Today we are going to learn more about :- activities The aims and objectives of businesses in the public, private and voluntary sectors.

Learning Objectives By the end of today’s lesson you: MUST be able to explain what business aims and objectives mean and are........ SHOULD be able to categorise key differences in aims and objects by business sector COULD be able to apply this to a selected organisation and evaluate the outcome

Types of activity core business activity All businesses undertake one or more activities: They produce goods, e.g. Ford, Hugo Boss They supply goods, e.g. B & Q, River Island They provide a service, e.g. ITV, NSPCC, a hospital OR They provide goods and services, e.g. Boots, Tesco Students should be encouraged to suggest other examples for each category – or tutors can suggest organisations (Blockbuster, Halfords, local town hall, health service, Red Cross, PC World) and ask students to decide which activity or activities they do. At PC World, selling goods is the core activity and is more profitable than providing a repair service. Students could be asked to suggest what services are provided by Boots (pharmacy, photograph development) and Tesco (financial services, mobile phone services) The most profitable activity is often known as the core business activity

Goals and aims SECTOR All businesses have goals or aims, for instance: To make a profit To supply essential goods and services free of charge To supply goods and services as cheaply as possible To improve the performance of the business. Whereas most goods are sold at a price which enables a profit to be made, not all organisations have this goal. Businesses in different sectors have different goals – because their reason or purpose is different. The next slide identifies the different sectors that exist. SECTOR the business is in. The difference often depends on the

Business sectors There are three main sectors: Private sector Public sector Voluntary/not for profit sector Owned by private individuals, e.g. local newsagent, accountant, Next, Argos, Ford Owned by the government, e.g. Job Centres, NHS, BBC Includes charitable and voluntary organisations, e.g. Greenpeace, Oxfam, Citizens Advice Bureaux The private sector includes very small businesses, such as a newsagent or self-employed DJ, and extends to very large ones, such as Shell or Ford. You may wish to mention the separate divisions of sole trader, partnership, private and public limited company, cooperatives and franchises. A brief overview of these is given in the Student Book as an introduction to the topic but detailed knowledge is only required if students study option unit 9. Similarly, you may wish to mention that the public sector includes government departments, local councils and public corporations, such as the BBC.

Sectors and goals Private sector Public sector Goals VARY depending upon the business sector. Private sector Public sector Voluntary/not for profit sector Aim to make a profit. Must do this to survive. Aim to provide a range of services either free or below cost Aim to raise money and to provide free goods and services to those in need. All private individuals who own a business must make a profit so this is their main goal. Otherwise they will not earn enough to live and the business will fail. The situation is different for public and voluntary sector businesses, as they obtain their money in different ways. Therefore they do not need to make a profit in the same way. All businesses aim to improve their business performance.

Understanding profit Sales revenue greater than costs = profit Sales revenue less than costs = loss Calculation: Revenue from sales minus cost of production & supply Revenue £10,000 – costs £2,000 = profit £8,000 Revenue £10,000 – costs £12,000 = loss £2,000 Students should understand that revenue is the same as income. Sales revenue may also be called sales turnover. Students could be asked to suggest what type of costs are involved in running a small business (eg a take-away or a hairdresser). These will include buying stock or raw materials, the overheads or running costs (eg electricity, rent) and the owner’s salary plus the wages of any staff employed. Normally businesses want to do more than just cover their costs. They want to make enough profit to save some as reserves so that they can expand or improve the business in the future.

Deciding the main aim – the private sector The selling price must enable a profit to be made. Therefore the price must: Cover ALL the costs of running the business Be competitive, otherwise stock will remain unsold. In a sale, the price is reduced to sell off unsold stock. The goods may be sold at less than cost price to get rid of them. Once the importance of covering costs (and ideally having enough to have some reserves) is understood, students should understand that other factors influence price. It will depend upon the type of goods/service sold (eg Armani clothes versus George at ASDA) and the level of competition. If the price is too high, people will shop elsewhere and stock will be unsold (so reducing profits). If the price is set too low, the goods will sell quickly but profit will be less than it could have been. If stock is left unsold, it will be sold off cheaply (may be below cost price). In this case the business is cutting its losses – it would rather have some money back into the business than to leave it tied up in unwanted stock. The Richer Sounds Studentzone provides and excellent example of this. SALE

The Public Sector Made up of central government, local government, and businesses that are owned by government In the last twenty years the number of government-owned firms in the UK has shrunk massively Now, very few examples remain: for instance, the Royal Mail

Deciding the main aim – the public sector The state provides socially desirable services. It raises the money through taxation. Goods and services may be supplied: Free of charge e.g. emergency services, charitable services, state education At or below cost price, e.g. NHS prescriptions and dental care, higher education To a certain level, e.g. government benefits. The public sector (ie the state or government) is responsible for providing services which are considered socially necessary or desirable. In other words, people should receive them regardless of income, such as health care and education. Students may be asked to suggest types of taxation, e.g. income tax, VAT etc. Tax is paid by all individuals who work (income tax) and by all businesses (corporation tax). These taxes, plus VAT, are collected by the government (along with several others). Council tax and business rates are paid to local councils. The government then decides how much, if anything, to charge the public. Some services are free, for others there is a charge because the public is expected to make a contribution (although those in need may be exempt). Some have to be restricted or demand (and the cost) would be too high, such as many types of benefits.

Not For Profit Businesses Many charity-based business organisations are run as ‘not for profit’ operations They typically receive donations or funds from groups or government Any financial surplus is ploughed back into the business The organisation does not aim to generate profits

Deciding the main aim – the voluntary sector Money is raised through donations, grants and campaigns Income minus cost of running business = surplus to spend on main activity. Services are provided free (or below cost) to those in need. The voluntary sector exists to make a surplus, not a profit. The surplus is the amount raised by various sources (see figure 1.3, page 15 in the Student Book) less the cost of running the business. Students should understand that large charities are today run along business lines with professional staff who organise major campaigns to raise money. Charities and voluntary organisations must spend the money they have raised on activities linked to the specific purpose for which the charity was formed otherwise the trustees, who are responsible for the finances, are liable in law. The charity will decide which goods and services are supplied free of charge and which ones to make a small charge for.

The Private Sector Private individuals and firms that are owned by private individuals Firms in the private sector include: Sole Traders Private Limited Companies (Ltd) Partnerships Public Limited Companies (PLC)

Improving business performance the private sector Business may decide to improve by: Increasing sales revenue Reducing costs Increasing customer/client satisfaction. Result = increased profit or higher surplus Increasing income helps to increase profit (or surplus, in the case of the voluntary sector), so too does reducing costs. Increasing customer satisfaction usually results in more trade, as word gets around, and this too results in increased sales.

Improving business performance – the voluntary sector May decide to improve by: Increasing income Reducing costs Using surplus more effectively. Ideas for increasing donations will be ongoing (see also fig 1.1.4, page 16 of Student book). Reducing costs results in an increase in surplus. Using the surplus more effectively results in more recipients benefiting overall.

Improving business performance – the public sector Goals depend upon organisation, for example: Police = reduce crime Education = improve exam results Health care = save more lives Local authority = improve local services. All aim to get best value for money spent. Each organisation in the public sector has its own goals related to its specific activities. Students may be asked to suggest a range of goals for well-known organisations such as hospitals, fire service, ambulance service, Job Centres, Royal Mail, prison service. ‘Best value’ simply means trying to obtain the best value for each pound spent. This is important because the sector is using public money and has to account for the way it is spent.

Other Business Types Co-operatives are owned by their staff, who are ‘members’ of the firm Profits are shared amongst the members Losses too must be shared

Franchises Many businesses today are franchises A business idea is licensed to a franchisee The owners of the brand receive a license fee The franchisee gains the right to use the business brand

Size of business organisations DTI* classifications: Micro = under 9 employees Small = under 50 employees Medium = under 250 employees Large = over 250 employees. Other guides = sales revenue, profit and scale of operation. * Department of Trade and Industry The main way of assessing size of business organisations is through numbers of employees although this is not always totally accurate. For example a highly successful small business may earn very high sales revenue and/or profits because it sells all over the world (see slide 14).

Scale = the area over which goods/services are provided. Scale of operation Scale = the area over which goods/services are provided. Local – in one town or district Regional – in one county or area National – in one country European – in one continent Global – worldwide Scale refers to the size of the area over which the business trades. Online operations enable a small firm to compete with larger operators and offer products and services on a global basis – a concept inconceivable 10 or 15 years ago.

Factors influencing scale Existing size of business Type of product of service Owner’s ambitions Size of market Factors influencing scale Competition Existing skills and knowledge Tutors may wish to discuss each of the above factors and how it affects the potential scale. For example: A very small business would struggle to operate on a large scale because of numbers of staff/expertise. Some products/services are only attractive to a local market (e.g. food specialities – jellied eels/black pudding); others have global appeal, e.g. mobile phones, blockbuster films. Some knowledge of specific cultures/language is essential for international or global operation. Expansion may require branch offices/production facilities overseas/advertising in different languages/appointment of foreign agents to promote goods etc – all these cost money. If competition is intense then international expansion may be risky, e.g. clothes, footwear. If specialist service is offered then international expansion may be much simpler, e.g. Red Adair (firefighting oil fires). Some entrepreneurs are quite happy to operate on a local basis (accountants/estate agents etc in local town) a regional basis (shop owners with regional branches) or a national basis (eg Richer Sounds). Others aim for global dominance where possible (McDonald’s, Microsoft). Cost of operating over a wider area Cost of expansion

In summary Business goals will depend upon: Type of activities carried out Which sector the business is in Size of organisation Scale of organisation Current performance and future ambitions. The main point is that all businesses have aims or goals and these vary. The key goals are the most important ones and these depend upon several factors. In the private sector a key goal will always be profit. In the private sector a key goal is always profit

Activity Find ...On the web.... Mission Statement/Aims/Objectives/Goals of the following organisations; - Produce by organisation a brief on each - Word document