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Business revision- AQA


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Business revision- AQA

  1. 1. Business aim and activitiesThe UK economy is a mixed economy . This The activities of industry canmeans that it has a public sector(organizations be divided into stages -controlled by the government), and a private primary, secondary andsector (owned by shareholders, sole traders or tertiary production. Thesepartnerships). stages form the chain of production and provide consumers with the finishedPrimary Production - involves acquiring raw goods.materials. For example, metals and coal haveto be mined; oil drilled from the ground;rubber tapped from trees etc. Secondary Production - manufacturing and assembly process. involves converting raw materials into components, e.g. making plastics from oil. Territory production - supports the production and distribution process, e.g. insurance, transport, advertising, warehousing, retail etc.
  2. 2. Limited Companies There are two types of limited companies private and public. A public limited company (PLC) can sell its shares on the Stock Market, while a private limited company (Ltd) cannot.Advantage of PLC Disadvantage PLCRaise large amount of capital (money) from share Become too large resulting in poor labour relationsissue. (relationship between workers and management).Produce goods at lower unit cost. Risk of takeover by rival companies who have bought shares in the company .Large plcs may find it easier to borrow from banks. Conflict of interest between shareholders and the Board of Directors.Advantage of Ltd Disadvantage of LtdEasy and inexpensive to set up. Profits have to be sharedShare can be sold to family Accounts are not privateShare holders have limited liability (can only loose Not all decisions are made by ownersmoney they put in business, do not pay of debts usingtheir own money).Death and illness wont affect the running of the Share cant be sold on the stock
  3. 3. Sole TradersA sole trader describes any business that is owned and controlled by one person, although they may employ workers,e.g. a newsagents shop. The owners are personally liable for the firms debts, and may have to pay them out of theirown pocket. This is called unlimited liability (personally liable for or debts) . Advantages •The firms are usually small, and easy to set up. •Generally, only a small amount of capital needs to be invested, which reduces the initial start-up cost. •The wage bill will usually be low, because there a few or no employees. •It is easier to keep overall control, because the owner has a hands-on approach to running the business and can make decisions without consulting anyone else. Disadvantages •The sole trader has no one to share the responsibility of running the business with. A good hairdresser, for example, may not be very good at handling the accounts. •Sole traders often work long hours and find it difficult to take holidays, or time off if they are ill. •Developing the business is also limited by the amount of capital personally available. •There is also the risk of unlimited liability, where the sole trader can be forced to sell personal assets to cover any business debts.
  4. 4. PartnershipPartnerships are businesses owned by two or more people. A contract called a deed of partnership is normallydrawn up. This states the type of partnership it is, how much capital each party has contributed, and how profitsand losses will be shared.Advantages•The main advantage of a partnership over a sole trader isshared responsibility. This allows for specialisation, whereone partners strengths can complement anothers. Forexample, if a hairdresser were in partnership withsomeone with a business background, one couldconcentrate on providing the salon service, and the otheron handling the finances. Disadvantages•More people are also contributing capital, which allows •The main disadvantage of a partnershipfor more flexibility in running the business. comes from shared responsibility.•There is less time pressure on individual partners. •Disputes can arise over decisions that•There is someone to consult over business decisions have to be made, or about the effort one partner is putting into the firm compared with another. •The distribution of profits can cause problems. The deed of partnership sets out who should get what, but if one partner feels another is not doing enough, there can be dissatisfaction. •A partnership, like a sole trader, has unlimited liability.
  5. 5. Chain Of Command The chain of command is the formal line of communication that starts with the Board of Directors and the Managing Director, who make the firms decisions. Below them are the department managers, then the section heads and finally to the shop floor or office staff. This is a hierarchical structure.
  6. 6. Three main consumer protection laws Trade Descriptions Acts of 1968 and 1972 False or misleading information must not be given about products - for example, information about who made the product. Fake designer goods that are marketed as the genuine product are a clear breach of the Trade Descriptions Act Consumer Credit Act 1974 This protects you when you borrow or buy on credit. •Businesses must have licences to give credit. •No one under 18 is to be invited to borrow or buy on credit. •Businesses have to state an Annual Percentage Rate (APR).Sale and Supply of Goods Act 1994 •If you sign a credit agreement at home youThis Act says that all products have to be of a satisfactory have several days in which you can tear up thequality. This means that they have to: agreement. This is called a cooling off period.•be safe•last for a reasonable amount of time•be fit for their intended purpose•have nothing wrong with them (unless the defect wasnoted at the time of sale)
  7. 7. Sources Of Finance External sources of finance •Leasing - renting a piece of equipment or machinery •Hire Purchase - Business hires the equipment for a period of time makingInternal sources of finance fixed regular payments. Once payments• owners funds – savings of people setting up the business have finished it then owns the piece of•Retained profits – when a business has money left over equipment.after all costs have been meant. •Trade credit – buying goods now and•Selling assets – a business can sell somethings that it paying later for themcurrently owns. •Loans – a specific amount of money is•Credit control– chasing customers that owe the business borrowed from a bank with regular fixedmoney repayments with interest.•Reducing stock – where you try and manage with •Bank overdraft - a limit on borrowingmaterials you already have. on a bank current account. •Mortgage – a long type of loan •Issuing shares – PLCs or LTDs can sell these •Government grants - money given to a business in some areas of the country •Venture capital – financial institutions that provide money for growing businesses
  8. 8. Budgets & Cash FlowA budget is a forecast of income and expenditure over a given period of time like a week or a year. As it is only a forecast, many things could happen which could make the actual spend of allocated monies different from what was budgeted. Why do we need budgets? •To help plan and allocate finances •Budgets are used to help control costs
  9. 9. Marketing
  10. 10. Marketing...Market Segment•Age - Very young children, teenagers and OAP’s have different wants & needs.For instance, products to help mobility are sold mainly to older people.•Gender - Men & woman may have different needs and tastes. Products areaimed at a specific gender group.•Income - Low incomes have different spending patterns to those on highincomes. E.g. car manufactures produce a range of models, aimed at differentincome earners•Area - This considers the religion of the country that consumers live in. Certainproducts are traditionally popular in particular areas. E.g.; Haggis in Scotland.•Culture - Different ethnic, cultural & religious groups can have different buyingpatterns. For instance orthodox Jews will only eat “kosher” food, which doesnot certain pork products.•Socio-Economic Groupings
  11. 11. Product Lifecycle Development Growth •Product being designed •Sales grow rapidly •Product becomes Maturity investigated & tested. •Sales start to level off •Example – Hydrogen cars, Solar profitable •Example – iPhone, •Product had become energy established and the market Nintendo Wii stableExtension strategies •Example – Mobile Phones•New markets abroad•New uses for product•Broadening product range ( diet, lemon)•Packaging, image change Saturation•Frequency of use •Sales slow as the market becomes•Change ingredient of components saturated (everybody has these•Advertising campaign products. •Still a profitable stage •Example – Toasters, DVD players Decline •Sales decline •Is inevitable for almost every product •- They become obsolete (walkman) •- Tastes change (dripping) •- New products (Mobiles V Payphones) •- Some products never decline, often food items, Heinz Ketchup etc…
  12. 12. Product Product Product range •Businesses may supply the market•The product in the marketing with more than one product. This ismix is essential. called the range of products.•It can be either a good or a •Nestle sell a wide range ofservice. products including confectionary,•It includes all the feature of breakfast cereals dairy products andthe product and what per food.functions its carries out. Product differentiation•Companies try to make their products Brandstand out from the competition. •A brand is a name which makes a product•Any way in which a products is different to different or stand out compared to similarits rivals. E.g., coke and Pepsi. products.•Name •The opposite of a branded product is a•Logo generic product, one where customers don’t•Design see any difference, i.e., coal or potatoes.•Content •What brands can you think of?•Packaging •Hoover, sellotape, dairy milk, Heinz baked beans, PG tips, Mercedes, Sony
  13. 13. Product...Why do businesses want branded goods?•Creates customer loyalty.•Can charge a premium•It protects the manufacturer from imitations by competitors as it givesthe product its own identity.•It assists advertising campaigns. Own Brands •Any product which carries the brand of a retailer. E.g. Tesco, Woolworths, Asda, Boots. E.g. Food, drugs, drinks, cosmetics. •Poses a huge threat to manufactures traditional brands. Packaging • Advertising/promotion i.e. deals •Protects the product •Keeps food hygienic •Provides customers with info.
  14. 14. PricingPrice•Most customers consider price when buying something•Only a few very rich people don’t look at priceSupply and Demand•When working out what price to charge for a product, businesses first have to look at supply anddemand.Supply•The quantity of a product producers are prepared to make for a sale.•The law of supply: As price increases so does supply. As price decreases, so does supply.•When price is low, producers loose money they reduce output.Demand•What consumers are willing and able to pay•The law of demand: As price increases, quantity demanded falls. As prices decreases, quantitydemanded rises.•2 reasons - At lower prices more can afford to buy•Product becomes cheaper than rivals so people buy it. This is why 2 for 1 are so effective.
  15. 15. PricingEquilibrium•Consumers like low prices & producers like high prices – conflict of interest.•The point where both are happy is called the equilibrium•How it works: if prices are too low, there’ll be a shortage, so consumers will paymore and prices raise encouraging producers to make more. If prices are toohigh, consumers won’t buy, creating a surplus. Producers have to lower prices toget people to buy their unsold goods.•Pricing- is part of the marketing mix used to persuade customers to butproducts.•The price that is set must be consistent with everything else in the marketingmix.•A high priced product needs to have features/benefits that customers feeljustified paying more for.•Directly influences profits by creating revenue rather than effecting costs.•Price helps a business “differentiate” its products.•To make a pricing decision you need to consider: - competitors and their prices,how a price can be used to increase sale and whether it will cover thebusinesses costs.
  16. 16. Pricing StrategiesCompetition Based Pricing• Setting a price close to that of a competitor.•Competition is then focused on aspects other thanpricing such as advertising.Advantages•Product is accurately priced based on competitors –if it was more expensive it may lose sales, a lotcheaper and customers may think it has a lowerquality.Disadvantages Penetration Pricing•Not suitable if there are no similar products in the • Set an initial low price to attract place. •New products, with expected long life cycles•What about smaller firms? •Maximise on early sales •Once they have grown market share they can increase price. •Typical in mass market products. Advantages •Attract a lot of attention and can help achieve long term profit. Disadvantages •Customers may refuse to buy when the price is raised as they may not see an increase value •Low initial revenue.
  17. 17. Pricing Strategies...Creaming / Skimming•A High initial price is set when a newproduct is launched and it is lowered aftera period of time.•Hi-tech market- where a product is seenas being unique•Many people buy as luxury•Price can be dropped later to attract awider market Price Discrimination•Short life cycles •Selling a product at different prices to different segments of theAdvantages market.•High price = High quality •Most common in air and rail travel.•High initial profits. •Tickets at premium during rush hour when trains are full, halfDisadvantages price tickets during week day when not many people want to•Cuts off a lot of the market. travel.•People may wait for the price to lower. •Student, Child or OAP passes Advantages •Gives businesses an opportunity to earn more money. Disadvantages Is it fair?
  18. 18. Market Research•Market research is the collection of information or data tobetter understand what is happening in the market place.•Market research tells us about economic trends as well ascustomers’ views.•This ensures that the product/service developed by thebusiness is more likely to be successful. Secondary or desk research -Existing data that has already been collected. •Observations •Till Receipts Primary or field research - Obtaining •Newspapers new data for a specific purpose. •Government Statistics •Questionnaire •Telephone Surveys •Interviews •Postal Surveys
  19. 19. Trade UnionsTrade unions exist to protect workers, by binding them together to create a group which has the power to stand up to management. Types of Industrial Action •Strike – Workers select a day(s) on which they will not come into work. •Work to rule – Workers apply the firm’s rules and procedures to the ‘letter’ with the objective of slowing down production. •Go slow – Employees work slowly •Picketing – Workers may stand at the entrance to the employer’s factory or place of work demonstrate with banners or slogans. •Overtime ban – Workers simply refuse to work overtime.
  20. 20. Payment SystemsTime Based•Wages are based on the amount of time worked•Often this is hourly e.g., £6.50 p/h- This method is normally used to pay manual workers Salaries- People who do physical work •Wages are based on an argument- E.g., factory workers, fast food amount per year for a particular job.- People often work longer hours (overtime) to earn more £ •E.g., £20,000 a year •This method is normally used to pay white collar workers (managers) – people who don’t perform physical work. •E.g., Teachers, many office jobs Results based •Piece rates -People are paid for each item they •Overtime isn’t paid as workers are produce, e.g., artists expected to work for as long as it takes to do the job. •Commission - Staff are paid a certain amount of each sale they make E.g., Salespeople •Bonus - A reward for a good performance
  21. 21. Motivating workers•Businesses want their workers to work hard and produce goods and servicesof a high standard.•Workers are more likely to do this if they are motivated.•Motivated workers are more productive and higher productivity usuallymeans higher profits.•In a service industry, workers who are well motivated will provide a betterlevel of customer service, keeping the customers happy.•Staffs who are well motivated are more likely to stay with the company. Theygrow in experience and become even more valuable to their employer.•If a business successfully keeps the staff it has, the cost of recruiting andtraining new staff is reduced.
  22. 22. CommunicationInternal communication – communication whichtakes place within the business. E.g. Eternal communication –management must tell HR about plans to open communication which takes placenew branch so HR can recruit staff. outside the business. E.g. Talking to suppliers and customers or borrowing money from banks. Channels of communication The route along which a message travels is called the : “Communication channel” Formal & Informal Formal: Communication through the official channels of a business. Informal: Communication via the grapevine i.e. chats with a friend in sales. Horizontal & Vertical communication Horizontal: is communication between people of the same level. Vertical: is communication is people of different levels.
  23. 23. Exchange ratesThe exchange rate is simply the value (or purchasing power) of a currency in terms of what it canbuy of other currencies.The value of each currency is decided on the foreign exchange markets. A rise is the pound means – Exports become more expensive and imports cheaper. This should result in a fall in exports and rise in imports. A fall in the pound means – exports become cheaper and imports more expensive. This should result in a rise in exports and fall in imports.
  24. 24. Franchising When a business is given the right by another business to sell its goods and services under its name. Franchisor – a person or business who sells the franchise Franchisee – a person who buys a franchise Government Regulations•The government has a tremendous influence onwhat individuals can and can’t do.•In the same way it lays out what businesses can andcan’t do. Laws•These are laid down as laws or “legislation”. Discrimination Laws – Race, sex Minimum age – Alcohol, Tobacco Health and safety laws – Insurance, clean working areas Consumer protection – Labelling
  25. 25. Ownership Sole Trader - Owned financed and controlled by one individual but can employ other staffAdvantagesEasy to set up (Very few forms or procedures requiredEast to run (Owner is the boss and doesn’t need to work with anyone else)Tax advantagesControlProfits are kept by the ownerPrivacy (Only HM Revenue and customs (Tax man sees records)FlexibilityDisadvantagesUnlimited liability (If something goes wrong then the owner is responsible incourt. May lose house and any other assets)Limited access to capital(money)Potential for long hoursPressure of being solely responsibleLack of continuity- business ceases once owner dies- Too small to have andIT specialist, lawyer, accountant ECT…,
  26. 26. Ownership... Partnerships- Owners, financed and controlled by 2 or more partnersAdvantagesLike sole tradersEasy to set upProfits are kept by ownerPrivacyAlsoGreater access to capital (money)Shared responsibilityGreater opportunity for specialisation (i.e., one partner might know aboutIT)DisadvantagesUnlimited liabilityAll partners are reliable for the debts of the othersPartnership dissolved on death of one partnerPotential for conflict (arguments between partners)Limited access to capital
  27. 27. TaxationIncome Tax•This is a tax on the income or earnings of individuals.•Income tax is a progressive tax. The more people earn the higher the rate they pay.Corporation Tax•This is a tax on the profits of companies.•National Insurance – Contribution made to pay for future state pension and right tounemployment benefit.Value Added Tax (VAT)•Charges on goods and services which are brought in the UK•This is made on almost everything we buy apart from, food, children’s clothes, books andnewspapers.•The amount paid is usually 17.5% of the total value of goods and services. It’s currently 15%Effect of taxes on Consumers•Higher tax = + Public services should improve + More public sector jobs•Consumers have less money to spend on goods and services.•Lower tax = + Consumers have more money to spend. –Public services will probably decline.Effect of taxes on Businesses:•Higher tax = + Good if your business works for supplies the government, i.e., drug or defencecompanies•Less profit for investment etc and less money spent by consumers•Lower taxes = +More profit, more spent by consumers – Bad news if you work for thegovernment.