Unit 1.1 What do businesses do?

2 Needs and Wants Needs Water Food Shelter Heat Clothing Wants DVD player Computer More money To learn Designer clothes F These are essential for us to stay alive. These are luxuries which help to make life more comfortable.

3 Goods and Services Goods These are what we buy in our everyday lives. They may be: Tangible Intangible Durable Non-durable Services We may purchase these. A haircut Dry cleaning We may benefit from these indirectly: Fire brigade Police Hospital F

4 What do businesses do? Satisfy customers’ needs and wants Know the demand for goods and services Know the supply for goods and services Use the Factors of Production to make the goods and services Primary, secondary and tertiary production Create wealth Operate small and large businesses F/G

5 Factors of Production Land Labour Capital Enterprise F/G For each of these the business receives a “reward”. These are the tools that a business needs in order for it to work properly:

6 Land All the natural resources which the land provides for us: F/G Farmland – crops, animals Buildings – land needed for housing, businesses Water Coal-mining to provide heat oil/gas-refineries

7 Labour Accountants Bank Managers Teacher F/G Assembly workers, eg a car production line A baker – mixing of ingredients to make bread and cakes Labour is physical and mental effort. People who use mental effort include: People who use physical effort include:

8 Capital To purchase a business, buildings and equipment To buy tools needed for the job To buy raw materials to make the products F/G Capital includes the things that can be purchased with money to make and sell goods and services.

9 Enterprise The land The labour The capital F/G Enterprise means having an idea for a new business and taking risks with the other factors of production to make the business a success:

10 Rewards to Factors of Production F/G

11 Organisations: Sectors of Industry PrivatePublicVoluntary F/G

12 Sectors of Industry: Private F/G PRIVATE Sole Traders Partnerships Private Limited Companies (Ltd) Public Limited Companies (Plc) Franchise Owned by: Sole Trader/Partners Shareholders Financed by own money, bank loan, money from selling shares

13 Sectors of Industry: Private To maximise profits To turn innovative ideas into successful businesses (ie to fill gaps in the market) To expand the business G/C Aims of the Private Sector:

14 Sectors of Industry: Public F/G PUBLIC National and Local Government Services, eg Schools, Hospitals, Fire Brigade, Army Financed through taxation, eg council tax, business rates, income tax Owned by the State

15 Sectors of Industry: Public To provide the same quality service to everyone in a country To make good use of taxpayers’ money and provide the services that an area needs G/C Aims of the Public Sector:

16 Sectors of Industry: Voluntary F/G VOLUNTARY Organisations like, charities, eg Oxfam, social and sports clubs Financed by money from donations and/or gifts Benefit the community and people less fortunate

17 Sectors of Industry: Voluntary Aims of the Voluntary Sector - Charities: To provide support for worthy causes, eg money, food, clothing To buy equipment, eg farm machinery for Africa To raise awareness of “good causes” G/C

18 Sectors of Industry: Voluntary To provide the best service and facilities for the members of welfare, social and sports organisations. G/C Aims of the non profit-making Voluntary Sector

19 Types of Business Ownership Sole Trader – one person Partnership – 2 to 20 people Private Limited Company – Ltd Public Limited Company – Plc Franchise – already established “business name” G A business can be formed in the following ways :

20 Types of Business Ownership Examples of Sole Traders: Hairdresser Plumber Electrician Mechanic G Sole Trader This is the most common type of business. It is owned, controlled and financed by one person.

21 Sole Trader Advantages: Decisions are made quickly Profits are not shared Usually local, so can satisfy the needs of the area No special paperwork is required The affairs of the business are kept private Disadvantages: Unlimited Liability for debts Long hours Finance may be difficult to raise Prices may be higher than those of larger organisations Difficult to provide cover for holidays and illness G

22 Liability Unlimited Liability: This means being responsible for all the debts incurred in the running of the business. This may mean that the owner could lose their personal possessions, eg their home. Limited Liability: This is only losing the amount that you have invested in the business. You have to be a “limited” partner and not be involved in the day-to- day running of the business. Your personal possessions are not at risk. G

23 Types of Business Ownership Partnership Owned by minimum of 2 and a maximum of 20 people called “partners”. This type of business is commonly found in professional practices: Vets Doctors Dentists Solicitors G

24 Partnership Advantages: Can raise more capital (from partners) Risks and responsibility for the business are spread among the partners Can be a family affair and still keep the activities private Disadvantages: Unlimited Liability for the debts of the business Formal paperwork required which has to be prepared for each new partnership Limited number of partners Disagreements among the partners on how to run the business G

25 Types of Business Ownership Private Limited Company (Ltd) Owned by Shareholders Minimum of 2 shareholders Not allowed to sell shares on the Stock Market G

26 Types of Business Ownership Minimum of 2 shareholders required Shares are bought and sold on the Stock Market Can raise more capital than all the other types of business organisations G Public Limited Company (Plc)

27 G Public Limited Company (Plc) Advantages: Easier to raise capital Limited liability for shareholders Can employ specialists Disadvantages: Special paperwork required Affairs are public Decision-making process may be slow

28 Types of Business Ownership This is where a new business trades on an already established successful business. The new business pays for permission to copy the existing business. McDonalds Pizza Hut G Franchise

29 Franchise Advantages: Already established name which people recognise Guaranteed customers Cost less to set up Less chance of failure Disadvantages: Have to give a percentage of profits to business owner (franchisor) The franchise has to be run according to the rules set by the franchisor Little scope for personal ideas and methods G

30 F/G Organisations: Divisions of Industry PRIMARY SECONDARY TERTIARY

31 Divisions of Industry: Primary These are extractive industries which use the earth’s natural resources. Fishermen – fish/shellfish Farmers – wheat, beef, lamb, oranges, berries Refineries – oil, gas Coal miners – coal either finished or semi-finished products F/G

32 F/G Divisions of Industry: Secondary These types of businesses are involved with making things, which go through several different stages. They use raw materials, semi- finished goods

33 F/G Divisions of Industry: Secondary Stages of Production: Input Process Output This involves taking raw materials or semi-finished goods and putting them through processes to make finished goods.

34 Divisions of Industry: Tertiary These are service industries and the following are some examples: F/G.. Banking.. Deliveries.. Nursing.. Mail deliveries.. Hair dressing/barber.. Insurance

35 Production and Consumption Production This is where goods are made by going through a number of stages. They can be completed ready to be consumed. They can be semi- finished goods which go on to another stage of production. Consumption Consumption is the using up of goods, eg eating food. It also includes making use of services such as banking and insurance. C

36 Creating Wealth Wealth is created at each stage of production where value is added. C