What is Business 3.1
- Created by: Eliza-Robyn1
- Created on: 13-12-21 10:41
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- What is Business?
- Nature and Purpose of Business
- Why Businesses Exist
- Labour, capital and land gets inputted into the transformational process which outputs goods/ services
- The transformational process adds value
- The role of business
- Business creates goods and services
- Meets the needs of customers
- Sells products to generate revenue
- Reinvests profit for business growth
- Why businesses are important
- Create wealth
- Create jobs
- Develop new products to benefit society
- Support other businesses
- Provide tax to the government
- Labour, capital and land gets inputted into the transformational process which outputs goods/ services
- Missions and Objectives
- Mission statement
- The organizations values
- Non-financial goals
- Benefits of the business to stakeholders
- Consumer satisfaction
- Sets out a businesses overall purpose
- Directors
- Sees the bigger picture and thinks strategically
- Helps align business strategy
- Customers
- Promise to customers
- Lays down what they can expect
- Investors
- Shareholders want assurance of investment
- Communicate the ambition of the business
- Employees
- Acts as a set of guiding principles
- Communicates values underpinning the business
- Can influence 'corporate culture'
- Objectives Hierarchy
- Shows the relationship between aims, mission and objectives
- Aims, mission statement, corporate objectives, functional objectives
- Mission statement
- Common Business Objectives
- Business set objectives to:
- Provide quantifiable steps to achieve aims
- Clarify direction of the business
- Measure success against targets
- Provide targets to motivate employees
- Influence potential investors
- SMART
- Specific
- Realistic
- Agreed
- Realistic
- Time-related
- Financial Objectives
- Survival
- Profitability
- Growth
- Market Share
- Shareholder value
- Non-financial Objectives
- Brand recognition
- Personal satisfaction
- Sustainability
- Customer satisfaction
- Factors influencing business objectives
- Size
- Sector
- Market
- Ownership
- Owner
- Consumer satisfaction
- Business set objectives to:
- Importance of Profit
- Revenue
- The value of sales made during a trading period
- Includes products sold on credit as well as those sold for cash
- Revenue can increase by businesses increasing products price and more demand
- Costs
- Variable costs change directly with the level of output/sales
- Fixed costs do not change with the level of output
- A business can improve its profit by reducing costs
- Revenue can increase by businesses increasing products price and more demand
- Calculating costs can help make decisions about profit margins
- Calculating Profit
- Price X Quantity Sold = Total Revenue
- Total Variable Costs + Total Fixed Costs = Total Costs
- Total Revenue - Total Costs = Profit
- Revenue
- Why Businesses Exist
- Different Business Forms
- Size and Form of Business
- Private Sector
- Owned by shareholders and private individuals
- Most businesses in the UK
- Most are driven by profit motive
- Determined by market forces
- Public Sector
- Owned and funded by national or local government
- Account for 19% of UK employment
- Driven by public interest
- Made up of public corporations, public services and municipal services
- Incorporation
- Involves registry of a business with Companies House
- Need documents such as Memorandum of Association and Articles of Association
- Involves registry of a business with Companies House
- Liability
- Limited liability is where the liability of the owners is detached from the company
- Can loose all of the investment but personal belongings are safe
- Unlimited liability is when there is no distinction in law between the individual and the business
- Can loose all of the investment and personal belongings are at risk
- Limited liability is where the liability of the owners is detached from the company
- Business Forms
- Sole Traders
- Easy to start up
- Requires a wide range of skills and flexibility
- Own boss but long hours
- Keep all profits
- Unlimited liability
- Objectives likely to focus on survival, establishing loyal customer bases or building reputation
- Private Limited Company
- Must go through incorporation process
- Limited liability
- Customers may trust a limited company more than sole trader
- Wider access to capital
- May have ambitions to become a PLC
- Objectives to include growth and expansion
- Public Limited Company
- Can raise capital by selling shares publicly
- Size measured by market capitalization
- Ability to take over other businesses
- Can loose control of the business
- Pressure to pay dividends to its shareholders
- External shareholders due to stock market flotation
- Objectives likely to please external shareholders
- Non-profit Organisation
- May be exempt from tax if a charity
- Run for the benefit of the members if its a mutual
- Measures success on the number of donors
- Sole Traders
- Private Sector
- The Role of Shareholders
- Shareholders
- Individual or institution that owns a percentage of a company
- Invest in companies to make a return on their investment
- Can influence the decision making in companies
- Can vote on key company policy
- Percentage Stakes
- If a shareholder has a 10% state in the company, they are entitled to 10% of any profits
- These are paid via dividends
- Gives right to vote in the Annual General Meeting
- Majority shareholder controls the company with over 51% can can decide company policy
- Gaining shares
- Through profits returned in dividends
- Through value appreciation when selling shares
- If a shareholder has a 10% state in the company, they are entitled to 10% of any profits
- Share price Changes
- Share prices are affected by the company's performance and the business environment it is in
- Share value can plummet even when the company is performing well
- Factors affecting share price
- Increase of profits
- Dividend value
- Takeover bid
- Economic downturn
- Job loss announcements
- When share prices rise
- Managers may receive a bonus
- Company finds it easier to raise capital
- Consumers with shares feel more confident to spend
- May receive positive publicity
- When share prices fall
- Company becomes vulnerable to takeover
- Price fall gives an indication of poor performance
- Company finds it harder to raise capital
- Consumers with shares feel less confident to spend
- Shareholders
- Size and Form of Business
- External Environment
- Factors
- Economic Factors
- Income of consumers
- Incomes are determined by Gross Domestic Product (GDP)
- GDP is a measure of the output of an economy
- High GDP will increase consumer incomes
- Leads to increased spending
- Low GDP may result in unemployment and falling incomes
- Spending will most likely fall
- Interest Rates
- Cost of borrowing money or the reward for saving
- Interest rates are closely linked to the level of inflation and the exchange rate
- High interest rates
- Cost of existing loans may increase
- Consumers may have less disposable income
- Demand for products bought on credit may fall
- Consumers more likely to save money
- Low interest rates
- Cost of existing loans may fall
- Demand for products bought on credit may rise
- Consumers more likely to spend
- Disposable income rises
- Savers lose out on earnings from investments
- Demographic Factors
- UK population is growing
- Increased demand for most goods and services
- Migration to the UK from Eastern Europe is growing
- Fueling growth in the labour market
- UK population is getting older
- Change in demand for different products and services
- UK population is growing
- Environmental Factors
- Government tries to ensure businesses pay for the total cost of production
- Includes external costs such as pollution
- Benefits of environmental business practices
- Avoids negative publicity
- Opportunity for differentiation
- Avoids fines or penalties from environmental legislation
- Opportunities for government incentives
- E.g. Tax releif
- Creates a sustainable business
- Drawbacks of environmental business practices
- Increased cost of raw matirials
- Increased cost of waste disposal
- Lower profit margin on fair trade goods
- UK Environmental Legislation
- Environmental Protection Act 1990
- Environment Act 1995
- Climate Change Act 2008
- Government tries to ensure businesses pay for the total cost of production
- Economic Factors
- External Market Conditions
- External Forces
- Competition
- Market conditions
- Demographic factors
- Environmental issues
- Economic factors
- Market Conditions and Competition
- These factors may determine how responsive and flexible a business will need to be
- Growth rate of the market
- Typical profit margin generated
- Number and size of competition in the market
- Pace of innovation and product development
- Bargaining power of suppliers and customers
- Level of differentiation between competitors
- Seasonality of the product
- Volatility of costs
- External Forces
- Factors
- Nature and Purpose of Business
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