BUSINESS STUDIES UNIT ONE

WHY DOES A BUSINESS EXSIT? 

• A business is an orginaisation that provides a good or service to a costumer.  
• If the business meets the needs of the customer then it is very likely to become successful. 
• A business is formed by an entrepeur who is willing to take a risk. 
• In order to achiceve sucess the entreprenuer is likely to set objectives to minaminse the risk and maxamise the reward (e.g. Profit) 

WHAT IS AN BUSINESS OBJECTIVE?

• An objective is a goal that is set for a business to achieve
• There are who types of objectives coperate and functional objectives

Coperate are goals for the whole business and functional are goals relate for a spesfic section in the business (e.g. marketing & finance) 

COPORATE OBJECTIVES 

• These are the ulimate aims for the business 
• The reason why operate 
• They are usually seen as a misson statemnt 

MISSON STATEMENT 

• A purpose or an intention 
• This means a business will create a mission statemnt to set out and what it intends to achieve. 

SETTING OBJECTIVES 

• Once misson statemennt is chosen, then the objectives can be set.  
• The objectives will allow a business to measure how successful it is 
• As such, it is important that all the business objectives are SMART! 

Specific  Measureable   Achieveable   Realistic   Time related 

SETTING OBJECTIVES 

• Now everyone in the business (stakeholders) is clear about what the business wishes to achieve and went it should be achieved! 

CREATE A STRAEGY ----> ACHIEVES OBJECTIVES 

POSSIABLE OBJECTIVES

Not all businesses wil have the same obejectives, it wil depend on their mission statement: 

• Survival 
• Profitable 
• Expansion 
• Increase Marketshare 
• Improve Cash Flow 
• Socail and Ethical Improvements 

Costs - the charge to a business of making a product or providing a service. 

IT IS NOT THE PRICE THAT THEY CHARGE!!! 

WHY ARE COSTS IMPORTANT? 

• Are the differences between having a good and poor profit margin.
• Are the thing that drains away profits made by the business. 
• Are the main cause of cash flow problems in a small business
• Changes the output of a business chnages the entreprenuer need to know how these are likely to change 

TYPES OF COSTS 

FIXED - costs which do not change when output changes -> Examples; mortatge, rent, insurance 

VARIABLE - costs which change when output chnages -> Examples; raw materials, wages

REVENUE - the income recieved by a business from providing a good or service. 

Other names; sales, income, takings, turn over 

Calculation - Total Revenue = Amount sold x price 

HOW TO INCREASE REVENUE? 

• Increase the amount or volume sold
• Achieve a higher price 

PROFIT - the finacal return/reward that entreprenuers aim to achieve to reflect the risk they have made 

Calculation - Profit = Total Revenue - Total Cost 

WHY IS PROFIT IMPORTANT?

• Meausre success and rewaed for taking the risk. 
• It can be used to motivate owners, managers and emplyees. 

A sole trader is a business is owned by one indivual - but can have other employees. 

Advantages 

• Quick and easy to set up 
• Simple to run 
• Flexable 
• Minimal paperwork 
• More privacy - do not have to publish financal details 

Disadvantages 

• Full personal liablity 
• Harder to raise finances 
• May not have all the skills needed 
• Pay more tax 
• Can lose intrest 

TYPES OF LIMITED COMPAINES 

Private Limited Company - LTD 

• Shares of the business are sold to members of the family, friends and acquantances 

Public Limited Company - PLC 

• Shares of the business are sold are sold to anyone. 
• This can mean the owner can lose control over the business becuase they cannot control who can purchase a share. 

Advantages 

• Limited Liabilty 
• Offers protection 
• Pay less tax
• Oppertunites to raise captial 
• Dotn have too publish accounts 
• Control of shares 
• More stable 

Disadvantages 

• A lot of paper work 
• Board of directors control the whole business 
• Might not know anyone who wants to buy shares 
• Needs to make some information public 

Advantages 

• Limited liablity of PLC has own idenity 
• Suppliers more likely to offer credit 
• Easliy altain investment + raise finaces 
• Raise money by selling shares 
• Shareholders have little to say unless they have a lot of shares 

Disadvantages 

• Could get taken over through stock exchange 
• Shareholders get dividend paid out of profit 
• Complicated + expensive to set up 
• Must raise £50,000 when selling shares at the start 
• Larger shareholders intrest can be most important to achieve 

The ownership of a business can also change by switchin, either way, between a public and private limited compaines 

WHY CHANGE FROM LTD TO PLC? 

Benefits 

• Larger pool of potential owners and capital 
• Higher profile 
• Dilutes power 

Drawbacks 

• Answerable to shareholders and their intrest 
• PLC shareholders tend to be in it for the short term profits rather than long 
• More admin 
• Less privacy 

WHY CHANGE FROM PLC TO LTD? 

Benefits 

• More privacy 
• No pressure of varying share prices 
• Less intrest in LTD business so can focus on long term 

Drawbacks 

• Long and expensive process of buying back the shares from exsiting shareholders.

• Are the owners of limited companies and can be indivduals other compaines or institutions. 
• In LTD's these needs to be between friends, family of the founders. Can be around 2-50 shareholders. 
• In PLC this for anyone with any amount of shareholders. 

Shareholders LTD 

• In order to buy shares in a LTD company, all other exsiting shareholders must agree 
• They are not publically traded 

Share holders PLC

• Anyone can buy shares 
• They are freely traded on the stock exchange 
• This usually requires the use of a stockbrocker who will act as an intermediary in this transaction 

How do shareholders influence a business? 

• To provide finace for a business - founders will give up ownership in order to fund expansion or development 
• They vote on key choices that effect the running of the business - the value of the vote is equal to the level of ownership 
• They can have acess to all the compaines information 

Ordinary share captial? 

• The company will only raise more money when selling for the first time 
• This money is know as ordinary share captial 
• It never has to pay this money back 
• If the shareholder wants to regain this money they must sell their shares to another adviser
• A company makes no money when shares are sold. 

Calculation = number of shares sold x price they were sold for 

Why become a shareholder? 

• To be involed in the running for a business - mainly LTD 
• To try an take control of a business 
• Entiled to a percentage of the profits 
• To make money (captial gain) - selling shares for a higher price than it was bought for
• To earn money through a dividend payment 

Dividend 

• Entitled to some of the profit 
• Not all of the profit is paid out, share holder is paid a proportion of their shareholding 
• From what is given out a shareholder is paid a proportion of their shareholding 

Share Prices 

• Shares are firstly sold through on inital public offering in the primary market 
• They set the price based on the value and size of the company 
• Once they have been bought in that way, they can then be traded on the stock exchange 

How do share prices change? 

• State of economy - doing well - shares more likely to be bought 
• Performancy of the company - performing well - profit will br msde and investor will buy 
• Proposed/ takeover 
• Expectation 

Why do they care?

• A low share price means it is easier to be taken over. PLC revice no money once sold 
• Share owners own the business - if performances is poor may replace managers ETC 
• Managers and other employees may be given shares as an incentive 
• HIgher the market capital of the company the easieer it is to borrow money 

Calculation - current share price x number of share issued 

Investing term, it is used to judge the size of a large company and the value of the company 

• Large Cap - greater than 4 Billion 
• Medium Cap - Between 5 Million and 4 Billion 
• Small Cap - Lower than 5 Million 

Large - have lesss volitile share price and are more likely to pay dividends to investors 

Medium - have better growth prospects than larger caps, are frequently the target for mergers. Can also be more volitile than larger compaines 

Small - are likely to be a long term payment - slow and steady 

Private 

• Any business owned and run by private indivuals 
• These can be sole trader, PLC, LTD 

Public 

• Are businesses owned and operated by the government that usually provide essentail services e.g. Education, Emergancy services, Health care and Defence 

Privatisation 

• Business or intustries under the government control (public sector) are known as nationalised industires 
• A lot of British industries used to be run this way 
• In 1980 when a let of the business were privatised 
• This invloves issues shares andn making the shareholders the new owners 
• Also, previously protected industries were opened up to competitons 
• Other services were contracted out to private busines to run on behalf of the government 

• Industries such as education and health contive to remain under government control, through there private alternatives 
• Government has also set up regualatry bodies to mointor previously nationalised business. 

Why Privatise? 

• Improve efficency 
• No politcal agenda 
• Increased competition 
• Countries gains the revenue from selling the business 
• Shareholders own business expection needs to be meet 

Why not privatise? 

• Run for a profit so prices might rise 
• Private businesses are not as accountable as public businesses 
• Many only offer 'profitable' services are removed 'unprofitable' ones 
• Lots of argument seen as slightly bias  

• Some private sector business can be taken over by the government moving into the public sector. 

Why nationalise? 

• Government can ensure essentail service are provided and avaliable for all 
• Motives of the business/intrusries do not necessiary have profit led 
• Protect struggling industries 

Examples

• Northan Rock 
• RBS 
• Lloydes TSB

Some orginsations are not part of the public sector nor are driven to make profit. 

Examples 

• Voluntary groups
• Trusts
• Charities
• Pressure groups
• Trade union 

• They will not have the objective of making a profit! 
• Instead they will have focused on socai, ethical, community or enviromental concern. 
• If they make a profit it will be reinvested into the business (retained profits) or go towards their on going objectives 
• These are not legal sturctures in their own right, they can be limited companies (usually LTD) 

• Profits used to raise money for a partuiclar cause 
• Is not a sperate legal status-in addition to someone else 
• To  be a chairty, the business must be focused on one of the following acts; The prevention or relief of poverty / The advancement of animal welfare / The advancement of education 

What clairfies a chairty?

• Must have exclusively chariable aims and be approved by the chairites commission 
• Trustees (owners) are now allowed to recive any finacal benefit from the chairty
• Do not normally have to pay income/ corperation tax, captial gain, or stamp of duty and gifts to chairties are free 

A social enterprise is a business whose profit are reinvested in the business or with other stakeholders, rather than being giving to owners or shareholders 

Examples - Jamie Olivers 15, Eden Project and The Big Issue 

• A social enterprise is normal business but it makes money in a socially responciable way
• Can make a good profit themselves. However  their model is also designed to benefit others. 
• Make goods or services 
• They have social aims and eithical values 
• They are self sustaining and do not rely on donations to survive. 

What makes a socail enterprise? 

• Types of emplyees - under privaledged children / disabled 
• Raw materials used - eco friendly 
• Used profit to help stakeholders in the business 
• Provides a service to a local community 

Pressure Groups 

• A group is an orginaisation formed by a group of like minded people who wish to exert their feelings on the public, businesses or government 
• They aim to eother raise awareness or disrupt, or end attidtudes they think are apporopraite 
• Some pressure groups can be seen as stakeholder in a business and more likely to make their point be heard! 

Example - Green peace and PETA 

Mutual Society 

• They are owned and controlled by their emplyee or member 
• They genreally operate under the princeable one member, one vote! Whereas in most compaines votes are allocateded based on number of shares owned 
• Their purpose is usally to raise money to provide a service to members of soecity 

Examples - Co-operative society, Community benefit society, Building society, Credit union and Friendly society.

Demand shows a costumers desire to purchase a good or service at any given time, if they have the ability to pay 

Price 

• A rise in price will see demand for a product/service fall (VISE VERSA FOR FALL)
• This is v important when a business operate in a market that is price sensitive 
• A price lots of subsitutes and so a change in price will have an effect in demand 
• If it doesnt have (m)any subsitutes, then it will only have a small effect 
• Price can also reflect the qualty of a product 
• High price may make the customers think the products is too expensive 
• A low price may make the customer think the quality is low

Linking deman to costs 

• If a business' costs were to raise, they would have two choices    
• 1. Makes less profit 2. Increase prices to make the same amount of profit
• ANOTHER REASON COSTS ARE IMPORTANT. 

Not Price?

• However demand is not always influences by price but can be changed even if the price remains the same 
• These are to do with external influences 

External Influences 

• These are factors that happen out side the business that cannot be controlled
• `These external influences can be demonstrated through PESTLE 

• Political 
• Econimic 
• Social 
• Technonlogy 
• Legal 
• Environment 

P OLITCAL 

Gov economical policies / Gov social policies / Gov intervention 

E CONOMICAL

The business cycle / Intrest rates / EU / Exchange rates / Unemployment / Inflation 

S OCIAL 

Ethical issues / Pressure groups / Stakeholders / Lifestyle 

T ECHNONLOGY 

New products / New Processes / Cost of change / Impact change 

L EGAL 

Laws / Leglisation 

E NVIRONMENTAL 

Income 

• The more that a household and business have to spend the more likely to demand 
• This is related to disposable income - the money people have left after all their bills are paid 
• If people have more disposiable income, they are willing to buy more of a product at the same price 

How may demand fall if disposable income goes up? 

• Costumers demand more luxury items 
• Conversely, they may have move to more basic or value for money items, if their disposable income drops. 

Intrest Rates 

• Intrest rates are the price of money and is used to control inflation 
• Inflation is the sustained rise in the level of prices 
• A raise in intrest rates stops prices from inflating becuase it lowers demand. Due to less disposable income. 

Tastes and Fashion 

• a demand for a product may rise if it becomes a fashionale item 
• the demand for a product may fall if it becomes an unfashioable item 

Competitors Actions

• Things competitors could do to lower the demand for your products 
• A competitor may leave the market or put its prices up and this may increase your demand 

Examples - Enter the market / reduce prices / Non price promontions / Copy your stragdy 

Seasonal Factors 

• The demand for some products will (in/d)crease depending on the time of year. 

Summer people will want - ice cream, sun cream etc 

Winter people will want - christmas tress, gloves etc

Government Action 

• The action of the government and the chances they make to legislation can effect demand 
• E.G. less smokers would go to pubs due to the law on no smoking in pubs but more families would go to a smoke free zone. 

Social and democratic factors 

THE UK HAS RECENTLY SEEN; 

• An increase in single - person households 
• Growth in number of affluent, retired people 
• Increase in awareness, and intrest in the environment 
• Higher immigration into the UK
• Greater consumer demand for organic products, fair trade products, and for business based around social enterpries. 

END OF UNIT ONE!