Business activity

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is a good or service essential for living
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: is a good or service which people would like to have, but is not essential for living
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the lack of sufficient products to fulfill the total wants of the population. Consequences: poverty, and hunger. Solutions: reduce our wants and needs, increase resources by either using them well or find new ones.
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Opportunity cost:
is the next best alternative given up by choosing another item. To help make smart choices the concept of opportunity cost is examined.
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land, labor, capital and enterprise
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occurs when people and businesses concentrate on what they are best at. Is one way to try to increase output from the existing resources. Is to divide the jobs to make the production faster and more efficient
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Division of Labour:
is when production process is split up into different tasks and each worker performs one of these tasks.
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advantages of specialization
Specialized task training, Increases efficiency, Increases output, Save time
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disadvantages of specialization
Bore workers, Possible drops in efficiency, Production stopped due to absence
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The purpose of all business
to combine the four factors of production to make products which will satisfy people’s wants.
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Added value:
It is the difference between what a business pays its suppliers, and the price that it is able to charge for the product / service.
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Added value can be increased by two ways
Business can increase selling price but keep the cost of the material the same, Reduce the cost of materials but keep the price the same
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why is added value important?
Sales revenue is greater than the cost of material bought by the business, So the businesses can pay other costs and management expenses, May be able to make profit if these other cots total less than the added value
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Formula to calculate value:
Value added = value of output – value of input
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Primary sector
Extracts or harvests products from the earth. Ex: mining, forestry, farming, hunting and gathering, fishing
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Secondary sector
Manufactured goods for customers Ex: metalworking, automobile production, textile production, chemical and engineering industries
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Tertiary sector
Service industries, provides services to the general population and to businesses Ex: transportation and distribution, hospitals, restaurants, law
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Mixed economy:
has both a private sector and a public sector
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a country moving from the primary to the secondary sector
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a country moving from the secondary to the tertiary sector
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the government sells the company to a private company
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the government takes over a private company
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Public sector
controlled by the government, If every company is run by the government the country will become communist
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public sector advantages
Profits are all re-invested in the business, Business run for the benefit of all, Low income groups protected, Full employment
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public sector disadvantages
Often inefficient, No incentive to improve , Prices can remain high, Quality can be poor
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Private sector:
owned and run by private individuals, If every company is in the private sector, the government won’t have much money
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private sector advantages
Lots of competition, so quality improves, Expertise develops, High wages, motivates excellent staff, More efficient
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private sector disadvantages
Can lead to abuse of power, Low income workers can suffer, Can lead to dangerous cost-cutting, The motive is profit, no public good
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is a person who organizes and operates a business, taking financial risks in order to do so.
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Advantages of being an entrepreneur
Independence, Able to put your own ideas into practice, May be profitable and the income might be higher than to be a regular walker, Able to make use of personal skills and interests
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Disadvantages of being an entrepreneur
Risk, Capital, Lack of knowledge and experience in starting and operating a business, Opportunity cost
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Characteristics of entrepeneurs
Hard working, Risk Taker, Creative, Self confident
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Hard working
Long hours and short holidays are typical for many entrepreneur to make their business successfu
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Risk Taker
Making decisions to produce goods or services that people might buy is risky
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A new business needs new ideas, to make it different from existing firms
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Is necessary to convince other people of your skills and to convince banks, and other lenders and customers that your business is going to be successful
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Why governments support new business:
Reduce unemployment, Increase competition, Increase output, Benefit society, Can grow further
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How do governments support new businesses
Business idea and help, Premises, Finance, Labor, Research
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Business plan:
is a document containing the business objectives and important details about the operations, finance and owners of the new business
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whys are business plans important?
Is necessary if the business is interested on getting a loan. The bank can’t loan them if the business does not seem serious about the future and their plans.
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the amount or income (the amount of money your company makes)
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Capital employed
is the total value of capital used in the business
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How to tell the size of a business?
Turn over, Number of employees, The capital employed, Market share
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Turn over
but, High level of output does not mean that a business is large when using the other methods of productions
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Number of employees
but, Some firms use production methods which employ few people but which produce high output levels
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The amount of capital employed (invested)
but, Similar problem to the ‘number of employees
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Market share
but,It could be misleading to use this measure when comparing the sell of very different products
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Who might find useful to compare business?
Investors, Governments, Competitors, Workers Banks
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Reasons why businesses want to grow
Survival, Gain economies of scale, Increase market share, Reduce risk, Increase future profits
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Businesses can expand in 2 main ways
internal and external growth
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internal and external growth
internal growth, using your own resources to add to your own products. external growth involves integration (takeover or a merger) with another business
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External growth is divided in?
horizontal, vertical and conglomerate integration.
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Horizontal integration:
buying other companies from the same type of industry. Benefits: increase market share, opportunities for economies of scale
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Vertical integration:
a company buys different types of companies in the supply chain.
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Vertical backward integration:
a company buys a company farther up the supply chain. Benefits: assures supplies, the profit margin increases, the supplier could only supply them, costs of components and supplies for the manufacturer could be controlled
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Vertical forward integration:
a company buys a company down the supply chain. Benefits: assured outlet, profit margin increased, could be prevented from selling competing products,
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Conglomerate integration
when a company buys another business that has nothing to do with their industry.
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Problem from expansion: Difficult to control larger business
Operate the business in small units
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Problem from expansion: poor communication
Operate the business is smaller units, Use latest IT equipment and telecommunications
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Problem from expansion: short of finance
Expand more slowly- use profits from slowly business to pay for further growth, Ensure sufficient long-term finance is available
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Problem from expansion: Integrating with another business is harder than expected
Introducing different style of management requires good communication with the workforce
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The type of industry the business operates in, Market size, Owner’s objectives
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WBF: Poor management
Lack of experience can lead into bad decisions
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WBF: Failure to plan change
New technology, competitors and major economic changes can lead to business failure if not responded effectively
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WBF: Poor financial management
Shortage of cash means that workers, governments, suppliers, landlords cannot be paid what they are owed
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WBF: Over-expansion
When a business expands too quickly it can lead to big problems of management and finance
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WBF: Risks of new business start-up
lack financial and other resources, poor planning and inadequate research. Lack of experience and decision making skills
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Limited liability:
the liability of shareholders in a company is only limited to the amount they invested
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Unlimited liability:
the owners of a business can be held responsible for the debts of the business they own. Their liability is not limited to the investment they made in the business
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Unincorporated business:
is one that does not have a separated identity. Sole traders and partnerships are this.
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Incorporated business:
companies that have separate legal status from their owner
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are the owners of a limited company. They buy shares which represent part ownership of a company
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Sole Trader
Owned and operated by one person. (the owner is the Sole Proprietor), It’s the most common because there are so few legal requirements
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ST: Advantages
Few legal regulations, His own boss, Complete control on hour works, Close contact with customers, Keep all the profit
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ST: Disadvantages
No one to discuss matters, Doesn’t have the benefit of limited liability, Not money to expand and no investment Can’t offer much training or opportunities for workers No continuity of the business
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Group or association of at least 2 people who agree to own and run a business together. Partnership agreement is the written and legal agreement between business partners.
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PS: Advantages
More capital invested, Responsibilities are shared, Work harder to be benefited from the profits
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Doesn’t have limited liability unincorporated business, Partners can disagree on decisions, One partner can be efficient or dishonest Limited number of partners (up to 20)
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A company that is a separate unit from its owners (incorporated business) Owned by the people who invested in the business, these people buy shares in the company (shareholders)
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LTD: Advantages
Shares can be sold to a large number of people, All shareholders have limited liability, Less risk to lose money Able to keep control as long as they don’t sell too many shares
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LTD: Disadvantages
Significant legal matters, The articles association (rules) Memorandum of association (name) Not easy to transfer shares, Accounts must be available for public to see, Cannot sell share to public,
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Companies that have been able to raise the capital to expand nationally or even internationally Offers shares to general public
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PLC: Advantages
Limited liability, Incorporated business, Very large capital sums, No restriction on the buying and selling of shares
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PLC: Disadvantages
Legal liability, More regulations and controls over public companies, Difficult to control and manage, Selling shares to the public is expensive
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Is a business based upon the use of the brand names, promotional logos and trading methods of an existing successful business. The franchisee buys the license to operate this business from the franchisor.
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FR: Advantages to the franchisor
The franchisee buys a license from the franchisor, Expansion of the franchised business, Management is responsibly of the franchisee, All product sold must be obtained from the franchisor
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FR: Disadvantages to the franchisor
Poor management – bad reputation, The franchise keeps profits from the outlet
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FR: Advantages to the franchisee
Franchisor pays for the advertising, All suppliers are obtained from a central source, Few decisions to make (franchisor job), Training of staff and management is provided by the franchisor,
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FR: Disadvantages to the franchisee
Less independence, Unable to make decisions that suit local area, License fee must be paid a percentage of the annual turnover
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why set business objectives?
decisions based on objectives, workers and managers join to accomplish it, helps unite the company
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business objectives
business survival, profit, returns to shareholders, Growth, market share, and service to the community
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Any person or group with a direct interest in the performance and activities of a business. Are either internal (work for or own the business) or they are external
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internal stakeholders
owners, workers, managers
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external stakeholders
government, customers, banks, the community
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internal stakeholders objectives
regular payments, growth, job security, high salaries, high profit
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external stakeholders objectives
jobs for population, success, safe and realible products,
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: is a good or service which people would like to have, but is not essential for living

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Opportunity cost:


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