Business Studies

Chapter 1: Introduction to small Businesses
1. What is a business?
  1. A business is any organisation that makes goods or provides services.
  2. There are many types of businesses. These range from small businesses in towns to large worldwide businesses
  3. Businesses exist to provide goods or services.
    1. Goods are physical products such as burgers or cars.
    2. Services are non-physical items such as hairdressing.
    3. Customer needs are the wants and desires of buyers
    4. Nearly half a million businesses start up each year. A business start- up is a new firm operating in a market for the first time. The vast majority of businesses are very small and operate in the service sector.
      1. What is the service sector?
        The tertiary sector of the economy (also known as the service sector or the service industry) is one of the three economic sectors, the others being the secondary sector (approximately the same as manufacturing) and the primary sector (agriculture, fishing, and extraction such as mining).
    5. Businesses buy the products they need from suppliers – firms selling products to other businesses - and sell to customers. The individual who uses the product is called a consumer. Sometimes the customer and consumer are different people - for example, parents buy a pen for their child to use at school.
    6. Businesses sell to customers in markets. A market is any place where buyers and sellers meet to trade products - this can be a high street shop or a website.
    7. In order to create goods and services, a business buys or hires inputs such as raw materials, equipment, buildings and staff. These inputs are transformed into outputs called products. These products are the goods and services used by consumers. Production is the business activity of using resources to make goods and services.
      1. Value is added to all products that a business makes. An example of this is designer clothes They may be made for only 15 ponds but they will be sold for about 200 pounds
2. There are three main types of industry in which firms operate. These sectors form a chain of production which provides customers with finished goods or services.
  1. Primary production
    1. this involves acquiring raw materials. For example, metals and coal have to be mined, oil drilled from the ground, rubber tapped from trees, foodstuffs farmed and fish trawled. This is sometimes known as extractive production.
  2. Secondary production
    1. this is the manufacturing and assembly process. It involves converting raw materials into components, for example, making plastics from oil. It also involves assembling the product, eg building houses, bridges and roads.
  3. Tertiary production
    1. this refers to the commercial services that support the production and distribution process, eg insurance, transport, advertising, warehousing and other services such as teaching and health care.
  4. A business needs other sectors to keep working. This means that they are interdependent
3. Why would you set up a business?
  1. First of all, there is massive profit to be made If the business becomes successful.
  2. Some people like the feeling of feeling independent
    1. This is not always the case as some businesses have partnerships
  3. Being able to make a difference by offering a service to the community such as a charity shop or hospice.
  4. Every new business has to have a brand name or product
    1. Example
      1. Starbucks
        Logo known worldwide
        Specific trend only found in starbucks
        Writing name on cups
        Other actions that are only found there
    2. IKEA
      1. Certain furniture design
      2. Logo known everywhere
        Yellow and blue associated with IKEA
      3. Bags to advertise
        Adverts
        Fun Fact: Ikea's catalogue actually doesn't have any photos. Its all graphic design as its ten times cheaper
        Adverts on tv are used to promote company and products
        Billboards
        Websites are also used to promote their newest products
  5. A new business starts out with few, if any, customers and is likely to face competition from existing firms. To succeed it needs to plan its launch carefully and work out how to create a competitive advantage over its rivals. To gain this advantage, it needs to offer a product which customers prefer to a rival's product.
    1. Setting up a business involves risks and reward. Profit is the reward for risk-taking. Losses are the penalty of business failure.
      1. An owner may decide to close a business if losses are being made, or if the level of profit is not enough to make trading risks or hours worked worthwhile.
        Most small businesses have very limited resources. Research is costly and can seem like a poor use of time. Some entrepreneurs ignore planning and analysis and instead rely on their gut instinct. They launch products they believe customers want and competitors cannot match. Poor planning is a major cause of business failure.
        There is an alternative. A business plan is a report by a new or existing business that contains all of its research findings and explains why the firm hopes to succeed. A business plan includes the results of market research and competitor analysis. Analysis is when a business interprets information.
        Drawing up a business plan forces owners to think about their aims, the competition they will face, their financial needs and their likely profits. Business plans help to reduce risk and reassure stakeholders, such as banks.
        Drawing up a business plan forces owners to think about their aims, the competition they will face, their financial needs and their likely profits. Business plans help to reduce risk and reassure stakeholders, such as banks.
        Competitive and changing markets
        In order to attract and satisfy customers, businesses need to be competitive and make products that are superior to their rivals.
        This is not easy because businesses operate in a dynamic and challenging market place. Business rivals are likely to be at work creating new products or improving operations to reduce costs and drive down prices. Businesses may need to adapt their products because ever-changing fashion trends mean that customer requirements evolve over time. Success today is no guarantee of future profits.
        A competitive market will have many businesses trying to win the same customers. A monopoly is either the only supplier in a market, or a large business with more than 25% of the market.
        Competition can make markets work better by improving these factors:
        Price: if there is only one retailer, products may not be competitively priced. If there are several retailers, each retailer will lower their prices in an attempt to win customers. It is illegal for retailers to agree between themselves to fix a price - they must compete for business.
        Product range: in order to attract customers away from rivals, businesses launch new varieties of products they believe to be superior to their competitors.
        Customer service: retailers that provide a helpful and friendly service will win customer loyalty.
  6. Product differentiation – standing out from the crowd
    1. Businesses operate in competition with each other. If the market is large enough to support many firms, a new business can open which imitates an existing idea. ‘Me too’ products can sometimes be successful.
      1. However, businesses become more competitive by making products that stand out from the competition in terms of price, quality or service. This is called product differentiation.
        Methods of creating product differentiation include:
        A strong brand image
        A unique selling point
        Competitive factors
4. Forms of business ownership
  1. Sole traders
    1. A sole trader describes any business that is owned and controlled by one person - although they may employ workers. Individuals who provide a specialist service like plumbers, hairdressers or photographers are often sole traders.
    2. Sole traders do not have a separate legal existence from the business. In the eyes of the law, the business and the owner are the same. As a result, the owner is personally liable for the firm's debts and may have to pay for losses made by the business out of their own pocket. This is called unlimited liability.
  2. Partnership
    1. Doctors, dentists and solicitors are typical examples of professionals who may go into partnership together and can benefit from shared expertise. One advantage of partnership is that there is someone to consult on business decisions
    2. The main disadvantage of a partnership comes from shared responsibility. Disputes can arise over decisions that have to be made, or about the effort one partner is putting into the firm compared with another. Like a sole trader, partners (who have not registered as an LLP) have unlimited liability.
  3. Limited companies
    1. A limited company has special status in the eyes of the law. These types of company are incorporated, which means they have their own legal identity and can sue or own assets in their own right. The ownership of a limited company is divided up into equal parts called shares. Whoever owns one or more of these is called a shareholder.
    2. Because limited companies have their own legal identity, their owners are not personally liable for the firm's debts. The shareholders have limited liability, which is the major advantage of this type of business legal structure.
    3. Unlike a sole trader or a partnership, the owners of a limited company are not necessarily involved in running the business, unless they have been elected to the Board of Directors.
    4. Two main types of limited company
      1. Public limited company PLC
      2. Private limited company LTD

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	Created by Ryan Beard over 6 years ago