1. 1 Business Management Unit 1 1.1 - What do businesses do?

2. 2 UNIT 1.1 – What do businesses do?  In this Unit you will find out about:  Goods and services  Needs and Wants  Business types and sizes  Sectors of the Economy and Industry  Production and Consumption  Creating Wealth

3. 3 What are goods and services? Businesses make goods Some examples of goods made  Computers  Cars  Washing Machines  Mobile phones  Sweets  Clothes  Seafood  DVD players  I-pods Businesses provide services Some examples of services provided  Banking  Insurance  Education  Hairdressing  Public transport  Entertainment – cinema

4. 4 Goods and services can be described as Tangible  goods – can be seen, touched and handled –  eg washing machine, car Intangible  goods – cannot be touched or handled –  eg public transport, hair dressing

5. 5 Goods and services can be described as Durable  goods and services – long lasting –  eg clothes, education Non-durable  goods and services – used up quickly –  eg sweets, cinema

6. 6 WHAT ARE CAPITAL AND CONSUMER GOODS?  Capital goods  Goods used by a business to make consumer goods and other capital goods  Consumer goods  Goods sold to people (ie consumers – us) for their own use

7. 7 Types of business organisation Types of business Sole Trader Private Limited Company Public Ownership Public Limited Company Partnership

8. 8 Sole Trader FEATURES OF SOLE TRADER  Aims is to make a profit  Business owned and often run by one person  May employ other people in the business  Tend to be small businesses Examples: Small shops, Car mechanics, Flower shop Can you name 3 sole trader businesses in Oban? Albany Stores, Esplanade Post Office, Flower basket,

9. 9 Sole Trader ADVANTAGES:  Owner keeps all the profits  Owner controls all the decisions  Easy to set up the business DISADVANTAGES  Owner bears all the responsibilities  If owner cannot work the business may suffer – lack of cash  Owner may have difficulty obtaining finance  Owner has unlimited liability

10. 10 Partnership FEATURES OF PARTNERSHIP  Aim is to make a profit  Business between two and twenty partners  Partners usually enter into a legal agreement called a Partnership Agreement which states  States share of profit  Which partner has most responsibility  Partners may invest different amounts of money  This will affect their share of profit Examples: Dentists, vets and lawyers Can you name 3 partnership businesses in Oban? Munros Garage, Shore Street Dentists, Oban Chocolate Company

11. 11 Partnership ADVANTAGES:  Partners can share workload according to skills  Partnerships find it easier to raise finance than sole trader  Risks are shared between partners – risk of poor profit DISADVANTAGES  Profits shared between the partners – therefore smaller share  More people to run business – risks of disagreement  Partners usually has unlimited liability  Legal agreement needs to be set up

12. 12 Private Limited Company FEATURES OF PRIVATE LIMITED COMPANY  Aim is to make a profit  Name of the business will end with Ltd  Owned by shareholders – minimum of one  Shares in the company are owned privately  Run by a Board of Directors  Such companies are often family businesses Examples: MacQueen Bros had recently become a Private Ltd Company Can you name 3 private limited companies in Oban? Direct Footwear Services Ltd, MacQueen Ltd, Beaver Timber Ltd,

13. 13 Private Limited Company ADVANTAGES:  Owner keeps control of the business  Private limited company can raise more finance that a smaller business  Shareholders have limited liability DISADVANTAGES  Profits shared between more people  A legal agreement must be set up  Shares cannot be sold to the public, so raising finance can be more difficult than for a public limited company

14. 14 Public Limited Company (plc) FEATURES OF A PUBLIC LIMITED COMPANY  Aim is to make a profit  Name of the business will end with plc  Owned by shareholders – minimum of two  Minimum share capital of £50,000  Shares in the company can be bought and sold on the Stock Exchange  Run by a Board of Directors Examples: BP plc, Can you name 3 public limited companies operating in Oban? Woolworths plc, Boots plc, W H Smith plc

15. 15 Public Limited Company (plc) ADVANTAGES:  Public limited company can raise more finance that  PLC can borrow more money  Shareholders have limited liability DISADVANTAGES  PLC has no control over who buys its shares  Profits shared between many more people  Expensive to set up  Accounts must be published annually

16. 16 Public Ownership FEATURES OF A PUBLICLY OWNED ORGANISATION  Main aim is to provide a service  Funded by taxpayers  Controlled by government  Provide essential services for the whole population  Non profit making Examples: BBC, National Health Service, Education Services Can you give an example of a Public Ownership organisation in in Oban? Local Government,

17. 17 Public Ownership ADVANTAGES:  Less competition DISADVANTAGES  May not be as profitable as private sector businesses.

18. 18 Limited and Unlimited Liability Unlimited liability  Sole trader or unlimited partners have full responsible for the debts of the business.  If the business does not have enough money to pay its debts the owners or partners must pay the debts from their own personal funds.  May result in the owners having to sell their own possessions to raise the money  Limited Liability  In a Private or Public Limited company the shareholders liability is limited to the amount they have invested, or agreed to invest in the company.  The will not have to sell their own possessions to pay the debts of the

19. 19 Limited Partnership Your Internet task Use the Wikipedia website to research the term Limited Partnership Write you answer in Pupil Activity Task 20

20. 20 Sizes of Business Organisations Business organisations can be of different sizes  Small businesses  Often owned and run by one person  Or owned and run by a partnership  Sell goods or services locally  Employ fewer than 50 people Eg hairdressers, electricians, computer trainers

21. 21 Sizes of Business Organisations They can be  Medium-sized Businesses  Owned and run by a group of people (eg partnerships, shareholders or directors)  Can sell goods and services locally and or nationally  Employ between 50 people and 250 Eg manufacturers – clothes, National car hire companies, theatres, insurance companies

22. 22 Sizes of Business Organisations They can be  Large Businesses  Owned by a large number of people eg shareholders and run by people appointed by them - directors  Produce and sell goods and services in several locations – often in several locations  Employ more 250 people – sometimes hundreds of thousands Eg Car manufacturers – Ford, retail food outlets – Marks & Spencer, Banks, Oil companies

23. 23 Sizes of Business Organisations They can be  Charities  Aim to care for those in need or help  Use donations from the public  Raise funds in other ways  Do not make a profit  Examples include Oxfam, RSPCA, and Save the Children

24. 24 Local/National Businesses Features of Local business organisations  Small to medium sized  Services local markets  Employs small number of people  Has only a few outlets For example Mathesons Furniture MacQueen Bros Alba Features of National Business organisations  Have household names  Easily recognised eg logos  Employ large workforce  Have branches/factories in major towns and cities For example Boots The Chemist River Island HMV

25. 25 Multi-National businesses For example Ford McDonalds Shell Esso Starbucks Multi-national businesses sell goods or provide services worldwide and operate in more than one country

26. 26 SECTORS OF THE ECONOMY The economy can be divided into 3 different sectors: Private –  owned by sole traders, partnerships, limited companies and public limited companies –  financed by private monies from shareholders and banks

27. 27 SECTORS OF THE ECONOMY The economy can be divided into 3 different sectors: Public –  Owned by the state  Financed by the state  For example - nationalised industries, local authorities, schools and hospitals

28. 28 SECTORS OF THE ECONOMY The economy can be divided into 3 different sectors: Voluntary –  owned by those taking part in the activities  administered by officials  financed by donations, gifts and fund raising activities

29. 29 SECTORS OF INDUSTRY Industry can be divided into 3 different sectors  Primary  Secondary  Tertiary These divisions are defined according to the type of product or service produced

30. 30 SECTORS OF INDUSTRY PRIMARY SECTOR – agriculture, fishing, mining This involves the extraction of raw materials  Oil Production  Fishing  Forestry Can you name any other extraction industries? Coal, Quarrying

31. 31 SECTORS OF INDUSTRY SECONDARY SECTOR - manufacturing This involves the manufacture of goods  Car manufacturing  Engineering  Shipbuilding Can you name any other manufacturing industries? White goods – fridges etc

32. 32 SECTORS OF INDUSTRY TERTIARY SECTOR – service This involves the provision of services  Insurance  Hairdressing  Leisure  Public Transport  Education  Fire Service

33. 33 Difference between Needs and Wants As consumers, we buy  the goods offered by a range of organisations/ businesses.  The following are examples of goods we buy

34. 34 WHAT IS A NEED? A NEED is something an individual must have in order to survive – these are the basic needs or wants  Food  Shelter  Clothing  Drink

35. 35 WHAT IS A WANT? It is important to distinguish between what we need and what we want I’ll tell you what I want, What I really, really want, So tell me what you want, What you really, really want....

36. 36 WHAT IS A WANT? A WANT is something an individual would like to have, or wishes for – they are not essential for survival When a want is fulfilled it gives the consumer Satisfaction. Examples are:  I-pod  Sports Car  Video Camera  Expensive jewellery

37. 37 HOW DOES A BUSINESS KNOW WHAT WE NEED OR WANT  A business will use Market research to identify what consumers need and want.  This information helps the business in decision making eg whether a new product/service should be developed

38. 38 PRODUCTION AND CONSUMPTION Production is the process of making goods so that they can either be consumed, or further processed before being consumed eg before a jumper can be knitted the farmer must produce the wool, the sheep is sheared, the wool is then washed spun, dyed, packaged and knitted into the final garment. Consumption is when the customer Purchases the goods or services produced by the business and uses the up eg non-durable goods or fresh food.

39. 39 PRODUCT-LED AND MARKET-LED PRODUCTION Products and services can be supplied to the market for a variety of reasons: Product-led – a business makes/produces goods and provides services, basically because they are good at it. Market-led - a business makes/produces goods and provides services to meet identified consumers’ needs.

40. 40 THE PRODUCTION PROCESS/CHAIN The production process will follow several stages and involves the transformation of raw materials into finished articles: INPUT – raw materials PROCESS – Manufacturing stages OUTPUT– Finished goods SOLD TO CUSTOMERS

41. 41 Example of the production chain The Farmer – produces wheat The Miller – produces flour The baker – makes the cakes and adds the cream The retailer – sells the cakes to Mrs Stewart Mrs Stewart’s son eats the cakes The production of a cake for tea:

42. 42 Another example of the production chain  Farmers rear sheep to obtain wool  Sheep sheared – wool - basic raw material produced  Wool delivered to spinning factory  Wool is washed, spun, dyed and packaged  Wool delivered to textile company  Skilled workers use machinery to ‘knit’ the jumper  Manufacturers package the final product  Delivered to the retailers – world wide  Retailer sells the jumper to the customer The raw material could come from Australia, the manufacturing process in Scotland and retailers world wide. This shows how various businesses meet each others’ needs in their attempt to produce a product for the consumer.

43. 43 Factors of production Resources required to produce goods and services can be divided into 4 main groups knows as the Factors of Production.  LAND – site of factory/premises  LABOUR – people employed to produce the goods  CAPITAL – money required to purchase  ENTERPRISE – provided by the owner

44. 44 CREATING WEALTH Creating wealth occurs at each stage of the production Process. Value is added by each producer eg  miller adds to the value of the wheat by processing it.  Baker adds to the value of the processed wheat by making it into cakes The total value of the cake is much more than the value of the raw materials used in its production Therefore each stage creates more total wealth than the previous stage