Unit 1.1 Slides


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Unit 1.1 Slides

  1. 1. Unit 1.1 What do businesses do?
  2. 2. Needs and Wants <ul><li>A Need is a basic thing humans have to have in order to survive. I.e. Food, water, shelter and clothes are all needs. </li></ul><ul><li>A Want is something extra we would like to have. They can be luxuries or time saving devices. Cars, mobile phones, computers and CDs are all wants </li></ul>
  3. 3. Goods and Services <ul><li>A Good is something you can touch and feel. </li></ul><ul><li>Goods can be non-durable, durable or industrial </li></ul><ul><li>A Service is provided by someone else. A service is non-physical. </li></ul><ul><li>Hairdryer is a good. A Hairdresser is a service. </li></ul>
  4. 4. Business Size <ul><li>Small </li></ul><ul><li>Medium </li></ul><ul><li>Large </li></ul>
  5. 5. Business Size Employees: 250 + Employees: 50-250 Employees: <= 50 Sells locally, nationally and internationally Reaches locally and/or nationally Sells goods locally Owned by shareholders; run by directors Owned by a group of people Owned by sole trader or partnership Large Business Medium-Sized Business Small Business
  6. 6. Business Sectors <ul><li>Private Sector </li></ul><ul><li>Public Sector </li></ul><ul><li>Voluntary Sector </li></ul>
  7. 7. Private Sector <ul><li>Businesses driven by profit. </li></ul><ul><li>That profit only benefits the owners and investors. </li></ul><ul><li>Financed by private money from shareholders and bank loans </li></ul>
  8. 8. Public Sector <ul><li>Provide goods and services for the benefit of the community </li></ul><ul><li>Run by the Government. </li></ul><ul><li>Public money from taxes </li></ul>
  9. 9. Voluntary Sector <ul><li>Not driven by profit but by need to help parts of the community </li></ul><ul><li>Money from donations and gifts </li></ul>
  10. 10. Types of Ownership <ul><li>Sole Trader </li></ul><ul><li>Partnership </li></ul><ul><li>Private Limited Company </li></ul><ul><li>Public Limited Company </li></ul><ul><li>Franchise </li></ul><ul><li>Co-operative </li></ul><ul><li>Government-Owned </li></ul>
  11. 11. Sole Trader <ul><li>A Sole Trader is a business owned by one person. </li></ul><ul><li>Some examples are: </li></ul><ul><li>Mechanic </li></ul><ul><li>Butcher </li></ul><ul><li>Hairdresser </li></ul><ul><li>Hot Dog Vendor </li></ul>
  12. 12. Features of Sole Trader <ul><li>One man/woman business </li></ul><ul><li>Sole Trader owns business. Owner and business are the same </li></ul><ul><li>Owner provides own capital (savings & borrowings) </li></ul><ul><li>Profits go to the owner but responsible for losses (Unlimited liability) </li></ul><ul><li>Owner controls business, all decisions are theirs </li></ul>
  13. 13. Sole Trader <ul><li>Advantages </li></ul><ul><li>Owner has total control </li></ul><ul><li>Owner keeps all profits </li></ul><ul><li>Owner has better job satisfaction </li></ul><ul><li>Disadvantages </li></ul><ul><li>Unlimited liability </li></ul><ul><li>Hard to raise capital </li></ul><ul><li>Owner is responsible </li></ul><ul><li>High failure rate </li></ul>
  14. 14. Partnership <ul><li>Business owned by 2-20 people </li></ul><ul><li>Examples: </li></ul><ul><li>Doctor </li></ul><ul><li>Dentist </li></ul><ul><li>Lawyer </li></ul><ul><li>Accountants </li></ul>
  15. 15. Features of Partnership <ul><li>A business owned by several people 2-20 </li></ul><ul><li>Deed of Partnership – contract dealing with share of profits, roles and duties, capital contributed, dispute procedures </li></ul><ul><li>Owned jointly but not always equally </li></ul><ul><li>Partnership is an extension of sole trader </li></ul><ul><li>Capital provided by partners </li></ul><ul><li>Profit goes to partners, not always equally </li></ul><ul><li>All partners entitled to participate in management (unless silent partners ) </li></ul>
  16. 16. Partnership <ul><li>Advantages </li></ul><ul><li>Able to specialise </li></ul><ul><li>Do not have total responsibility </li></ul><ul><li>More ideas </li></ul><ul><li>More money </li></ul><ul><li>Can borrow more money easier </li></ul><ul><li>Disadvantages </li></ul><ul><li>Unlimited liability </li></ul><ul><li>Risk of conflict </li></ul>
  17. 17. Private Limited Company <ul><li>Shareholders – a part-owner of a business. </li></ul><ul><li>Limited liability – shareholders are only liable for debts equal to value of their shares. </li></ul><ul><li>Dividends – the share of profits received by shareholders </li></ul>
  18. 18. Features of Private Limited Companies <ul><li>Organisation owned by a group of individuals </li></ul><ul><li>Memorandum/Articles of Association </li></ul><ul><li>Owned by Shareholders (usually family) whose main function is to elect Board of Directors </li></ul><ul><li>Money raised by share issue or borrowing </li></ul><ul><li>Ordinary Shares & Preference Shares </li></ul><ul><li>Profit shared between shareholders or retained by company </li></ul>
  19. 19. Private Limited Company <ul><li>Advantages </li></ul><ul><li>Company is a legal entity </li></ul><ul><li>Easy to raise capital </li></ul><ul><li>Limited liability </li></ul><ul><li>Company keeps going regardless of changes in personnel </li></ul><ul><li>Disadvantages </li></ul><ul><li>Complicated rules to set-up business </li></ul><ul><li>Audited accounts need to be made public </li></ul>
  20. 20. Public Limited Company <ul><li>Has plc after the name </li></ul><ul><li>Limited liability </li></ul><ul><li>Minimum £50,000 share capital </li></ul><ul><li>Shares sold by banks and stockbrokers </li></ul><ul><li>Shares can be offered to general public </li></ul><ul><li>Private limited companies become PLCs to raise money for expansion </li></ul>
  21. 21. Features of plcs <ul><li>Org. owned by a group of individuals, has plc after name </li></ul><ul><li>Certificate of Incorporation approved by Registrar of Companies </li></ul><ul><li>Shareholders 2+. Shares sold on stock exchange. Prospectus prepared to attract shareholders </li></ul><ul><li>Capital raised by share issue or borrowing </li></ul><ul><li>Profits shared between shareholders or retained by company </li></ul><ul><li>Board of Directors = Divorce of ownership and control </li></ul>
  22. 22. Advantages & Disadvantages of PLCs <ul><li>Advantages </li></ul><ul><li>Shareholders limited liability </li></ul><ul><li>Sale of shares raises money </li></ul><ul><li>Shareholders recoup money by selling shares </li></ul><ul><li>Directors may be experts in their field </li></ul><ul><li>Disadvantages </li></ul><ul><li>Number of legal requirements </li></ul><ul><li>Company accounts made public </li></ul><ul><li>Directors report to shareholders at AGMs </li></ul>
  23. 23. Charities <ul><li>A charity is an organisation set up to raise funds to help other people or causes. </li></ul><ul><li>Charities have to register and publish their accounts. </li></ul><ul><li>Unlike voluntary organisations, charities employ managers and workers. </li></ul><ul><li>Cancer Research, Save the Children and Oxfam are well known charities. </li></ul>
  24. 24. Charities <ul><li>Advantages </li></ul><ul><li>If charity has status of charitable trust it doesn’t pay tax   </li></ul><ul><li>Looks after less privileged and the environment </li></ul><ul><li>Disadvantages </li></ul><ul><li>Less money may be donated due to introduction of lottery </li></ul><ul><li>Relies on voluntary workers who may not be paid for work </li></ul>
  25. 25. Franchise <ul><li>A franchise is a business marriage between an existing business and a newcomer </li></ul><ul><li>The franchisee buys permission to copy the business idea of the established company </li></ul><ul><li>McDonald’s is a franchise </li></ul>
  26. 26. Franchise <ul><li>Advantages </li></ul><ul><li>Franchisor provides a lot of support; training to start business, equipment, materials, advice, brand name </li></ul><ul><li>Take over a successful, winning formula </li></ul><ul><li>Disadvantages </li></ul><ul><li>Franchisee doesn’t have complete freedom </li></ul><ul><li>May not agree with decision placed upon you </li></ul>
  27. 27. Co-operative <ul><li>A co-operative is a business owned and operated by its workers </li></ul>
  28. 28. Co-operative <ul><li>Advantages </li></ul><ul><li>Members in control </li></ul><ul><li>Members have interest in business doing well </li></ul><ul><li>Members share profits </li></ul><ul><li>Disadvantages </li></ul><ul><li>New workers need to buy shares </li></ul><ul><li>Often pressured to sell if successful </li></ul><ul><li>Need new workers to expand </li></ul>
  29. 29. Government Owned <ul><li>Central </li></ul><ul><li>Local </li></ul><ul><li>Public Corporations </li></ul>
  30. 30. Central Government <ul><li>Advantages </li></ul><ul><li>Shareholders limited liability </li></ul><ul><li>Easy to raise finance </li></ul><ul><li>Disadvantages </li></ul><ul><li>Expensive to set up </li></ul><ul><li>Accounts need to be made public </li></ul>Provides services to public for nothing or a fee. NHS is paid for by tax ( income tax , VAT, National Insurance )
  31. 31. Local Government <ul><li>Advantages </li></ul><ul><li>In touch with local needs </li></ul><ul><li>Disadvantages </li></ul><ul><li>Can be politically driven </li></ul>Run by local councils providing a variety of vital services to the area ( police, fire, roads, libraries ). Can be done by local council or contracted out .
  32. 32. Public Corporations Set up by an Act of Parliament and directors appointed by the Government. Very rare. ( BBC, Post Office, Bank of England)
  33. 33. Public Sector Organisations <ul><li>Businesses set up by an Act of Parliament </li></ul><ul><li>Government provides capital through Treasury </li></ul><ul><li>Govt. appoints Chairman and Board </li></ul><ul><li>They may be natural monopolies </li></ul><ul><li>May be unattractive to private sector due to enormous capital investment </li></ul>
  34. 34. Public Corporations <ul><li>Reasons for being set-up: </li></ul><ul><li>To avoid wasteful duplication and confusion </li></ul><ul><li>To set up and run important non-profitable services </li></ul><ul><li>To prevent exploitation of consumers </li></ul><ul><li>To protect jobs and key industries </li></ul>
  35. 35. Privatisation <ul><li>The selling off of Public Corporations to the private sector </li></ul><ul><li>Why Privatise? </li></ul><ul><li>To improve efficiency by introducing competition </li></ul><ul><li>Shareholders in Modern Society </li></ul><ul><li>Privatisation raises huge monies for government </li></ul>
  36. 36. Factors of Production <ul><li>Land – all natural resources used in production </li></ul><ul><li>Labour – all people used in production </li></ul><ul><li>Capital - all items used to make other things in production </li></ul><ul><li>Enterprise – the art of bringing together the other factors of production and being successful </li></ul>
  37. 37. Types of Production <ul><li>Primary </li></ul><ul><li>Secondary </li></ul><ul><li>Tertiary </li></ul>
  38. 38. Primary Sector <ul><li>This covers raw materials which are straight from land, sea and air </li></ul><ul><li>Mining </li></ul><ul><li>Farming </li></ul><ul><li>Fishing </li></ul><ul><li>Oil and gas </li></ul>
  39. 39. Secondary Sector <ul><li>This uses the raw materials and turns them into finished goods </li></ul><ul><li>Car manufacturing </li></ul><ul><li>Engineering </li></ul><ul><li>Shipbuilding </li></ul><ul><li>Electronics </li></ul>
  40. 40. Tertiary Sector <ul><li>This covers all services : </li></ul><ul><li>Insurance </li></ul><ul><li>Education </li></ul><ul><li>Fire Service </li></ul><ul><li>Health Service </li></ul><ul><li>Leisure Industry </li></ul>
  41. 41. Production Chain <ul><li>Production is the transformation of raw materials into the finished product </li></ul><ul><li>IPO or Input – Process - Output </li></ul>
  42. 42. Creating Wealth <ul><li>Wealth is created by adding value to each stage of the production process </li></ul><ul><li>Selling Price = Cost of materials + Value </li></ul>