Business Management Unit Why do businesses exist?

2 Business exist for …  Enterprise  Profit  Charity  Public Service

3 Enterprise …  Enterprise – to develop a good idea The following people had good ideas – can you name them

4 1

5 2

6 3

7 The next 2 people also had good ideas. Name them and also the product they are best known for

8 4

9 5

10 Profit …  Businesses exist for PROFIT. What is a PROFIT?

11 Sales Price less Cost Price = Profit Example: you buy a PENCIL in Tesco for 10p and come back to school. Your friend needs a pencil for afternoon classes and you sell it to him for 30p. How much profit have you made? Sales Price30p Less Cost Price10p Profit20p

12 Now calculate the profit on the following items … Item 1 The school tuck shop sells cakes at 40p each. The ingredients cost 7p. What is the profit on each cake? Item 2 Ivan gets an X-box game worth £40 for Christmas. He already has the game so sells it to his friend for £20. How much profit has he made? Item 4 Scotty Souvenirs has had a pair of tartan trousers in stock for 2 years. They bought them for £30 and couldn’t sell them so reduced the price from £60 to £25 – a bargain for someone! Item 3 Sports World Ltd buys in 2 of the new Pro45 Golf Irons. Each one costs £200 and they sell them for £350 each. How much profit will they make.

13  Charity – to raise money for a suitable cause Charity …

14 Do you recognise the charity logos

15  Public Service – to provide a service to the community at large eg Police, Schools Public Service …

16 What do the following public service related abbreviations stand for? 1.BBC 2.NHS 3.LIDGH 4.MoD 5.A&BDC 6.RAF

17 Answers - Enterprise  1Duncan Bannatyne  2Theo Paphitis  3Deborah Meaden  4Bill Gates Microsoft  5James Dyson Dual cyclone bagless vacuum cleaner

18 Answers - Profit  Item 1  The school tuck shop sells cakes at 40p each. The ingredients cost 7p. What is the profit on each cake?  Item 2  Ivan gets an X-box game worth £40 for Christmas. He already has the game so sells it to his friend for £20. How much profit has he made? Sales Price 40p Less Cost Price 7p Profit33p Sales Price £20 Less Cost Price 0 Profit£20

19 Answers - Profit  Item 3  Sports World Ltd buys in 2 of the new Pro45 Golf Irons. Each one costs £200 and they sell them for £350 each. How much profit will they make.  Item 4  Scotty Souvenirs has had a pair of tartan trousers in stock for 2 years. They bought them for £30 and couldn’t sell them so reduced the price from £60 to £25 – a bargain for someone! Sales Price £700 Less Cost Price £400 Profit£300 Sales Price £25 Less Cost Price £30 Loss£5

20 Answers - Charity Unicef OxfamRed Cross British Heart Foundation Cancer Research UK Royal National Lifeboat Institution Comic Relief Save the Children The Dog’s Trust

21 Answers – Public Service 1.BBC – British Broadcasting Corporation 2.NHS – National Health Service 3.LIDGH – Lorn and Islands District General Hospital 4.MoD – Ministry of Defence 5.A&BDC – Argyll and Bute District Council 6.RAF – Royal Air Force

22 What is enterprise? – “to boldly go …”  Enterprise includes:  Turning a good idea into a business success  Seeing a chance and taking it – making a success of it  Seeing a better way of doing something People setting up business for these reasons tend to enjoy the challenge and excitement of seeing their idea work. NB you do not need to be a sole trader to be enterprising – people can be enterprising in the private, public or voluntary sector.

23 What is an ENTREPRENEUR? An Entrepreneur is someone who  Has an idea for a business venture  Is prepared to take another’s idea and develop it  Is prepared to provide finance to develop an idea  Is prepared to take a risk which will in turn result in a new produce or service This is called enterprise

24 What skills and qualities does an entrepreneur need An Entrepreneur needs the following skills and qualities:  Is creative and energetic  Has enthusiasm for the task  Will use their own initiative  Will take risks  Is assertive  Is a decision maker  Can handle different aspects of the business  Is a problem solver

25 Who are entrepreneurs?  Richard Branson  Linda Bennett  Michelle Mone Dragon’s Den team:  Deborah Meaden  Duncan Bannatyne  Peter Jones  James Caan  Theo Paphitis

26 What are the Risks?  People not buying the product or service  Profits not high enough to cover the costs in the long term  Problems with cash flow – not enough income to cover expenses  More money owed to suppliers that can be paid back in the long term  All money which has been invested is lost. Can you think of any risks Entrepreneurs take?

27 A well-known failure!  Sir Clive Sinclair’s C5

28 Why do Entrepreneurs take Risks?  To earn a profit  Self satisfaction  To make their own decisions … Can you think of reasons why Entrepreneurs are willing to take risks? Richard Reed Innocent Smoothies

29 What are the Aims of Businesses? To survive To grow To improve conditions To maximise profits To increase market share To lead the field To become efficient To provide a quality product or service

30 Different types of organisations will have different aims … help people maximize collections for cash offer a service to the community recruit more helpers open more branches/charity shops widen the scope of assistance Voluntary Sector Organisation help people improve the quality of service offered cut costs raise revenue to develop employees Public Sector Organisation survival – break-even maximize profits increase returns to shareholders/owners expand the product/service range expand the business – more outlets improve the quality of products/service Private sector organisation AimsType of Organisation Click here Click here Click here

31 STAKEHOLDERS are people with any interest in or an influence on an organisation. They may be: People with no financial interest eg environmental groups People with a financial interest eg shareholders or employees

32 Stakeholders can be … getting paid for supplying goods the reputation of the business for paying on time SUPPLIERS ensuring that the business performs well and increases the value of their investment – protecting their investment SHAREHOLDERS the activity of the business – the business pays their wages EMPLOYEES the activities of the business to make sure that tax rules are applied INLAND REVENUE running the business MANAGERS

33 Football Club (plc) Stakeholders Directors Ensure long term success of club Make healthy profit Influence direction of club Need to balance profit/growth of club with fans’ needs Shareholders Share of profits Maximise profits See club progress in appropriate league Win games Encourage higher ticket prices Lower running costs Vote at AGM Players Win games Build good reputation for club Increase income, sponsorship etc Top class player can bring in sponsorship and publicity for club Media Provide info for fans and therefore increase listeners Raised income from advertising Popularity of sport Pay for televising events thus making clubs money Media coverage can affect outcomes Local Residents Social cost of large stadium nearby – fans behaviour large crowds Increased trade in pubs, shops on match days Community sports projects run by club Local residents want minimised disruption to local area May complain to authorities May not attend matches Fans Attending matches State of ground Players’ skills Efficiency of management Fans associations can discuss matters of interest and influence running of club

34 Stakeholders – Interest and Influence StakeholderInterestInfluence CustomerWant good service/quality goods reasonable prices Can buy or not buy Can complain DirectorsSuccessful business Healthy profits Make the main decisions EmployeesWant job security, good pay and conditions Can work hard or not. Can take action or leave Inland RevenueMakes sure tax laws are followed Can change amount of tax due

35 Stakeholders – Interest and Influence StakeholderInterestInfluence ManagersWant job security, good salary and promotion Make decisions affecting how well business performs ShareholdersWant to receive good dividends. Can vote at AGM Can buy or sell shares SuppliersWant repeat orders Want to be paid on time Can decide not to supply. Can change prices BanksWant to be repaid loans Want business to keep within credit limit Can alter interest rates Can lend or not lend

36 Conflict between Stakeholders  Some examples of conflict Bank wanting the business to keep within credit limits Conflicts with Supplier want to be paid on time Employees then worried about their job security Conflicts with Directors want to cut costs by getting rid of staff

37 Social benefits: These are the positive things which happen to a community because of local businesses - Eg – better roads, improved housing, new schools

38 Economic benefits: These are the positive monetary effects on a community caused by some local businesses - Eg – increased income for local people because of local jobs, leading to increased spending in other businesses which helps them. The standard of living is raised in the local area

39 Social Costs These are the negative effects on a community caused by some local businesses - eg air/noise/water pollution, heavy traffic, health problems, inconvenience arising from building works or redevelopment

40 Economic Costs These are the increased costs in the area increase in council tax increase in business rates spending on infrastructure to accommodate new businesses, eg roads, bridges, buildings, schools, houses, telephone networks, water, gas, electricity

41 This unit’s topics  Why do business exist –  Enterprise  Profit  Charity  Public service  What is an entrepreneur  What are the aims of different types of business  What are stakeholders – their interest and influence CREDIT  Risks of new businesses  Costs and benefits of businesses  social  economic