UNIT 1.1 – WHAT DO BUSINESSES DO?

WHAT IS A BUSINESS?

A business is a group of people who use the resources they have available to make a product or to provide a service.

WHAT DO BUSINESSES HAVE IN COMMON?

All businesses have a name, a set of aims or objectives that they wish to achieve, an image, resources and rules (usually referred to as procedures in business).

If we think of Notre Dame High School as a business we can identify all of the above.

Name: Notre Dame High School

Aims: To provide a quality education and allow every pupil the opportunity to do their very best

Image:This is how the school is viewed by pupils, parents and the local community

Resources:The building, the desks, computers, teachers, non-teaching staff

Rules:The school rules, registration, timetables, lunchtime, end of day

WHAT DO BUSINESSES DO?

Any business is involved in doing one of the following:

1 Making a product that will be sold. This could be, for example, shirts, furniture, books,

cars etc.

2 Providing a service. This involves doing something for a customer, for example, banks, hairdresser, insurance, post office etc. Most companies would in fact charge for providing

this service but others would not charge, for example, a charity, hospital

SIZE OF BUSINESSES

Small Businesses: Small businesses are usually owned and run by one person called a Sole Trader or a few people, which is known as a Partnership. These small businesses usually sell their products or service locally. Small businesses also tend to employ less than 50 people (known as employees). Examples of small business – shops, dentists, lawyers.

Medium-sized Businesses: This would be a business that employs between 50 and 250 staff. They tend to sell their products locally or nationally eg within the UK. Examples of

medium-sized businesses – car hire firms, insurance companies

Large Businesses: This type of business would normally have a factory, office and outlets in more than one city and as is often the case, in more than one country. They would employ more than 250 staff and can sometimes employ as many as thousands of people. Examples of large businesses – Marks and Spencers, McDonalds, Banks

TYPES OF BUSINESSES

PRIVATE BUSINESSES

Sole Trader: A Sole Trader is a business owned by one person although it may employ many other people eg a hairdressers, plumbers, newsagents.

The advantages of being a Sole Trader is that the owner has complete control of the business and is responsible for making all the decisions and keeping all the profits. However, a Sole Trader has to raise all the money needed to start the business and may find it difficult to take holidays etc as no one else has responsibility for the success of the firm.

If a business is not doing very well and the owner incurs debts, then he or she will have to pay the money back – and this could be from their own money! This is known as Unlimited Liability and it could mean that the owner of a business may have to sell their house and/or other possessions to pay back any debts that the firm has.

Partnership: A Partnership is a business association between 2 or more owners of an enterprise. Partnerships are generally found in professional practices such as doctors, lawyers, vets and dentists.

The advantages of a Partnership is that the risks, responsibilities and decision making is spread among the partners. There is also more funding available if there is more than one person contributing to the finance of the business. However, a Partnership also has unlimited liability for the partners and disagreements and having to discuss everything can lead to disharmony in the business.

Public Limited Company (plc): A Public Limited Company is one in which shares can be bought and sold in the Stock Market and as a result there is not one owner but the business is owned by all these Shareholders. The reward for Shareholders is that they receive a share in the profits, known as Dividends, if the company is doing well.

Public Limited Companies are generally run by a Chairperson and a Board of Directors who make all the decisions on behalf of the Shareholders.

Public Limited Companies can benefit from large amounts of money invested by the Shareholders who have Limited Liability (ie if the business is not a success, the shareholder only loses what (s)he invested).

Private Limited Company: A Private Limited Company is often a family run business whereby members of the family are shareholdlers and are entitled to a share of the profits. These shares are not sold on the Stock Market and the liability of the shareholders is limited to value of their shares.
Multinationals: A Multinational company is one that operates in a number of different countries. Normally these are Plcs (Public Limited Companies) and due to their sheer size, Multinationals can have great powers in controlling prices.

Franchise: A Franchise is an existing business that allows people to buy into it, using their name and reputation under which to operate eg MacDonalds. The advantage to the business person is that (s)he is going to open a business with which people are already familiar with the name and the product.

PUBLIC BUSINESSES
Public Funded Organisations: A Public Funded Business is one in which the funding comes from the government. These are usually referred to as Public Services and are run by people employed by the government to ensure they are run effectively and provide quality services. Examples of Public Funded Organisations are hospitals, schools, army, police, firefighters.
VOLUNTARY ORGANISATIONS
Charity: A Charity is an organisation whose aim is to raise money but for the benefit of the cause which they support. It is normally run by volunteers who aim to raise money by fundraising.

OWNERSHIP AND CONTROL OF DIFFERENT TYPES OF BUSINESSES

PRIVATE BUSINESSES

Ownership:Owned by one or more people eg Sole Traders, Partnerships, Plcs etc

Purpose:To provide goods or services

Survival:A private company must make more money than it spends which in business is known as profit

PUBLIC SERVICES

Ownership:Funded by the government and tends to supply public

Purpose:To provide a large range of services to the general public, eg, police, roads etc

Survival:These services are given money by the government and generally operate within a limited budget

VOLUNTARY ORGANISATIONS

Ownership:These are not owned by anyone but a person will be responsible for ensuring that the group sets targets and achieves what it has been set up to achieve eg Oxfam, Save the Children

Purpose: Most voluntary organisations aim to provide assistance in the form of money or help to a particular group of people

Survival: This type of business survives on money received from donations and fund-raising events.

TYPES OF PRODUCTION

Primary Production

This is when we are taking something that has been produced by the environment for example coal mining, oil industry or even a tree felling business.

Secondary Production

These companies buy the goods from the primary industries and convert it into different products. For example, businesses which process oil to produce petrol, chemicals, gas etc are said to be involved in secondary production.

Tertiary Production

These are companies that produce a service. This would be, for example, the petrol company who sells the petrol. Schools, shops etc are other examples.

Needs and Wants

There are some things that we must have to survive, known as needs or necessities. These are things like shelter, clothing, food and drink.

After we have these things we all look for other things and it depends on our circumstances and interests what we want. These are called advanced wants or luxuries.

To survive, businesses must satisfy the needs of its customers. To do this they must know what their customers want.

PRODUCTION AND CONSUMPTION OF GOODS

There are many stages involved in the production of a product. The raw materials will probably come from the primary industry and will be made in the secondary industry and finally sold in the tertiary industry.

When we talk about the production chain we are linking all the industries together. For example, lets look at the production of your school jumper. There are many stages for it to go through until you finally get to wear it –

  • The farmer rears the sheep to obtain the wool.
  • When ready, the sheep are sheared to get the wool, which is the raw material.
  • The yarn is then delivered to the factory.
  • The yarn is washed and spun into balls of wool
  • These balls of wool are then sold to the textile factory.
  • The wool is then made into a jumper using equipment and a skilled work force.
  • The manufacturer packages the finished product, which in this case is the brown jumper.
  • This final product is then sold to the retailer (shop).
  • Finally, the brown jumper is sold on to the customer to be worn.

All of these stages are very important to obtain a good quality end product whether it be a jumper, computer or car. However, if the wool is of a poor quality, then it follows through that the jumper will be too.

Wealth is created at each stage of the production chain adding value to the product and making a profit. The company must operate as efficiently as is can to ensure that it makes the biggest profit it can.

1