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Business Management UNIT 1 1.1 - What do businesses do? 1 What are goods and services? Businesses make goods Businesses provide services Some examples of goods made Computers Cars Washing Machines Mobile phones Sweets Clothes Seafood DVD players I-pods Some examples of services provided Banking Insurance Education Hairdressing Public transport Entertainment – cinema 2 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 3 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 4 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 5 Difference between Needs and Wants As consumers, we buy the goods offered by a range of organisations/ businesses. The following are examples of goods we buy 6 WHAT IS A NEED? A NEED is something an individual must have in order to survive – these are the basic needs or wants Food Shelter Clothing Drink 7 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.... 8 WHAT IS A WANT? A WANT is something an individual would like to have, or wishes for – they are not essential for survival When a want is fulfilled it gives the consumer Satisfaction. Examples are: I-pod Sports Car Video Camera Expensive jewellery 9 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 10 Types of business organisation Sole Trader Public Limited Company Partnership Types of business Private Limited Company Public Ownership Franchise 11 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: Can Small shops, mechanics, you name 3 soleCar trader businesses inFlower Oban? shop Albany Stores, Esplanade Post Office, Flower basket. 12 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. 13 Partnership FEATURES 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 profit Examples: Dentists, vets and lawyers. Can you name 3 partnership businesses in Oban? Munros Garage, MacCamley and Laird, Stevenson Kennedy (lawyers) 14 Partnership ADVANTAGES: DISADVANTAGES: 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 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. 15 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 16 Private Limited Company FEATURES 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, 17 Private Limited Company ADVANTAGES: DISADVANTAGES Owner keeps control of the business Private limited company can raise more finance that a smaller business Shareholders have limited liability. 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. 18 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 Directors Examples: BP plc, Boots plc, Tesco plc. Can you name 3 public limited companies operating in Oban? Tesco plc, Boots plc, W H Smith plc 19 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. 20 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. 21 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 22 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. 23 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. 24 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. 25 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. 26 Public Ownership FEATURES 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 Can you give an example of a Public Ownership organisation in in Oban? Services Local Government 27 Public Ownership ADVANTAGES: Less competition DISADVANTAGES May not be as profitable as private sector businesses. 28 What is the aim of a Charity? Aim to care for those in need or help 29 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 30 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 31 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 32 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 33 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 34 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 35 Multi-National businesses Features of Multi-national businesses sell goods or provide services worldwide operate in more than one country 36 The Economy can be divided into 3 Sectors: Private Economy Voluntary Public 37 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 38 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 country o To make good use of taxpayers’ money and provide the services that an area needs 39 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. 40 SECTORS OF INDUSTRY Primary Sectors of Industry Tertiary Secondary 41 SECTORS OF INDUSTRY PRIMARY SECTOR – agriculture, fishing, mining This involves the extraction of raw materials Oil Production Fishing Forestry 42 SECTORS OF INDUSTRY SECONDARY SECTOR – manufacturing This involves the manufacture of goods Car manufacturing Engineering Shipbuilding 43 SECTORS OF INDUSTRY TERTIARY SECTOR – service This involves the provision of services Insurance Hairdressing Leisure Public Transport Education Fire Service 44 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. 45 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 and provides services to meet identified consumers’ needs. 46 THE PRODUCTION PROCESS/CHAIN The production process will follow several stages and involves the transformation of raw materials into finished articles: INPUT – raw materials SOLD TO CUSTOMERS PROCESS – Manufacturing stages OUTPUT– Finished goods 47 Example of the production chain The 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 48 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. 49 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 50 LAND Farmland – crops,animals Buildings – land needed for housing, businesses Water Coal-mining to provide heat oil/gas-refineries 51 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 52 CAPITAL Capital is the money and the things that can be purchased with money to make and sell goods and services. 53 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 54 CREATING WEALTH Creating 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 55 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! 56 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 57
