1. Unit 1: Exploring Business Activity
Private Sector Aims

2. Introduction: Influenced by shareholders and other owners
4 main strategies:
Break-even
Survival
Profit maximisation
Growth

3. Break even: Essential for short term survival
Must consider both variable and fixed costs
Variable costs vary directly with the number of items produced or sold
Fixed costs are the costs of running the business, regardless of how many items are produced or sold
Examples of variable costs:
Raw materials
Staff wages
Examples of fixed costs:
Rent
Local business taxes
Fuel bills
Insurance
Managers salary

4. Break-even analysis: Can be calculated in 2 key ways:
Break-even formula
Break-even graph
To calculate break- even point the following information is required:
Selling price of product
Fixed costs
Variable costs per unit of production

5. unit sales price – unit variable cost
Break-even formula:
Fixed costs/unit sales price – unit variable cost
fixed costs
unit sales price – unit variable cost

6. Example: College trip to amusement park:
Selling price of tickets = £15 each
Fixed costs (coach, driver, fuel) £300
Variable cost (meal included £5 per student)
Capacity (maximum 40 students on the coach)

7. Example (cont…)
fixed costs unit sales price – variable costs £300 £300 (£15 - £5) £10 =30 units (tickets)
Therefore, in order to break even, 30 tickets must be sold.
The break even point can also be calculated as revenue, e.g. 30 tickets sold at £15 each = £450.
If less than 30 students travel there is a loss, if 30 travel the trip will break even, if more than 30 travel there is a profit

8. Break-even point: Output/ tickets Fixed cost £ Variable cost £
Total cost
Sales revenue £
Profit/(Loss)
300
(300) 10 50
350
150
(200) 20
100
400
(100) 30
450 40
200
500
600
The table gives the data for the break-even graph, showing the point at which break-even is reached and indicating profit and loss points.

9. Break even cont…
Breaking even, is however, not a suitable long-term business objective
When a business calculates its break-even point, it will be looking beyond this to identify how much profit it can generate

10. Activity:
Using the figures provided, work out the break-even point for the following example:
Café Smoothie sells luxury smoothies
Selling price £3 each
Fixed costs £20,000
Variable costs £2 per smoothie
If the business is open for 50 weeks per year, how many smoothies will they need to sell per week?

11. Survival: UK high street business that have survived:
Marks & Spencer and WH Smith; these businesses have had to fight for survival
How has M&S survived & increased profits?
M&S has survived by:
Changing its name to M&S from Marks & Spencer
Creating new attractive store layouts
Carrying out successful advertising using top models and celebrities, e.g. Twiggy, Elizabeth Jagger, Mylene Klass, Peter Kay

12. Profit maximisation: Often seen as main objective of business
But businesses have different short term objectives in order to achieve this in the long term
Example:
To be market leader, business might have to invest heavily in short-term = short-term profits fall
By sacrificing short-term profit maximisation, long term profit growth can be secured

13. Growth: Businesses can grow by: Growing existing sales
Growing into new markets
Increasing number of retail outlets or production facilities
Increasing number of employees or resources used
Expanding into overseas markets
Internal/external growth
Internal growth – using profits to expand the business from within
External growth – joining together with other businesses either through mutual agreement (merger) or by takeover (buying up at least 51% of the shares of the other business)

14. Conclusion:
There are many strategies that a private sector business can employ in order to meet their aims and objectives
Overall, their main aim will be to maximise profits, however, other short term objectives may be more important at different times in order to reach this aim