Business Chapter 1 to 5 Blurt

Chapter 1:
A need is a good or service essential for living.

A want is a good or service that a consumer would like to have but is not essential for living.

The economic problem is that unlimited wants exist but there’s not enough resources to produce goods and services
to satisfy those wants. This leads to scarcity.

Scarcity – not enough products to satisfy total wants of the population.

Factors of production are resources needed to produce goods or services

There are four factors of production:

Land – all natural resources
Labour – workers to produce goods and services
Capital – finance, machinery and equipment.
Enterprise – skill and risk-taking ability to bring together all four factors of production to produce a good or service.

Specialization is when businesses and people concentrate on what they're best at.

Division of labour is when the production is split into different tasks and each worker does one of them
 Workers can get bored of doing repetitive tasks.
 Whole process interrupted if one sick.
 Increases efficiency.
 Quicker and cheaper to train workers.

Businesses bring together factors of production to produce a good or service to satisfy people’s wants.

Added value is the difference between selling price of a product and bought in materials. Can be increased by:
 Increasing selling price, keeping cost same. Used to create higher quality image of product.
 Decreasing cost but keeping selling price same. Might lead to reduction in quality.

Chapter 2
Primary sector - raw materials from earth used by secondary sector.

extracts and uses natural resources of earth to produce raw materials used by other businesses.

Secondary sector – manufactures products using raw materials to produce a good or service.
manufactures goods using raw materials provided by primary sector.

Tertiary sector- provides a service to consumers and other sectors in industry.

Three sectors are compared by:

 Percentages of ppl employed in sector.

 Value of output and proportion to total national output

Deindustrialization is decline in countries secondary sector.

Mixed economy is where a country has both private sector and public sector

Private sector – own decisions of what, how and price charged. Aim to make profit

Public sector – owned by government business or organizations. Gov makes those decisions. Some are provided free
of charge. Money for these activities come from tax payers.

Privatisation is where a government owned body is turned into a private sector business.
when some public sector business is sold to private sector businesses.
Example: Adani in India

Chapter 3
Entrepreneur is a person who organizes, operates and takes the risk for a new business venture.

Advantages: own ideas, independence, become famous, get higher income if successful business, use skills and
personal interests
Disadvantages: opportunity cost of not being employee, cant take vacations, risk , capital , less knowledge and
experience.

Characteristics : hardworking, independent, creative, effective communicator, self-confident, innovative, optimistic

and risk taking.

Business plan

1. Business Details
2. Products and services offered.
3. Target market
4. Business Location and how goods are delivered.
5. Organizational Structure and management – employee skills required etc etc.
6. Financial Info – Draft financial statements
7. Business Strategy – future plans and how above points come together. Explains how business is gonna gain
brand loyalty and satisfy customer needs.

Governments support business so that:

- Reduce unemployment.
- Increase GDP (Increase output)
- Give customers increased choice.
- Business might become important in the future.
- Business is helping community.
(Benefit society)

They support by:

- Business idea and help – asking successful entrepreneurs to give support and organizing training
- Premises – enterprise zones
- Finance – loans to small businesses and grants if starting in area of high unemployment
- Grants to train employees
- Research – ask uni to share.

How to measure business size:

  Value of output
 Number of people employed
 Value of sales
 Value of capital employed

Who are interested:-

Investors

Bank

Workers

Government

Competitors

Internal growth – when business expands its existing operations

External growth – when business takes over or merges with another business.

A takeover or acquisition is when a business buys out the owners of another business which then becomes part of
the predator business

Merger is where owners of two business agree to join their business together to make one business.

Horizontal integration – same industry same level

Vertical Integration – same industry different level

Conglomerate – merges with/ takes over a business in completely different industry. This is known as diversification.

Benefits of integration focus on the – supply, market share, profit margin being absorbed, preventing other
competitors from ... , information or costs

Problem with expansion-

Difficult to control: operate the business in small units

Poor communication: use latest IT equipment.

Expansion costs a lot: slowly expand from profits or ensure sufficient long-term finance.

Integrating with another business more difficult than expected: explain reasons for change

Some business remains small since:

Type of industry – want to offer personal or close services demanded by customers. Example: haircuts.

Owner’s objectives – wish to know all staff and keeping control.

Market size – small number of total customers can’t expand.

Reasons why business fails:

 Poor management – if in family or passed on to inexperienced managers

 Changes in business environment – if changes in some factors not responded effectively will cause business
problem to sustain in the market. Examples: new tech, competitors
 Liquidity – lack of liquidity means business cant pay creditors
 Over-expansion – if business expands too quickly it can have management problems or finance which if not
solved quickly can be disastrous.

Chapter 4

Sole trader – business owned by one person

Partnership – form of business in which two or more people agree to jointly own a business

Unincorporated business – they are businesses that don’t have separate legal identity from owners. Sole traders and
partnerships are examples. They can’t continue if one partner dies.

Limited Liability – liability of the shareholder is limited to the amount they have invested in the company.

Unlimited liability – owners are responsible for debts of the business. Their liability is not limited to how much they
have invested in the business.

Private Limited Companies – business owned by shareholders, but they can’t sell shares to the public.

Suitable for family business where they want to raise more capital and reduce the risk of their own capital

- Articles of Association: rules in which company will be managed. Rights and duties of all directors, procedure
for issue of shares, how to elect new directors and rules for those
- Memorandum of Association: must contain important information about the company and the directors.
Official name and address of companies registered offices and objectives of company.

Public Limited Companies - businesses owned by shareholders and shares can be sold to public and traded on the
Stock Exchange

Franchise – a business based on brand names, promotional logos and trading methods of a existing successful
business.

- Franchisee pays license and can’t make decisions for local market and manages the outlet. Easy to get bank
loan and less chances of business failure although independence is reduced from non-franchised business.
Gets to keep profit from outlet.

- Franchisor pays for advertising, makes decisions for store layout pricing and range of products, gives training
for staff and management and all supplies are obtained from franchisor. If one outlet is poorly managed can
lead to bad reputation for whole business.

Joint venture – two or more business work on a new project together, sharing capital risks and profits.

Shareholders – owners of a limited company. They buy shares which represent part ownership of the company.

Dividends payments made to shareholders from profit (after tax) of a company.

Rest is too long ; didn’t bother

Chapter 5
Business objectives:

 Survival
 Profit
 Return to shareholders – reward for investing in company. Done by dividends or increasing share price
 Increasing market share( formula : company’s sales/ total market sales * 100)
 Providing service to community ( Social, Environmental , Financial)

Stakeholder – any individual or group who has a direct interest in the performance and activities of the business.