1 1. What is a business and why do they exist? Why set up in business? Some reasons:Fed up with working for someone else, Quality of life, Buzz of success, Feel in control, financial reward, “I could do better than that!” The world of work is made up of many different types of organizations. They employ millions of people to do different types of jobs. A business is a specific type of organization which exists to sell products (goods or services) to customers. Customers can be private individuals, like us, or other businesses. Why do businesses exist? Every business exists for a purpose. It may sell goods or services. Businesses must make a profit to exist. They need to know what they want to do and how they want to do it in order to attract and keep customers. Therefore, all businesses must have aims and objectives that identify what they wish to achieve. 2. Aims and Objectives Aims are what the business wants to achieve, e.g. make a profit, be the best, attract new customers, etc. Objectives are the targets that businesses set themselves to help them to achieve their aims. Aims are important to businesses because having some targets and goals gives them a purpose and helps to focus what they do. The aims of an organization often include to: create a profit or surplus funds, sell or provide goods or services, survive, expand, maximize sales, improve product quality, beat the competition, provide voluntary services, be kind to the environment. Objectives are often set in financial terms. That means that the objective is expressed in terms of a financial outcome that is to be achieved. Those could include: Desired sales or profit levels, Rates of growth, Amount of cash generated. Organizations are divided into two sectors: private and public. The sectors have different aims as they do different things. Private sector businesses aim to make a profit to survive. They are usually owned by private individuals or groups. Public sector organizations are owned or controlled by the government or regional authorities. They are not businessesbecause they are not seeking a profit; most of their money comes from funds that are acquired through taxes. However, public sector organizations often have similar aims to businesses, because they also need to run efficiently. SMART: Organizations set themselves objectives to help them to achieve their aims. Many set Specific, Measurable, Achievable, Realistic, Time based. Here is an example of an aim with its SMART objective: Aim: To make a profit. Objective: Increase sales by 10% in the next six months
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
1
1. What is a business and why do they exist?
Why set up in business? Some reasons:Fed up with working for someone else, Quality
of life, Buzz of success, Feel in control, financial reward, “I could do better than that!”
The world of work is made up of many different types of organizations. They employ
millions of people to do different types of jobs.
A business is a specific type of organization which exists to sell products (goods or services) to customers.
Customers can be private individuals, like us, or other businesses.
Why do businesses exist? Every business exists for a purpose. It may sell goods or services. Businesses must make
a profit to exist. They need to know what they want to do and how they want to do it in order to attract and keep
customers. Therefore, all businesses must have aims and objectives that identify what they wish to achieve.
2. Aims and Objectives
Aims are what the business wants to achieve, e.g. make a profit, be the best, attract new customers, etc. Objectives are the targets that businesses set themselves to help them to achieve their aims.
Aims are important to businesses because having some targets and goals gives them a purpose and helps to
focus what they do.
The aims of an organization often include to: create a profit or surplus funds, sell or provide goods or services,
survive, expand, maximize sales, improve product quality, beat the competition, provide voluntary services, be
kind to the environment.
Objectives are often set in financial terms. That means that the objective is expressed in terms of a financial outcome that is to be achieved. Those could include: Desired sales or profit levels, Rates of growth, Amount of cash generated.
Organizations are divided into two sectors: private and public. The sectors have different aims as they do different things.
Private sector businesses aim to make a profit to survive. They are usually owned by private individuals or groups.
Public sector organizations are owned or controlled by the government or regional authorities. They are not businessesbecause they are not seeking a profit; most of their money comes from funds that are acquired through taxes. However, public sector organizations often have similar aims to businesses, because they also need to run efficiently.
SMART: Organizations set themselves objectives to help them to
achieve their aims. Many set Specific, Measurable, Achievable, Realistic, Time based.
Here is an example of an aim with its SMART objective: Aim: To make a profit. Objective:
• Command Economy – An economy where most consumer goods are produced by the public sector.
North Korea
• Free Market Economy – Where over 60% of consumer goods and services are produced by private
businesses. Canada
• Mixed Economy – Where over 40% of consumer goods and services are produced by the state. UK
The Public Sector and Nationalisation
The Public Sector: Business Activity owned, financed and controlled by the state through government or local
authorities
Government – key departments set policy and monitor implementation Local Authorities – County Councils, District Councils, Parish Councils Health Trusts - NHS Public Corporations – BBC
Objectives of Public Sector Activity: Access – available to all regardless of location or income Quality – high quality services that do not cut corners Affordability – services offered at prices that are cheaper than private sector or free
at the point of use. Equity – available to anyone whatever their background, status, income, class, race,
religion, etc.
Most Public Sector Organisations provide services that the government believe are needed for the benefit of the
UK.
It would prove difficult or unethical to charge people for their individual use of these services.
Social objectives are important to these organisations, for example to provide a service to remote communities.
Advantages of Public Ownership:
Jobs - Usually protected, reducing unemployment.
Resources - Key supplies, e.g. water and energy, can be guaranteed and controlled.
Essential services - Health, education, housing and transport are guaranteed for
everyone.
The main argument for public ownership is that the whole population benefits rather than just those who
Higher costs - Providing these services means higher costs, and higher taxes.
Inefficiency - Large non-profit making organisations suffer from diseconomies of scale
Government interference - Politicians' interference can negatively affect the efficiency
of an organisation
Nationalisation There are times when the government has to step in to take control of
privatised companies. This can happen for a number of reasons A company that provides a vital service/product can no longer continue A company is not operating in the best interests of the public
Examples of Nationalisation:
HBOS Northern Rock British Aerospace
The Public Sector and Privatisation
There used to be many more Public Sector organisations in the UK than there are today.
In 1981 The Government began selling off public sector organisations to private individuals by selling shares in
them (privatisation) there were major flotation's…
Major flotation's of public sector organisations:
• British Petroleum 1983
• British Gas 1986
• British Airways and Rolls Royce 1987
• Water & Electricity Boards 1990-91
• British Rail 1996
The reasons given for privatisation were that it would:
• Improve government finances.
• That it would improve the efficiency of these firms as a result of more competition in
the private sector.
• It was also hoped that it would encourage more people to buy shares.
• Profit became the most important objective for privatised firms.
• £60 billion was raised from share sales between 1981 &1996.
4. Different types of business ownership
Sole Traders
• A sole trader is an INDIVIDUAL who may or may not employ other
people, but who OWNS and operates the business and who has UNLIMITED
LIABILITY. It is the simplest form of business ownership.
• Unlimited liability: Sole traders have unlimited liability. This means that
the owners are personally responsible for paying debts if the business goes
bankrupt.
Advantages of Sole Traders
EASY TO SET UP: It is easy to set up a sole trader. A person can set up a business immediately. EASY TO RUN: Easier to run than any other types of business. The owner is in sole charge. TAX ADVANTAGES: Taxed differently e.g. NI contributions are lower;there are no legal fees to set up. CONTROL: The owner is in sole charge – can make whatever changes they want. CAPITAL: The amount of money needed to set up a sole proprietorship is often small PROFITS: All the profits of the business are kept by the owner PRIVACY: Only the Inland Revenue & Customs and Excise need to know about the finances of a sole trader FLEXIBILITY: Many sole traders have some choice about when they work
• UNLIMITED LIABILITY: If the business does very badly and has lots of debts, as a sole trader you must pay off these debts even if it means selling all your possessions, like a car
• LACK OF CONTINUITY: The sole trader IS the business; it may not survive if the sole trader stops work • ILLNESS: The business may stop if the sole trader is ill • LONG HOURS: Sole traders work really long hours to keep their business afloat • LIMITED SPECIALISATION: Sole traders carry out jobs in the business themselves • DIFFICULTY OF RAISING CAPITAL: may have to borrow the money from a bank, who may only agree to it if
they pay a high interest repayment rate.
Partnerships
PARTNERSHIPS: A group of people (often with similar interests) who come together to
share the workload and responsibility of running a business. Minimum 2 – Maximum 20
Why Partnerships?:The main reason is usually to expand the business by an increase in capital or to gain specialist skills that are required for the business to develop
Who owns a partnership? : The business is owned by the partners equally e.g. if there are 3 partners then they will each own a third of the business, this is the case unless stated otherwise in the deed of partnership.
Who manages the business? : The partners share the control of the business equally unless the partnership agreement states otherwise. In many partnerships each partner may run a separate department.
Deed of Partnership How profits and losses are to be shared. How much money each partner has put into the business How much each partner gets paid – “salary.” The working arrangements of the partnership e.g. who has responsibility
for which part of the business Arrangements for removing a partner or adding a partner to a business.
Arrangements for ending the partnership and the dividing up the assets once the partnership is dissolved.
Advantages of forming a partnership
Easy to set up. Business can gain professional help through taking on a qualified partner. New Partners - New Ideas Extra partners bring extra capital Responsibility for running the business (both decision making and workload) is shared Finances are kept private Division of labour leads to greater expertise
Disadvantages of forming a partnership
• Unlimited liability for the debts of the business • Finance still limited • Lack of continuity • No consultation required (Deeds of Partnership are only recommended) • Decision making more complex
You may have seen the letters LLP after the name of some businesses. A recent change in the law now allows partnerships to operate as ‘limited liability partnerships’. Many solicitors are choosing to operate this type of business organisation.
Private Limited Companies (LTD’s)
A Private Limited Company is a type of company that offers limited liability to its shareholders but that places
certain restrictions on its ownership.Well over 95% of limited companies in the UK are
“private” – it is by far the most common form of limited company.
Are a type of company Companies are usually larger than partnerships/sole traders They can be local companies and multi-national giants.
When a company is ‘limited’ it means that the owners have limited liability.
The owners are only responsible for the amount that they have invested, not personally.
If you have put £1000 in then that is all you will lose.
• A LTD is usually small to medium – size and sells shares privately to family and friends. They receive dividends in return.
• The founder usually owns 50% of the shares. • There must be at least 1 director and 1 shareholder, who can be the same person. • Shareholders vote for a board of directors who run the business. • The company must have the words Limited or LTD in its name.
Public Limited Company (PLC)
Public Limited Companies are the biggest type of private businesses in the UK. A public limited company ('PLC')
is a company that is able to offer its shares to the public. They don’t have to offer those shares to the public, but
they can.
A PLC is usually large and sells shares to the public
You need a minimum of £50,000 capital to set up a PLC
The money is raised by issuing shares on the stock exchange.
Shareholders have Limited Liability
Anyone (over 18) can buy shares in a PLC
Shareholders nominate directors to run the company
Accounts must be published and made available to anyone who wants to see them.
There are some specific requirements for a PLC which must be met:
The minimum number of shareholders must be two (a private limited company only needs one shareholder) The Company Secretary must be a qualified person (in a private company the secretary does not need to be
qualified) The minimum number of Directors is two (just one needed for a private company) To set up a PLC you need to work through a set procedure:
8
The Procedure to set up as an LTD
Memorandum of Association states the companies details. • The Company’s Names
• The Address of its registered office
• A statement of limited liability
• The amount of share capital to be raised
• The purpose of the company
Registrar at companies house issues a Certificate of Incorporation when they are satisfied with all the details given in the 2 documents.
The Articles of Association states how the company is going to be run.
• Rights of shareholders
• Appointment of Directors
• Rules about meeting
• Procedures of AGM
2 Documents need to be sent to the Registrar of Companies:
9
The Procedure to set up as a PLC
Takeover This is when one company buys another company. They do this by buying up 51% of the shares of the company. Merger This is when two companies join together. A combination of two or more companies in which the assets and liabilities of the selling firm(s) are absorbed by the buying firm. Although the buying firm may be a considerably different organization after the merger, it retains its original identity.
Franchises
A franchise is a marketing arrangement allowing another business to trade in the same style as an existing
business
Imagine a company has a great and successful business. It wants to expand but it doesn’t want the problems and expense of opening more stores – so it sells the business idea.
If you buy a franchise it is a “business in a box”, as well as signage and training you get support of a national company and a brand that customers already know.
Key terms:
Franchisor – The person or business who offers to franchise to other businesses its trading methods, products and business logos
Franchisee – A person or business buying the franchise
Royalty – A payment made to the franchisor based on the sales turnover of the franchise
Memorandum of Association and Articles of Association sent to Registrar of companies
How long the franchisor has been in business – and how financially secure it is
Training and support offered.
Conditions and restrictions (I.e. how long is agreement, how it is run)
Initial and on-going costs – I.e. McDonalds initial cost is between £150,000 and £500,000
Advantages of franchises Disadvantages of franchises
A designated area of operation, with no
competition from other franchises made
available from the same company.
All supplies must usually be purchased from the franchisor
at the price which they determine.
A tried and tested business idea. A large amount of initial capital may be required.
Logos and products which are usually already
established in the market.
Annual royalty payment based on profit or sales revenue
may be required.
National advertising and promotion campaigns
may be paid for by the franchisor.
The owner of the business may not have total control over
the way in which the business operates.
Training and advice on how to run the business. The business may not make enough profit to help cover
the cost of the initial payment.
Reduced risk of business failure. Losses have to be paid for by the franchisee.
Other forms of business ownership:
Charities
A charity is defined by the Charities Act 2006 as: “A body or trust which is for a charitable purpose that provides
benefit for the public”
They:
Are run by trustees who are volunteers Do not set out to make a profit Instead they will want to make a surplus Most are regulated by the charity Commission
Voluntary Organisations
A voluntary group is: “A collection of individuals who work together without
monetary reward for the benefit of the community”
Many voluntary groups are charities So the same rules apply They may employ staff who are paid!
Co-operatives are businesses formed by people who want to work together. They are a bit like limited-liability
partnerships. The main benefit is that there should be no conflict between the main stakeholders – they are the
same people.
They can be identified by the following features:
A company owned by at least 2 members Shares are sold privately to members Members have LIMITED LIABILITY Each member has one vote Profits belong to the members and are shared equally The value of shares does not change
Worker Co-ops
Workers invest equal amounts of money
Decision-making is shared
Profits are shared
Producer Co-ops
Producers often set these up to share the costs of:
Marketing
Distribution
Selling
Consumer Co-ops
Originally set up to:
Buy in bulk
Reduce prices
This is the best known type of co-op
Is it a good idea to be a Co-op?
Advantages 1. Finance can be raised from members 2. Buying in bulk reduces costs 3. Members have limited liability 4. Members are likely to work hard, since they get to share the profit 5. It encourages members to get involved in the local community.
Disadvantages 1. It can take a long time to make decisions 2. More members means profits have to be shared with more people 3. Not all members can be involved if the co-op becomes large 4. Only big, easily available sources of finance are the owners’ capital and retained profits, this makes
expansion difficult. 5. The value of the share decreases in value
Social Enterprises
A social enterprise is a business whose objectives are primarily social, and whose profits are reinvested back into
its services or the community.
12
Social enterprises are organisations that:
Are led by an economic, social, cultural, or environmental mission consistent with a public or
community benefit;
There are no shareholders or owners, social enterprises are free to use their surplus income to
invest in their operations to make them as efficient and effective as possible.
Examples of Social Enterprises: Turning Point, the Eden Project, the Big Issue, and Jamie Oliver’s Fifteen
restaurant.
Multinational Companies
A multinational company is one that operates in more than one country, and typically operates in a number of
major global markets.
The three main developed trading areas of the world are North America, The European Union, and South-East
Asia (and Australasia).
Examples of multinationals are Coca-Cola, Cadbury, McDonalds, Kellogg's, Apple, and many more.
• An important characteristic of these organisations is that they have well established corporate brands that
are widely recognised - for example, Coca-Cola is the second best known expression in the world after OK.
Location of business
The decision where to locate is one of the most important decisions a business takes.
Make the right decision, and the business may flourish and become successful.
Make the wrong decision, and the business may find it very difficult to succeed.
It is rarely one factor which affects the decision to locate in a particular area but a combination.
Much will depend on the type of business activity.
A bakery producing bread and cakes will usually need to be located near to the market it is serving.
Government and location:
Some of the ways the government influences location decisions are described below.
Regional Development Agencies (RDA’s)
Nine RDA’s operate in England. Their work is to encourage business development in the area that they represent.
Giving grants to encourage inward investment Grants for small business start-ups Organising training Improving the infrastructure
Other examples of factors affecting location Availability of and access to raw materials The cost of the location Access to and nearness to markets Availability of labour Climate and physical geography Transport and infrastructure.
6. Business Sectors Businesses provide both goods and services, and often depend on each other.
Production is the process of taking resources and changing them into products
and services.
The three sectors:
Primary: Produces raw materials using natural resources
Secondary: Manufactures goods using the raw materials. This sector is currently on the decline. A couple of
reasons are because of cheaper imports and the use of machinery.
Tertiary: Provides a service by selling the manufactured goods. This sector employment has gone up. Some
reasons for this are due to an increase in leisure time, a rising population, increased wealth of people, people
living longer and more shops opening.
Interdependence
Before they can be sold goods have to be made.Before they can be made the raw
Centralisation: In a centralised organisation decisions about the company are made at head office.
Deciding on objectives is done from Head Office. Common systems and procedures are laid down so that economies of scale can be maximised. They can be slow to make decisions and respond to the needs of the market.
Decentralisation: The power to make decisions is devolved or given to smaller parts of the organisation.
Decentralisation encourages workers to change more quickly as the business environment changes. It gives power to those who are closest to customers, suppliers and to the market.
Organisational Structures
Key terms of organisation structure:
Hierarchy refers to the management levels within an organisation.
Line managers are responsible for overseeing the work of other staff.
Subordinates report to other staff higher up the hierarchy. Subordinates are accountable to their line
manager for their actions.
Authority refers to the power managers have to direct subordinates and make decisions.
Delegation is when managers entrust tasks or decisions to subordinates.
Empowerment sees managers passing authority to make decisions down to subordinates. Empowerment
can be motivational.
The span of control measures the number of subordinates reporting directly to a manager.
The chain of command is the path of authority along which instructions are passed, from the CEO
downwards.
Lines of communication are the routes messages travel along.
Managing
Director
Marketing
Director
Marketing
Manager
Finance
Director HR
Director
Marketing
Assistant Marketing
Assistant
18
The staff structures of a tall organisation and a flat organisation
Tall organisations have many levels of hierarchy. The span of control is narrow and there are opportunities for
promotion. Lines of communication are long, making the firm unresponsive to change.
Flat organisations have few levels of hierarchy. Lines of communication are short, making the firm responsive to
change.
9. Communication What is Communication? : Simply a method of sending a message from one person
or group of persons to another.
* Every business needs to communicate. People within the business need to
communicate between themselves.
* The business needs to communicate with outsiders such as customers,
suppliers and government. This means that businesses have to decide what the most effective means of
communication is.
• Internal Communication:- Within the business.
• External Communication: - Outside the business.
• Some methods of communication cross over and can be used internally and externally.
Verbal Communication:A medium for communication that entails talking using the spoken word, such as talking
face-to-face, on a telephone, or as a speech.
• This type of communication is quick, easy and cheap.
• Tone of voice and body language can indicate the mood.
Methods of verbal communication.
Telephone: - Able to speak to people that are not in the same location. Voice-mail: - A messaging service which allows the message to be saved and dealt with later. Meetings: - Instant feedback but costly to arrange. Formal meetings will follow an agenda. Presentation: - Allows complex information to be communicated but can take time to prepare. Spoken Message & Discussions: - Can provide instant feedback but no permanent record.
Non Verbal Communication is communication of feelings, emotions, attitudes, and thoughts through body movements / gestures / eye contact, etc.Research suggests that more than 70% of communication occurs without people having to say a single word.
Communications: Written
- This method produces a permanent record.
- It does take time to produce and time to deliver.
Good communication is essential to any business:
Accurate advertising brochures avoid disappointed customers.
An accurate memo from the personnel department might help clear up a misunderstanding.
Barriers to communication:
Timing: The message may be sent at the wrong time. Clarity: The sender may not make the message clear to the receiver. The attitudes of the sender or the receiver: The sender may ‘talk down’ to the receiver so that he or
she does not like what they hear. The wrong method of communication may be used: An email giving an urgent message will not work
if the receiver only checks their email once a week. Feedback is not received or is not appropriate: The sender may not check with the receiver that they
have understood the message. There is a problem with the means of communication: Email may not be received if there is a
problem with the receivers’ computer.
SENDER
Customer
COMMUNICATION
A complicated loan Application form
RECEIVER
Loans department at bank
FEEDBACK
Confirmation that loan has been granted
The communication process diagram
20
Channels of communication: - Information passes along channels of communication. - These are channels which are recognised and approved by the business. - There are two main types of formal communication: - Vertical Communication: is communication up and down the hierarchy of the business.
- Horizontal Communication: occurs when workers at the same level communicate formally with each other.
Formal and informal Communication:
* Formal Communication:The main types of formal communication within a
business are (1) downward where information moves from higher
management to subordinate employees, (2) upward where information moves
from employees to management and (3) horizontal where information is
shared between peers.
* Informal Communication:Within a business environment, informal
communication is sometimes called the grapevine and might be observed
occurring in conversations, electronic mails, text messages and phone calls
between socializing employees.
Where people work and the nature of the work that they do has changed significantly with developments in technology.
Teleworking: Teleworking is a method of workforce planning that allows employees to spend all or part
of their working week at a location remote from employers’ workplaces. Home working is a form of
teleworking.
Working from home: Many workers are now able to work from home. They may have an office in their home containing a computer,
telephone and fax machine. They contact clients by telephone or fax or email. Some businesses are using video-conferencing so that workers do not
10. The effect of technology on work
VERBAL
TELEPHONE
MESSAGES
PRESENTATIONS
RECEPTION MEETINGS
NON-VERBAL
CONVERSATION
WRITTEN
LETTERS
FORMS
REPORTS
NOTICES
GRAPHS
&
CHARTS
MEMOS
FAX
&
EMAIL
21
even have to come to work for meetings.
Hours of work:ICT has made it possible for people to work at different times. Work does not need to be done
during office hours.
However, some workers may find that they work longer because there is no restriction on the time they can work.
This may be good if they want to do this and are paid for it, but it may cause stress and harm a person’s work-life balance.
Summary:
The way in which we work has changed dramatically in recent years.
New technology has made it possible for more work to be done at home.
This can save money, increase staff motivation and enable them to work with greater concentration.
However, working at home is not always possible or desirable.