Businesses provide goods and services to satisfy human needs and wants. They can be small, medium, or large businesses. Goods are physical products that can be touched, while services are non-physical and provided by others. Businesses operate in the private, public, or voluntary sectors. Common types of businesses include sole traders, partnerships, private limited companies, public limited companies, franchises, co-operatives, and government-owned organizations. Factors of production include land, labor, capital and enterprise. Production involves transforming raw materials through primary, secondary and tertiary sectors to create finished goods and services.

1. Unit 1.1 What do businesses do?

2. Needs and Wants A Need is a basic thing humans have to have in order to survive. I.e. Food, water, shelter and clothes are all needs. 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

3. Goods and Services A Good is something you can touch and feel. Goods can be non-durable, durable or industrial A Service is provided by someone else. A service is non-physical. Hairdryer is a good. A Hairdresser is a service.

4. Business Size Small Medium Large

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. Business Sectors Private Sector Public Sector Voluntary Sector

7. Private Sector Businesses driven by profit. That profit only benefits the owners and investors. Financed by private money from shareholders and bank loans

8. Public Sector Provide goods and services for the benefit of the community Run by the Government. Public money from taxes

9. Voluntary Sector Not driven by profit but by need to help parts of the community Money from donations and gifts

10. Types of Ownership Sole Trader Partnership Private Limited Company Public Limited Company Franchise Co-operative Government-Owned

11. Sole Trader A Sole Trader is a business owned by one person. Some examples are: Mechanic Butcher Hairdresser Hot Dog Vendor

12. Features of Sole Trader One man/woman business Sole Trader owns business. Owner and business are the same Owner provides own capital (savings & borrowings) Profits go to the owner but responsible for losses (Unlimited liability) Owner controls business, all decisions are theirs

13. Sole Trader Advantages Owner has total control Owner keeps all profits Owner has better job satisfaction Disadvantages Unlimited liability Hard to raise capital Owner is responsible High failure rate

14. Partnership Business owned by 2-20 people Examples: Doctor Dentist Lawyer Accountants

15. Features of Partnership A business owned by several people 2-20 Deed of Partnership – contract dealing with share of profits, roles and duties, capital contributed, dispute procedures Owned jointly but not always equally Partnership is an extension of sole trader Capital provided by partners Profit goes to partners, not always equally All partners entitled to participate in management (unless silent partners )

16. Partnership Advantages Able to specialise Do not have total responsibility More ideas More money Can borrow more money easier Disadvantages Unlimited liability Risk of conflict

17. Private Limited Company Shareholders – a part-owner of a business. Limited liability – shareholders are only liable for debts equal to value of their shares. Dividends – the share of profits received by shareholders

18. Features of Private Limited Companies Organisation owned by a group of individuals Memorandum/Articles of Association Owned by Shareholders (usually family) whose main function is to elect Board of Directors Money raised by share issue or borrowing Ordinary Shares & Preference Shares Profit shared between shareholders or retained by company

19. Private Limited Company Advantages Company is a legal entity Easy to raise capital Limited liability Company keeps going regardless of changes in personnel Disadvantages Complicated rules to set-up business Audited accounts need to be made public

20. Public Limited Company Has plc after the name Limited liability Minimum £50,000 share capital Shares sold by banks and stockbrokers Shares can be offered to general public Private limited companies become PLCs to raise money for expansion

21. Features of plcs Org. owned by a group of individuals, has plc after name Certificate of Incorporation approved by Registrar of Companies Shareholders 2+. Shares sold on stock exchange. Prospectus prepared to attract shareholders Capital raised by share issue or borrowing Profits shared between shareholders or retained by company Board of Directors = Divorce of ownership and control

22. Advantages & Disadvantages of PLCs Advantages Shareholders limited liability Sale of shares raises money Shareholders recoup money by selling shares Directors may be experts in their field Disadvantages Number of legal requirements Company accounts made public Directors report to shareholders at AGMs

23. Charities A charity is an organisation set up to raise funds to help other people or causes. Charities have to register and publish their accounts. Unlike voluntary organisations, charities employ managers and workers. Cancer Research, Save the Children and Oxfam are well known charities.

24. Charities Advantages If charity has status of charitable trust it doesn’t pay tax Looks after less privileged and the environment Disadvantages Less money may be donated due to introduction of lottery Relies on voluntary workers who may not be paid for work

25. Franchise A franchise is a business marriage between an existing business and a newcomer The franchisee buys permission to copy the business idea of the established company McDonald’s is a franchise

26. Franchise Advantages Franchisor provides a lot of support; training to start business, equipment, materials, advice, brand name Take over a successful, winning formula Disadvantages Franchisee doesn’t have complete freedom May not agree with decision placed upon you

27. Co-operative A co-operative is a business owned and operated by its workers

28. Co-operative Advantages Members in control Members have interest in business doing well Members share profits Disadvantages New workers need to buy shares Often pressured to sell if successful Need new workers to expand

29. Government Owned Central Local Public Corporations

30. Central Government Advantages Shareholders limited liability Easy to raise finance Disadvantages Expensive to set up Accounts need to be made public Provides services to public for nothing or a fee. NHS is paid for by tax ( income tax , VAT, National Insurance )

31. Local Government Advantages In touch with local needs Disadvantages Can be politically driven 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. Public Corporations Set up by an Act of Parliament and directors appointed by the Government. Very rare. ( BBC, Post Office, Bank of England)

33. Public Sector Organisations Businesses set up by an Act of Parliament Government provides capital through Treasury Govt. appoints Chairman and Board They may be natural monopolies May be unattractive to private sector due to enormous capital investment

34. Public Corporations Reasons for being set-up: To avoid wasteful duplication and confusion To set up and run important non-profitable services To prevent exploitation of consumers To protect jobs and key industries

35. Privatisation The selling off of Public Corporations to the private sector Why Privatise? To improve efficiency by introducing competition Shareholders in Modern Society Privatisation raises huge monies for government

36. Factors of Production Land – all natural resources used in production Labour – all people used in production Capital - all items used to make other things in production Enterprise – the art of bringing together the other factors of production and being successful

37. Types of Production Primary Secondary Tertiary

38. Primary Sector This covers raw materials which are straight from land, sea and air Mining Farming Fishing Oil and gas

39. Secondary Sector This uses the raw materials and turns them into finished goods Car manufacturing Engineering Shipbuilding Electronics

40. Tertiary Sector This covers all services : Insurance Education Fire Service Health Service Leisure Industry

41. Production Chain Production is the transformation of raw materials into the finished product IPO or Input – Process - Output

42. Creating Wealth Wealth is created by adding value to each stage of the production process Selling Price = Cost of materials + Value