Why do Businesses Exist Unit 1.2 Why do Businesses Exist Unit 1.2 - Why do Businesses Exist

For Charitable Reasons To Develop a Good Idea - ENTERPRISE To Provide a Public Service For Charitable Reasons Why do businesses exist? To Develop a Good Idea - ENTERPRISE To make a Profit

Enterprise Features: to turn a good idea into a business success; seeing a chance - taking it - making a success of it; seeing a new or better way of doing something. People who are willing to take risks to develop a business idea are called entrepreneurs Richard Branson (Virgin) and Anita Roddick (Body Shop) are famous entrepreneurs

What decisions need to be made when coming up with a business idea? Do I have the skills? What if I fail? What will the business supply/produce? What are the costs involved? Where will the finances come from to start up the business? Where will the business locate? What are the aims/objectives of the business?

What Are The Aims Of Businesses? An aim (or objective) is something that an organisation(or person) sets out to achieve. The aims of business are complex and depend on many factors, for example, the type of business activity, the personality of the owner/manager, the sector of industry which the business is in, the level of competition.

Aims A business must decide on its own aims which might include: does it want to make a profit? does it want to be recognised for providing a quality service? does it want to expand internationally? does it want to become more environmentally friendly? does it want to improve conditions for its workforce?

Most businesses aim to achieve some of the following Survival - to make sure that the organisation/business does not fail or go out of business Growth - to increase the size of the business, for example more customers, more shops etc Maximise Profits - to make as much profit as possible Increase Market Share - to beat competitors and gain more customers, more profits

Most businesses aim to achieve some of the following (cont) Improve Conditions - to have charitable aims to help others Efficiency - to make sure that things are done in the best possible way Lead the Field - to make their company/organisation the number one in the field (a trailblazer!) Quality - to produce quality products/services

Private Sector Aims survival – break-even maximise profits increase returns to shareholders/owners expand the product/service range expand the business – more outlets improve the quality of products/services

Public Sector Aims help people improve the quality of service offered cut costs raise revenue

Voluntary Sector Aims help people maximise collections for cash offer a service to the community recruit more helpers open more branches/charity shops widen the scope of assistance to find a cure for diseases

Stakeholders A STAKEHOLDER is “a person or group of people who have an interest in a business and the way it is run or managed”. Shareholders - wish to see how a business performs in the hope that their investment increases Suppliers – wish to know if they will be paid Managers – want to ensure the business is running efficiently Who can STAKEHOLDERS be and why are they interested in the running of a business? Employees – have an interest in the activity of a business Inland Revenue – wish to make sure that tax rules are applied Consumers – they buy their goods/services from the business and are therefore affected by price variations

Conflict between stakeholders Each stakeholder in an organisation will have a different reason for wanting it to succeed. Some of these aims compete with one another. Eg The owners and managers of a business will want HIGH PROFITS which may not be wholly compatible with the wishes of the customer who want LOW PRICES.

What Impact can Opening A Business have on A Community? A new business in a town/city or region will provide new jobs, opportunities and hope. A business closing in area will of course provide the opposite – often despair. Many different factors must be taken into consideration when deciding where to locate a New Business. There are many COSTS and BENEFITS both the business and the local community must consider.

What impact can opening up a Business have on the community? May create COMPETITION causing other firms to CLOSE DOWN Can create EMPLOYMENT What impact can opening up a Business have on the community? May BOOST the local HOUSING MARKET May create COMPETITION LOWERING PRICES for consumers May create more POLLUTION

What can a New Business offer the local community? The costs and benefits a New Business can bring to a Community fall into two categories Social Benefits & Costs Economic Benefits & Costs

Social Benefits Social benefits are the positive things the New Business brings to the Community as a whole. These include: Improved Road Networks. (Infrastructure) New Housing New Schools

Social Costs Social Costs are the negative effects a New Business can bring to the Community as a whole. These include: Traffic Congestion Traffic Pollution = poor air quality Noise Pollution Health Problems

Economic Benefits Economic Benefits are concerned with the positive effects a New Business brings to the local market. These include: More jobs = More people employed Improved standard of living More money available to spend in local businesses Businesses in local market grow

Economic Costs Economic Costs are the negative effects a New Business may bring to the local market. These include : The Council may spend money on premises and roads for the New Business rather than other things. Increased expenditure on infrastructure Increase in Council taxation Rates Council Tax Water Rates

Opportunity Costs The New Business may also face some economic costs by choosing to set up in a particular local community. This is called an OPPORTUNITY COST and refers to the benefit lost from the next best alternative when making your choice. In other words if you buy a magazine, the opportunity cost is the benefit you could have had by buying an ice cream. Businesses are constantly faced with decisions where making a choice is required. To make the best decision they have to understand the opportunity they are giving up.