Business

What is a Business?

•A business can be defined as any organisation that works to fulfil a common purpose.

•Business organisations seek to meet the needs and wants of the population.

SMEs

•SMEs are Small to Medium Sized Enterprises. 

–In the UK a company is defined as being an SME if it meets two out of three criteria:

1. It has a turnover of less than £25m,

2. It has fewer than 250 employees (medium) - 50 (small),

3. It has gross assets of less than £50m.

•In 2016 there were 5.5 million businesses in the UK of which 99.3% were SMEs. 

•SMEs employed 15.7 million people in 2016 amounting to 60% of all private sector employment in the UK. 

•The amount of sales in 2016 for SMEs in the UK was £1.8 trillion or 47% of all private sector sales recorded. 

Enterprise 

•Enterprise is the ability to combine the other factors of production to profitably provide goods and services.

•Enterprise is what a person uses when running a business. 

•An entrepreneur is someone who takes a risk by starting an enterprise known commonly as a business

•The return on enterprise is profit.

Business activity

•Business activity can be categorised into four areas:

–Business inputs/resources (the four factors of production)

–Business functions (the different departments within a business)

–External influences (outside influences that affect business activities)

–Output (the good, services and waste produced by the business)

-Financial capital is the money invested into the business which can be used to purchase physical capital

-Physical capital consists of tools, machinery, computers, etc.

Business Output

-Good: a physical product that businesses produce to sell eg a car

-Service: an intangible product that can be sold eg financial advice, banking

-Intangible means that it cannot be touched

Business functions

•The main different business functional areas are:

–Production / Operations

–Marketing and sales

–Human resources

–Finance

External Factors

•Political e.g. government objectives and activity, international political issues, level of involvement

•Environmental e.g. regulators, sustainability, environmentally friendly

•Social e.g. tastes and trends, demographics, lifestyle changes

•Technological eg research, innovations, ICT

•Economic conditions e.g. business cycle, exchange rates, interest rates, inflation

•Ethical: what is morally right or wrong e.g. animal rights, treatment of suppliers

•Legal e.g. health and safety, competition, environmental, consumer and employment laws

Needs and wants 

-All organisations are set up to meet needs and wants

-Wants are human desires that are unlimited

-Needs are human requirements which must be met for survival. Needs are limited. E.g. food, warmth, shelter, could also include healthcare and security

Satisfying Needs and Wants 

•Businesses provide for our needs and wants through combining the four factors of production to produce goods or deliver services.

–An entrepreneur creates and sets up a business which involves having a business idea, and the financial capital to make this idea a reality. 

Scarcity

•People’s wants are unlimited but there are limited resources and money to provide for these wants. This creates the basic economic problem of scarcity

The basic economic problem =

Unlimited wants + Limited resources = Scarcity

Scarcity

•Scarcity means not everyone can have everything they want and therefore choices have to be made.   

•This means that businesses /individuals /governments have to make decisions about how to allocate resources.

2.Explain with examples how needs differ from wants

People have a limited number of needs which must be satisfied if they are to survive these would include physical needs such as, a minimum amount of food, water, shelter and clothing and psychological and emotional needs e.g. self-esteem and love.

Wants are unlimited (infinite) human desires that people constantly aim for in order to have a better quality of life include better/more food, better housing, longer holidays, better education – in effect any example which is not a basic need

3.Explain how goods are different from services

Goods are physical items that businesses produce to sell, such as TVs, food or soft drinks. 

Services are intangible products that can be sold, such as hairdressers, cinemas or banking