SBDE Learning Unit 2

1. LEARNING UNIT 2

2. ROUTES TO A NEW BUSINESS
 New business – creation of a business with a business
idea that has not previously been used
 Start ups – starting of a new business but not
necessarily a unique business idea
 Franchising – standardised product. Advantages of
marketing, promotion etc. Disadvantages in terms of
standardisation
 Outright Purchase – purchase of an existing running
business

3. ROUTES TO A NEW BUSINESS
 Buy in – Part purchase , existing owner sells a section
of their business
 Buy-out – purchase where the buyer is in some way
already connected with the business

4. MAIN TYPES OF BUSINESS
Manufacturing
Retailing
Services

5. MANUFACTURING
Characteristics The process and methods employed in
the transformation of tangible inputs
(raw materials, semi-finished goods or
subassemblies) and intangible inputs
(ideas, information, know how) into
goods and services.
Example Handicraft to hi-tech, e.g. clothing,
packaging, electronics.
Advantages Intellectual property can be registered.
Disadvantages
 Can be labour intensive.
 Requires sophisticated equipment/
technology.
 Success determined by efficiency.
 Raw materials can become scarce.
Resources required Capitals, skilled human resources,
inputs, know how, safety requirements.

6. RETAILING
Characteristics Retailing consists of the sale of goods or merchandise from a fixed
location such as a kiosk, shop, or by post in small or individual lots for
direct consumption by the consumer. Retailing may include subordinated
services such as delivery. Consumers may be individuals or businesses.
Example Stationery store, Spaza shop, hardware store, mail order clothing and
appliances.
Advantages
 Purchase goods ready for resale in large quantities from
manufacturers, wholesalers or importers and then sell smaller
quantities to the end user at a profit, therefore little or no technical
expertise required.
 Able to negotiate with suppliers.
 Usually situated near to readymade markets.
Disadvantages
 Goods may be perishable.
 Much competition.
 Customers can be fickle in their tastes and preferences.
Resources required Capital, warehousing, ordering and delivery systems, customer-centric
employees and sales staff.

7. SERVICES
Characteristics
 The supply of “intangible goods” or services to
individuals or businesses.
 Usually with ancillary products.
Example Interior decorator, career counsellor, public relations
business, real estate agent, pest control service
provider, builder, web designer, editor.
Advantages
 Tends to have low overheads.
 Return on investment is relatively high with little
or no need to manage stock in most cases.
 Little capital required to commence business.
Disadvantages
 It can be difficult to market a service, as there is
no product to view or handle (with the exception
of service business such as food outlets).
 Many service industries are highly regulated, e.g.
financial advisors, estate agents.
Resources required Technical or professional know how, usually relatively
little capital requirements, customer-centric
employees.

8. INDIVIDUAL EXERCISE
Create a visual representation of
the ground rules for a service
business (p34/35/36 in module
manual)

9. TYPES OF BUSINESS ENTITY
 Two categories:-
 Profit making
 Non-profit making

10. NON-PROFIT COMPANIES
 A company incorporated for public benefit
relating to community or group interests
including cultural or social activities.
 There is no profit motive and the income
and assets do not belong to and cannot be
distributed to its members or any other
person, i.e. manager or treasurer.

11. PROFIT COMPANIES
Two categories:-
1. Companies that have no restrictions
to selling of their shares on open
market
2. Companies that have restrictions on
the transferability of their shares and
are prohibited from selling shares to
the public

12. PROFIT COMPANIES
Profit companies may take on one (1) of the
following forms:
 Public Companies;
 Private Companies;
 Personal Liability companies;
 State-owned Companies.

13. CLOSED CORPORATIONS (CC’S)
CC‟s registered before 1st May
2011 can continue to operate
as legal entities
After this date no new CC„s
can be registered

14. PARTNERSHIPS
 An association of between two (2) and 20 people
who are contractually bound (Partnership
Agreement) to one another to operate a joint,
profit generating business.
 Each partner contributes money, goods or
services to a fund, agreeing that any profits
made will be shared among them, as per the
Partnership Agreement.

15. SOLE TRADERS
 The owner is the sole
employee, contributing the
capital, receiving accrued income but
also liable for the businesses debt
and taxes.

16. INDIVIDUAL EXERCISE
Revision questions p37 module manual