurs:

“. . . making profits is important because it keeps all our people injobs and. . . it keeps what we’ve created going, but . . . what I’m

proud about doing is creating companies . . . which we can really beproud of, and a by-product of that hopefully will be that they’ll beprofitable and be able to pay the bills.

”– Sir Richard Branson, founder of Virgin Group

“Do what you love, but be sure it’s profitable. If you do work you love, but it doesn’t generate income, your business will fail. If

you do work you hate, but it generates income, your health will fail . . .and your business along with it. If you can’t do what you love andmake it profitable, you’ve either got a hobby or a headache, not asustainable business. Don’t settle for anything less than passion andprofit.

”– Steve Pavlina, founder of a software development company

These quotes show that, for some business leaders, success is aboutmaking money (ie profit), but also about doing something you enjoy andcreating something you are proud of.

Let’s look at the range of business objectives that different businesses aimto achieve.

Profit – if a business is producing and selling goods, orselling services, it will have ‘sales revenues’, ie the moneyconsumers pay to buy those goods or services. Revenue fromsales is used to pay the costs incurred in producing thegoods or services (eg wages and salaries, rent, raw materials,stock, energy costs). Any money left over (the surplus) is theprofit, so profit = revenue – costs. If a business’s aim is tomake as much profit as possible, its objectives will thereforebe to maximise revenue and minimise costs.

Quality (to ‘be the best’) – some businesses value thequality of the products or services they provide as their mostimportant objective. It is important to them to have a goodreputation, to be proud of their products or services, and tobe highly regarded by their customers.


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Market share – at times, many businesses’ first priority is tosell more and more of their products or services. They mayeven cut prices (and thus profits) to increase their sales, withthe aim of winning customers away from rival businessesselling similar goods or services. If they win customers awayfrom rivals, they increase their own ‘market share’ – thepercentage of customers who buy from them rather thanfrom their rivals. Their overall objective may be to becomethe biggest provider of certain products or services inparticular markets.

Social or environmental service – some businesses are setup by people who feel strongly that a particular service orproduct should be provided, eg to protect or improve theenvironment, or for the benefit of certain groups of peopleor for society as a whole.

1.3 Business objectives and business types

There are a number of different types of business, and each type may havedifferent objectives from the others. The main types of business are asfollows.

1.3.1 Private companies

Private companies are businesses owned by individuals. There are differenttypes of ownership, however.

Many are sole traders, ie one self-employedperson. This can be anything from a plumberor window cleaner to a computerprogrammer or management consultant.


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There are also large numbers of small firmsowned by two or more people working inpartnership. Examples include doctors,solicitors, accountants and independentfinancial advisers. In each case, the partnerswill own and run the business jointly. If eachpartner has put the same amount of moneyinto the business, they will own an equalshare in the business, get an equal share ofthe profits, and have an equal say in makingbusiness decisions. However, a partner whoputs more money into the business thanother partners may have a bigger share of

the ownership, which means they will be entitled to a bigger share of theprofits and a greater say in making business decisions.

Some businesses are franchises – small businessesthat pay a ‘franchise fee’ to a much largerorganisation for the right to operate one of theiroutlets. Well-known fast-food chains such asMcDonald’s, Subway, KFC and Pizza Hut arefranchise operations.

Medium-sized firms are oftenprivate limited companies(which have ‘Ltd’ at the end oftheir names). They are usuallyowned by a small group ofshareholders – sometimesmembers of the same family.The advantage of limitedcompany status is that, if thebusiness fails and owes peoplemoney, the shareholders are notresponsible for paying thoseoutstanding bills or other

business debts. Shareholders in a private limited company can only losehowever much money they originally invested in the company.


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Bigger businesses may be public limitedcompanies (which have ‘plc’ after theirname). Shares in these businesses can bebought and sold on the stock exchange,which means they may be owned byhundreds or thousands of individualinvestors, as well as by financialorganisations such as pension funds,insurance companies and investmentfunds. The main advantage of a ‘plc’ is thecapital (ie money) it can attract by sellingmore shares. This capital can help the

company to expand into new areas.

A disadvantage of being a ‘plc’ is that only the shareholders with thelargest number of shares have much say in what happens to the business.Also, a rival company may be able to buy enough of the plc’s shares totake over the company. As a plc often has a large number of shareholders,it can also be difficult to make decisions that everyone will agree with.Some shareholders are only interested in making as much profit aspossible, while others also expect the company to behave responsibly.

Until the 1950s, private companies, however they were owned, had onlyone objective: to make maximum profits for their owners. Big, constantlygrowing levels of profit mean that owners are paid ever higher ‘dividend’payments. Dividends are the way that profits are distributed to theshareholders, who also benefit from higher share prices.

However, newer laws and changing public attitudes have led manybusinesses to declare that they have other objectives in addition to makingprofits. It is now common for a business to publish a ‘corporate socialresponsibility’ statement, setting out its commitment not only to makingprofit, but also to pursuing social objectives. Such objectives can includeproviding good jobs and decent working conditions for employees,protecting the environment, or promoting a healthy lifestyle.

1.3.2 Not-for-profit companies

Not-for-profit companies are businesses set up for purposes other thanmaking profits. They are often service companies (for example a housingassociation or hospice). Not-for-profit companies include charities, socialenterprises, mutually owned businesses and co-operatives.

� Charities are businesses set up to achieve social objectives. They can besmall organisations that raise funds from donations and fundraisingactivities, such as cake sales and coffee mornings; or nationalorganisations that raise money through high-street charity shops; orinternational bodies, such as Cancer Research or the Red Cross.


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� Social enterprises are businesses set up for social purposes: often toprovide training and employment for people who have difficulty gettinga ‘mainstream’ job, or to promote environmental development. The EdenProject and Jamie Oliver’s Fifteen restaurants are two of the many socialenterprises operating in the UK. Their revenue comes from trading –selling goods and services – but maximising profit is not a priority, soany profit made is reinvested in the business.

� Mutually owned businesses and member co-operatives are businessesowned by their members (ie their customers). Any profit, after deductionof costs from revenues, is reinvested in the business or distributed tomembers as an annual dividend. Examples include Nationwide BuildingSociety and the Co-operative Group. These businesses compete withprivately owned rivals, and their revenues must cover costs, as theycannot afford to operate at a loss. Like social enterprises, however, theydo not need to maximise profit, which gives them more flexibility to settheir own priorities.

� Worker co-operatives are businesses owned by the workers who workfor them. Surplus revenues are reinvested in the business, or distributedto the workers as a bonus or ‘profit share’. Like member co-operatives,they have to make a surplus or they will go bust, but, unlike privatecompanies, they can keep the profits themselves rather than giving themto owners or shareholders. The biggest and best-known workers’ co-operative in the UK is Suma Wholefoods – an online food provider ofvegetarian, organic and Fairtrade food (Fairtrade is discussed in Topic 6).

1.3.3 Public-sector businesses

Most government departments and organisations set up by the government(such as NHS hospitals, the Money Advice Service or the Financial ConductAuthority) are not, strictly speaking, businesses. This is because they arenot trading bodies – ie they do not sell goods or services to generaterevenues. There are, however, a number of commercial businesses eitherfully or partly owned by the government. These include banks (LloydsBanking Group, Royal Bank of Scotland Group), and companies such asEurostar, the Royal Mint and Direct Rail Services.

1.4 Why do people start their own businesses?

Every country needs new business start-ups to create new jobs every year.One measure of a successful economy is whether there is full employment;in other words, is everyone who wants a job able to get one? A study by theNational Institute for Economic and Social Research (Niesr, 2013) reportedthat around 4 million jobs are lost in the UK every year, as firms makeworkers redundant or go out of business altogether. So, to maintain fullemployment, the economy needs to generate enough new jobs to replacethose being lost. In recent years this has happened, as according to theNiesr study, around 4 million new jobs are also created each year. Abouthalf of these new jobs are created by existing companies, but the other half


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are generated by new business start-ups. So it is very important that peopleare inspired to become entrepreneurs (a term discussed in more detail inthe next topic) and to start new business ventures every year.

Did you know?

In 2016, new businesses were being started at a record rateof 80 per hour (The Telegraph, 2016), but the failure rate fornew businesses is high. Research has revealed that over halfof new small businesses don’t survive more than five years(Whitelock, 2014).

But what drives someone to take the plunge and go out on their own, oftenusing their own money or borrowing substantial sums to get the businessstarted? There is no one simple answer to this question, as personalmotivations are complex, but let’s explore some possibilities.

Spotting a ‘gap in the market’

Invention / innovation


Topic 1

I’m naturally creative and good at coming upwith new ideas, both for brand new products(ie inventions) and for new ways to useexisting products and services (ieinnovations). I know some people with theseskills who work for businesses’ product-development departments, but I amdeveloping my big idea in my own time. I willsoon set up my own business to market it.

A few years ago, I spotted a need for a newservice. I also realised that moreconsumers would buy a particular productif it was cheaper and better designed.These gaps in the market inspired me tolaunch a new business. I found a way toproduce the improved product and providethe new service.

Redundancy

‘To be my own boss’

Charitable / welfare / environmental objectives

Discuss

Can you think of any more reasons why someone would bewilling to take the risk of starting a new business?

What might make you want to start a business?


Unit 3

There are few ‘jobs for life’ these days – noone is safe from being told that the companythey work for no longer needs them. Forpeople like me, though, redundancy canprovide an opportunity to ‘go it alone’ andmake a new start. This is because I worked forthe same company for a number of years, andwas eligible to receive a lump-sumredundancy payment, which I used as start-upfinance for my own new business.

I want to help disadvantaged groups ofpeople, such as those with serious illnessesor disabilities. I’m also keen on protecting andimproving the environment. This is mymotivation for starting a charity or socialenterprise to pursue these aims in the future.

I don’t enjoy working for other people. I’veworked in a big business but didn’t like theimpersonal environment. Starting my ownbusiness is my way to escape this and beindependent. My biggest hope is for mybusiness to take off and make me rich, butI’d be happy to run a small business thatprovides a reasonable income, as long as Iget to run the business how I want.

Sue Baker opens her dream cafe – but it could turn into anightmare!

In Topic 6 of Unit 1, Sue Baker was thinking of opening her own cafe –with an art gallery attached – in one of the vacant shops on her local highstreet. She hoped to be able to sell pottery made by her brother Richard,and to offer her daughter Sophie a job when she left school. Six monthsago, Sue was made redundant from her job as a medical secretary at thelocal hospital.

Discuss

What do you think Sue’s business objectives will be over:

a) the short term (ie her first trading year); and

b) the medium term (ie the first five years)?

Sue originally thought about asking her brother to be apartner in the business. What would be the advantages anddisadvantages of the business being a partnership ratherthan a sole trader?

What other type of business could Sue set up instead? Howmight this benefit her?


Topic 1

Sue

I decided that the redundancy was agood opportunity to follow myambition and open the cafe. Six weekslater, I signed a lease agreement torent a shop for 12 months.

I used my redundancy payment and asmall business loan from my bank topay for the furniture, equipment, andbuilding and decorating work that wasneeded to turn the shop into a cafe,and to pay staff. Then I opened the doors and began trading.

I know there’s a big risk that the business will fail. Let’s face it –I’ve got no experience or qualifications in catering, I’ve never runmy own business, and my confidence that the cafe will besuccessful is based on a gut feeling. I didn’t have time to do anymarket research to see how much demand there might be for acafe in the high street, though I did do a basic business plan tosupport my application for a business bank loan.

1.5 What makes a business successful?

A business is successful if it achieves its objectives. Different types ofbusiness may have very different objectives, so we need to measure thesuccess of different businesses in different ways.

1.5.1 Private companies

Private companies, whose prime objective is to make as much profit aspossible, will be seen as a failure if they trade at a loss (ie end up with lowerrevenue than costs) or break even (where revenue is equal to costs, soprofits are zero). The most successful private companies are those that arenot content to make a profit each year, but are always striving to grow and

expand the business. They sell increasing amounts of productsor services each year, bringing in more and more revenue,

while keeping costs under control to ensure thatprofits grow.

Long-term objectives may differ from short-term objectives, and this must be taken into

account when assessing the success of abusiness. Businesses may seek to make

as much profit as possible as a long-term goal, but decide that the bestway to achieve that objective is to setshort-term targets that may reduceprofits in the short term.

For example, they may decide tomaximise sales, or to maximiserevenue in order to become themain supplier in the market (iehave the biggest market share). Inthe short term, such strategiesmay push up costs or require thebusiness to reduce prices. However,

these short-term profit reductionsare set against the bigger profits that

the business hopes to make over thelonger term.

1.5.2 Charities and social enterprises

The success of a charity or social enterprise, onthe other hand, will not usually be measured by the

amount of profit it makes (unless its purpose is simplyto raise funds for a charity). If its main objective is to provide

a social or welfare service for a certain group of people, or to protect orimprove the environment, it will be considered successful if it achievesthese objectives.


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1.5.3 Sole traders

Similarly, the main objective of someone who sets up a self-employed, soletrader business may be to make enough money to live on so that they cancontinue to do a job they enjoy. This can be particularly true where the self-employed person has turned their hobby into a full-time job (eg interiordesign, carpentry, gardening, or teaching music).

1.5.4 Employment, environmental and ethical measures of success

A number of other common business objectives also provide measures ofsuccess, particularly with regard to employment, environment and ethicalpolicies and practice.

1.5.4.1 Employment policy and practice

However successful a business is in terms of profits, it will not beconsidered a success overall if it has a poor reputation for treatment of itsworkers. The corporate social responsibility statements mentioned insection 1.3.1, which are published by big companies each year, will includea section on employees’ pay and conditions. Most companies committhemselves to:

� paying fair wages and salaries;

� ensuring there are good working conditions, which comply with healthand safety regulations and create a good working environment (eg clean,dry, adequately heated, not overcrowded);

� providing training and staff development, to give employees the chanceof promotion to higher-paying jobs;

� providing an employers’ pension scheme;

� providing a company sick-pay scheme and paid maternity / paternityleave for parents;

� ensuring that all employees are treated equally and have equalopportunities for promotion;

� creating new job opportunities wherever possible, and offeringapprenticeships to help young people (ie school leavers and graduates)get their first jobs.

Good employment practice is part of effective management and leadership,and will also have a positive impact on the business itself. Employees arelikely to be efficient and productive where they feel that their contributionto the business is valued, that they are paid decent wages and that theyenjoy good working conditions.


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If employees are treated well, they will be more willing to work hard andwill take less time off. Staff turnover – the number of employees who leavethe company – will likely be lower, because employees will not feel the needto look for jobs with other companies. This is good for the company,because every time an experienced, qualified member of staff leaves for abetter job, it takes time and money to recruit and train their replacement.

1.5.4.2 Environmental policy and practice

All business activities affect the environment. These effects can be positiveor negative, and can impact on both the local and global environments.

Successful, profitable businesses sometimes keep their costs low by ‘cuttingcorners’ and ignoring the damaging effects their activities can have on theenvironment. Factories, processing plants and even offices and shopsproduce a lot of waste products, which can include toxic (ie poisonous)waste that pollutes air and water sources in the local area if not disposedof properly. Non-toxic waste also needs to be kept to a minimum (andrecycled where possible) to protect the environment. In addition, businessactivities consume energy and can generate ‘greenhouse gas’ emissions.

Successful businesses are therefore expected to have effective strategiesfor limiting and, where feasible, eliminating the damaging effects theiractivities may have on the environment.

1.5.4.3 Ethical policy and practice

As well as helping to protect the environment, successful businesses areexpected to behave ‘ethically’. This means behaving properly, doing the‘right thing’ and, above all, making sure that business activities do no harmto anyone or anything. The positive employment and environmentalpractices outlined above form part of an ethical business strategy. Anethical strategy goes further, to include a commitment to honest, law-abiding behaviour which:

� protects customers from unfair trading practices;

� protects workers from unfair employment policies;

� ensures that employees do not get involved in offering bribes or in otherkinds of financial corruption;

� commits the business to paying all legal tax liabilities; and

� adopts a fair trading policy with suppliers.

Trading fairly means not buying supplies from companies that use low-paid‘sweatshop’ workers or child labour, or that make people work in crowded,unsafe conditions. It also means ensuring that farmers get paid a fair price fortheir produce. These ethical issues are discussed in more detail in Topic 6.


Unit 3

Discuss

Think about what wehave learned so far inthis topic.

What are the mostimportant things SueBaker needs to do tomake sure her cafe isstill in business at theend of the first year?

1.6 What makes a business stand out from others?

Private companies, co-operatives and social enterprises all have one thingin common: they cannot afford to trade at a loss. Private companies aim tomake as much profit as they can, but co-operatives and social enterprisesalso need to sell enough goods and services to produce arevenue that covers their costs, so that they can at least‘break even’.

For any business to survive and prosper, it mustoffer goods or services that people will buy. If thebusiness competes with rival companies thatare selling similar goods or services, thebusiness must make its offering stand outfrom the others, so that customers will buyfrom it rather than from its rivals. One wayto do this is to offer your product orservice for a lower price than your rivals,but there are other ways of making yourproduct stand out from the competition.

Competition for customers has becomeincreasingly intense in recent years, asmore consumers have turned to onlinecomparison websites to find the best orcheapest supplier they can. Therefore, tosell enough of their products or services tomeet their sales targets, businesses mustmake their product or service different to theothers. This is called ‘differentiation’, which isachieved by making sure your product or servicehas a unique selling point (USP).


Topic 1

So how can a business differentiate its products from the rest? How can abusiness owner create a USP?

Let’s consider each of these suggestions in turn.

1.6.1 Invention

Invention means coming up with an idea for a brand new product, or fornew equipment or technology that makes it easier and cheaper tomanufacture a product or provide a service. Engineers and scientists haveinvented a steady stream of new products ever since the IndustrialRevolution (which began around 1760). In the field of transport, forexample, the invention of bicycles, steam trains, cars, vans and lorries,electric and diesel trains, aeroplanes and so on has allowed the creation ofmany successful businesses.

A newly invented product can be a great way of establishing a USP andoffering a product that is different from anything else on the market. If theproduct is something that could easily be copied by other companies,however, the inventor needs to use patenting laws (similar to copyright) tostop this happening and thus keep their product unique.

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1.6.2 Innovation

Invention is about creating brand new, unique products, while innovationis about taking an existing product and changing the way it is used.

The internet was originally acomputer network used byscientists and militaryorganisations to communicatewith each other. It was theinnovative ideas of Britishcomputer scientist Sir TimBerners-Lee that allowed theinternet to become theworldwide communication system we all use today.

Apple’s iPod, similarly, was an innovation that took a simpleexisting product – a small data-storage device called a USBflash drive – and redesigned it. This redesign created a user-friendly MP3 music player that millions of people have usedto store and play back their music files.

Satellite and cable TV services (such as Sky and Virgin) are also examplesof innovation. These services used existing satellite and cablecommunication technology to offer multi-channel subscription TV services,which now have millions of subscribers.

1.6.3 Marketing

Marketing is an all-embracing term, which covers everything that a businessdoes to sell as many of its products or services as possible. Marketingactivities include the following.

� Market research – before any new product or service can be designed,companies need to know what their customers (existing and potential)need and want, and how much they would be prepared to pay for newproducts. Market research surveys, questionnaires and focus groups canbe used to find this out.

� Design – all products and services have to be designed to meet the needsof customers in the ‘target market’ (ie people identified as the type ofpeople who would be interested in buying the product). Design not onlycovers the product itself, but the way the product is packaged andpresented, and any materials used to promote the product (eg leaflets,brochures, displays).


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� Advertising – however good a product or service may be, customers willnot buy it in large quantities if they are unaware how good it is – or ifthey don’t even know that it exists. Advertising is therefore needed tomake customers aware of the offering, and to convince them that it issomething they want to buy. Advertising ranges from posting leafletsthrough letterboxes and putting up posters, to mounting nationalnewspaper, radio and TV campaigns.

� Promotion and public relations (PR) – like advertising, promotion andPR aims to make consumers aware of a product / service and to encouragethem to buy it. A variety of techniques are used to make a business standout from others and thereby promote sales, as Figure 1.1 indicates.

Figure 1.1 Promotion techniques

1.6.4 Pricing

Perhaps the simplest way to make a product stand out from similarproducts is to ensure it is the cheapest product of its type on the market.For some companies this will be a permanent strategy, because their targetmarket is the ‘value’ end of the sales spectrum (for example, companies

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Unit 3

that create products for ‘pound shops’). Rather than producing goods ofthe highest possible quality and charging the highest possible prices, thesebusinesses produce lower-quality products and sell them for lower prices.

Other companies may initially offer new products at a high price, beforedropping to a lower price once initial demand has been satisfied. Thesebusinesses know they have customers – called ‘early adopters’ – who willhappily pay a high price to be among the first to buy a new product. Thispractice is very common in the technology market, where new mobilephones, flat-screen TVs, computers and game consoles all come to marketat high prices, before settling down to a lower long-term price after demandfrom early adopters has been satisfied.

Discuss

What might be the best marketingand pricing strategies for a smallbusiness like Sue Baker’s cafe?

1.6.5 Customer service

Having good-quality, well-designed, competitively-pricedproducts with a clear USP willdistinguish your company fromyour rivals. However, it can still allgo wrong if you don’t achievegood levels of customer service.

Poor customer service can ruin abusiness’s reputation, leading to aloss of customers. Conversely,customers who experience out -standing customer service willoften be willing to remain loyal toa company, even if its rivals offerthe same product or service for alower price. Happy customersoften also recommend the productor service to other people.


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So how can businesses use customer service to stand out? There are severalkey aspects that all businesses need to get right, including the following:

� Communication – whether you have bought a product or signed up fora service, you will want to be able to contact the company quickly andeasily by phone or online. You will want any questions and concerns tobe dealt with effectively, and any problems put right straight away.

� Transparency – a business should always provide clear and accurateinformation, whether about the products it sells or the services itprovides. We are more likely to use a business that gives us accurate andhonest information.

� Convenience – selling products or services in a way that is quick, easyand convenient for customers has become more important in the internet

age. Many businesses now sell their products online and deliverthem to the customer’s home. As customers, we expect

delivery times to be clearly stated and as convenient aspossible; and if a business promises next-day

delivery, it must meet this commitment.

1.6.6 Staff development and motivation

Producing high-quality products anddelivering a high standard of customerservice requires a well-trained, well-qualified workforce. The workforce mustalso be motivated to contribute to thecompany’s overall success as a business.Businesses have to recognise this and putin place an effective strategy for:

� continuous staff training;

� encouraging and supporting staff whoare studying for higher qualifications;and

� offering additional rewards, bonuses,and ‘Employee of the Month’-styleawards to keep staff motivated.

1.6.7 Social and ethical values

Nowadays, as consumers we are aware of social, environmental andwider ethical issues when choosing the products and services we buy andthe companies we buy them from.

Ethical and environmental policies and practice were outlined in section1.5.4. Many businesses have realised that adopting such policies can helpthem to stand out from their rivals.


Unit 3

More and more consumers actively look for products:

� that carry the Fairtrade logo;

� that contribute to a healthy diet;

� that are ‘environmentally friendly’, such aslocally produced or organic fresh food, orcars with low carbon emissions andsmaller engines that use less fuel.

Most businesses try to reduce their‘carbon footprint’ by using less energyand producing less waste. Somebusinesses now use renewable energysources, such as wind and solarpower. If businesses take these issuesseriously, there will be real benefitsfor the environment and our quality oflife, and businesses themselves willbenefit by having a strong ethicalbrand image.

1.6.8 Brand image

Each of the ways described above helpbusinesses to differentiate themselves fromothers. All of these factors contribute to abusiness’s ‘brand image’ – how the companyand its products / services are perceived byconsumers. A strong, positive brand image (such asVirgin, Coca-Cola, Apple, Nike) can be achieved by:

� building a reputation for invention or innovation;

� having an effective marketing strategy;

� achieving high standards of customer service; and

� showing commitment to operating in ethically and environmentallysound ways.

When consumers choose between competing businesses, the strength ofeach company’s brand image can often be the deciding factor.


Topic 1

Case study: Sue Baker seeks business advice

Sue Baker has reached the end of her first year in business. She hascontacted an online small-business advice service, to ask how she canmake the business more successful next year.

Discuss

How many things can you think of that Sue could do to try tomake the cafe profitable?

Pick the top two or three options that you think would bemost likely to make the cafe profitable. Explain why you thinkthey would work.


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Sue

I called the cafe ‘Burgers à la Carte’, becauseI wanted the menu to be built around acentral selection of handmade ‘gourmet’burgers using only the finest quality, free-range organic British beef. We offer a varietyof unusual flavourings and toppings –including the top-of-the-range ‘Executive’burger, which is topped with smoked salmonand caviar.

I took on three experienced and highly skilledstaff, which means there is a high wage bill. I also gave my daughterSophie a job, but it has led to arguments because Sophie is often lateand is not really enjoying catering. The gallery selling my brother’spottery has not sold very much – revenue averages £50 per week.

There are branches of McDonald’s and Burger King in the same highstreet, so I’ve been trying to keep my prices close to the prices theycharge. The cafe is always fully booked on Friday and Saturdayevenings, but it is not busy at lunchtimes or on weekday evenings.I’ve had some customers come back two or three times, but mostseem to only come once. I have just received my first year’s annualaccounts from my accountant. While they show that I took moremoney than I expected to (the total revenue was £250,000), therewere high running costs and overheads – things like wages, supplies,electric and gas bills, and the high rent and council tax charged for ahigh-street shop. As a result, the cafe made a £20,000 loss overall.

I really need to do something to make the cafe profitable or it willhave to close, but I’m not sure how to turn things around.

SummaryFinally, we can recap what we have learned in this topic.

� A business is an organisation that produces products or services whichare sold to customers or other businesses that need them. Every businesshas objectives it sets out to achieve, which vary from making maximumprofit, to supplying a product or service that provides a social service.

� There are many different types of business, which can be owned indifferent ways. Business types include sole traders, partnerships, privatelimited companies, public limited companies (plcs), not-for-profit socialenterprises, co-operatives, and charities.

� The success of businesses can be defined and measured in different waysdepending on their business objectives.

� Businesses can achieve success by using marketing techniques,appropriate pricing, good customer service, a strong USP and a goodbrand image to make their business stand out from their rivals.

Key terms

Business objective – the goal or target that a business sets out toachieve.

Charity – a not-for-profit organisation set up to raise funds and providesupport for certain people or a good cause.

Competitive advantage – when an organisation develops something thatallows it to sell more products than its competitors.

Customer service – providing service to customers before, during andafter a purchase.

Dividend – where profits made by plcs are paid to shareholders.

Employees – the workers who are employed by a business, and who helpthe business to achieve success.

Franchise – the right to sell another business’s products or to use theirtrademark.

Growth – in business terms, this can be measured in many ways, such asan increase in sales, in revenue, in number of employees or number ofcustomers.

Limited company – an ‘incorporated’ business, meaning that thebusiness has a separate legal identity from its owners. The owners areshareholders in the business and have limited liability for the business’sdebts.


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Limited liability – where a shareholder is only responsible for the amountof money they have invested in a business.

Marketing – an all-embracing term that covers designing a product whichpeople need or want; then using further design, advertising andpromotional activities to sell the product to the target market.

Market share – the sales of a particular business when measured againstthe sales of all businesses in the market.

Partnership – a business owned by two or more people (usually up to amaximum of 20), who share the decisions and the profits.

Profit – how much money a business makes after its costs are deductedfrom its revenues. Profit is the seen as the main goal of most businessesin the long term.

Public limited company (plc) – a limited company whose shares can bebought and sold on the stock exchange.

Revenue – the value of a business’s sales in a given time period.

Social enterprise – a not-for-profit business with social objectives, suchas helping a local community or creating jobs for people with disabilities.

Social values – the objectives of businesses in terms of behavingethically, helping local communities, reducing effects on the environment,and considering impact on the wider economy.

Sole trader – a business owned and controlled by one person, who canemploy others.

Survival – the short-term objective of a new business, or a business thatdoes not have profit as its main objective.

Unique selling point (USP) – something that makes a product or servicestand out from competing products or services.

Unlimited liability – where the owner of a business is personally liablefor all of the business’s debts.

Bibliography and further reading

Niesr (2013) Job creation and destruction in the UK. National InstituteEconomic Review, August 2013.

Pauley, J. (2005) Transcript of Jane Pauley’s interview with Sir RichardBranson [online]. Available at: http://www.business-opportunities.biz/2005/10/19/transcript-of-jane-pauleys-interview-with-sir-richard-branson/


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Pavlina, S. (no date) Quoted online at:http://www.azquotes.com/quote/768161

Suma Wholefoods: www.suma.coop/about/cooperation

The Telegraph (2016) Record 80 new companies being born an hour in2016 – available at:http://www.telegraph.co.uk/business/2016/07/12/record-80-new-companies-being-born-an-hour-in-2016/

Whitelock, C. (2014) Growing pains: Majority of SMEs don’t survive fiveyears [online]. Available at: https://www.rsagroup.com/news/press-releases/2014/growing-pains-majority-of-smes-dont-survive-five-years/

For more information on business ethics go to:http://www.ethicalconsumer.org/

For more information on business start-ups go to:https://www.gov.uk/starting-up-a-business/start-with-an-idea

For more information on Fairtrade go to:http://www.fairtrade.org.uk/

For more information on social enterprise go to:http://www.socialenterprise.org.uk/about/about-social-enterprise

All images © iStock.com


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