Transcript Business Management

Business Management
UNIT 1
1.1 - What do businesses do?
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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
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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
As consumers, we buy
the goods offered by a
range of organisations/
businesses.
 The following are
examples of goods we
buy
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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 or
wants
Food
Shelter
Clothing
Drink
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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 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
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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
Sole
Trader
Public
Limited
Company
Partnership
Types of
business
Private
Limited
Company
Public
Ownership
Franchise
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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: Can
Small
shops,
mechanics,
you name
3 soleCar
trader
businesses inFlower
Oban? shop
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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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.
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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 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,
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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.
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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 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
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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 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
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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 worldwide
operate in more than one country
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The Economy can be divided into 3 Sectors:
Private
Economy
Voluntary
Public
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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
country
o 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
Primary
Sectors of
Industry
Tertiary
Secondary
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SECTORS OF INDUSTRY
PRIMARY SECTOR –
agriculture, fishing, mining
This involves the extraction of raw materials
Oil Production
Fishing
Forestry
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SECTORS OF INDUSTRY
SECONDARY SECTOR –
manufacturing
This involves the manufacture of goods
Car manufacturing
Engineering
Shipbuilding
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SECTORS OF INDUSTRY
TERTIARY SECTOR –
service
This involves the provision of services
Insurance
Hairdressing
Leisure
Public Transport
Education
Fire 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 and
provides 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 into
finished articles:
INPUT –
raw materials
SOLD TO
CUSTOMERS
PROCESS –
Manufacturing
stages
OUTPUT–
Finished goods
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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
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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 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
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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
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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
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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
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