How businesses work
How they work
- Created by: MattHoward
- Created on: 27-01-15 17:29
Why create a business
Reasons for creating a business:
- Make a profit, big financial rewards
- Be their own boss
- Earn more than working as an employee for someone else
- Owning a business with a topic they're interested in
Other objectives:
- To offer the highest quality goods/services
- Providing good customer services
- Having a good image and reputation
- Limit their impact on the environment
Functions of a business
- Plan future activities
- Control what the workers are doing and money being spent
- Coordinate different functions and departments to ensure they're all working towards their main objective
Departments and their roles
Production - Turning raw materials into a finished good/service
Human Resources Management - The right number of employees of the right quality in the right place at the right time
Marketing - Identifying what customers want/need and how best to sell it to them
Research and Development - When needing to discover new ideas for products that may be wanted in the future, preparing them to be launched onto the market
Production Stage
Primary Sector - The extraction of the raw materials from the ground e.g farming
Secondary Sector - The process of manufacturing the raw materials e.g cars
Tertiary Sector - A business providing services e.g banking
Enterprise and Entrepreneurs
Enterprise - Creating a new business
Entrepreneurs:
- Innovative
- Risk takers
- Organisers
- Planners
- Perseverance
- Target either a mass or niche market
Business Protection
Patent - A way of registering and protecting a new invention
Trademarks - Protects slogans and logos etc
Copyright - Protects written work and music
Franchises
Franchises - Special agreements between one business and another
Franchisor - The business willing to sell or license their idea, name, and reputation
Franchisee - The business wanting to buy and use the name
Franchisee benefits:
- Well known name with reputation
- Training and financial support
- Buying is done by franchisor, keeping costs low
Drawbacks:
- Must pay the franchisor for the rights
- Must run the business according to the franchisor's rules so less flexibility
Franchisor benefits:
- Get paid for the use of their name with a share of the profits
- More franchises increases the spread of their name
Drawbacks:
- Must help the franchisee set up the new franchise, taking time
- If the franchisees don't have good standards then the brand may get a bad reputation
Markets
Industrial markets - Where businesses sell to other businesses e.g wholesalers supplying retailers
Consumer markets - Where firms sell to individual customers e.g high street shops
Local markets - Where firms sell to customers who live nearby
Electronic markets - Non physical markets where trade is completed over the internet e.g eBay
Market size - A measurement of the total volume of a given market
Market share - The percentage of sales in a particular market that belong to a company/brand. Market share (%) = sales ÷ total market size x 100
Market growth - When demand for a product increases. Market growth = difference between size of old and new market ÷ size of old market x 100
Market Segmentation
Market segmentation - Identifying the different types of customer in a market e.g gender
Segmentation can be done by:
- Income
- Age
- Gender
- Lifestyle
Businesses monitor sales to make sure their marketing strategies are having the right effect
Primary and Secondary Research
Primary Research:
- Uses sampling e.g questionnaires and interviews to make predictions about the whole market off that sample
- It is always up to date
- However it is labour intensive, expensive and slow
Secondary Research:
- Internal sources of data e.g loyalty cards, and feedback from salesmen, stock records
- External sources of data e.g government publications, and pressure groups, trade magazines
- Secondary data is easier, faster, and cheaper
- However it may contain errors and be out of date
Types of sampling
Simple random sample - Names are picked randomly from a list
Stratified sampling - Population divided into groups and people selected randomly from each group
Quota sample - People are picked who fit into a category
Market research must avoid being biased, and the lower amount spent on the research increases the risk
Partnerships
Partnership - A group of individuals working together with unlimited liability
Advantages:
- More owners so more capital to start with
- Can provide cover for each other as well as more ideas
Disadvantages:
- Unlimited liability so liable for all the debts of the business
- A risk of conflict between partners as they're all liable for decisions made by other partners
Sole Traders
Sole trader - A business run by one person with unlimited liability, known as an unincorporated business
Advantages:
- Keep all the profit
- Freedom over decisions
- Savings on fees
Disadvantages:
- Responsible for all the debts
- No cover if they're unavailable for a day
- Usually work long hours because of deadlines
Private and Public Limited Companies
These companies have limited liability, owned by shareholders, and run by directors
Private Limited Companies (Ltd):
- Can't sell shares to the public
- Usually small family businesses
- No minimum share capital requirment
Public Limited Companies (Plc):
- Can sell shares to the public
- Require over £50,000 of share capital
- Usually start as an Ltd and expand to a Plc to raise more capital
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