SG Business Management Unit 1.1 What do businesses do?

Needs and Wants Needs – clothes, food, water and shelter Wants – CD’s, cars, mobile phones etc Businesses exist to satisfy consumer wants. Wants are unlimited.

Goods and Services Every product that you can see or touch is a good and all other products are services. Goods are tangible, which means they can be seen and handled. Services are intangible, which means they cannot be seen and handled.

Durable and Non-Durable Goods/Services Goods and services can be durable (long-lasting) or non-durable (used up quite quickly) A cinema is an example of a non-durable service: it provides entertainment in the form of a film for about 2-3 hours on average.

Consumer Goods & Capital Goods Consumer goods are sold to people (ie consumers) rather than to other businesses. Capital goods are used by businesses to make consumer goods and other capital goods.

Business Sizes

Features of Small Businesses Owned and often run by one person. Known as a Sole Trader. Owned and run by between 2 and 20 people. This is a Partnership. Tend to sell goods and services locally. Employ less than 50 people. Eg Dan Dan the Hotdog man at Safeway.

Features of Medium-sized businesses Owned and run by a group of people (eg partners, shareholders or directors). Can sell goods and services locally and/or nationally Employ between 50 and 250 people. Eg Patterson’s Shortbread Factory

Features of Large Businesses Owned by a large number of people (shareholders) and run by people appointed by them (directors) Produce and/or sell goods and services in several locations – often in several countries. Employ more than 250 people – sometimes hundreds of thousands. Eg Coca Cola, Mars, Cadbury.

The variety of businesses: Public Private Voluntary

Private Sector These businesses are driven by the profit motive, to make money in order for people to be better off or to make the business better off, and to provide goods and services. Examples include: Sole Trader Partnership Private Limited Company Public Limited Company Franchise

Public Sector These businesses have the purpose of providing mostly essential goods and services for the community of the country. Examples include: Central government Local government eg schools and hospitals Public corporations These services are all paid for by taxes.

Voluntary Sector These businesses are driven by the need to care for parts of the community at home and abroad by providing goods and services. Examples include: Charities Youth Clubs etc These organisations rely on money from donations and gifts.

Types of Business Ownership

Sole Trader Individuals own the largest number of businesses. Some work alone, and some employ a few people. Over half of them provide services. Examples of Sole Traders; plumber, electrician, butcher, corner shop, paper shop, garage etc.

Advantages of a Sole Trader The owner has total control Easy to begin Requires little money Owner keeps any profit Owner gets great job satisfaction

Disadvantages of Sole Traders Unlimited Liability Difficult to raise finance All responsibility lies with owner Failure rate is high

Partnership Any number of people from two to twenty, can form a partnership. This type of organisation is common to doctors, dentists and accountants. Any business run for profit by these people is legally a partnership. Examples of a Partnership: Lawyer, Dentist, Doctor, Architect.

Advantages of a Partnership Able to specialise Do not have total responsibility More ideas More start up capital Can borrow more easily

Disadvantages of a Sole Trader Unlimited Liability Risk of conflict (over share of profits, control of business etc)

Limited Companies There are 2 types of limited company – Private Limited Company (Ltd) Public Limited Company (PLC) Limited companies are more expensive to set up but carry less financial risk for the owner.

Limited Companies have 5 important differences compared to sole traders and partnerships: The business is incorporated – has a separate legal identity from the owner. It has limited liability so the owners only risk losing the money they invest in the business – no matter how big its debts are. It must have a Memorandum of Association. This tells the world who the business is and where it is based. It must also have an Article of Association. This sets out how the business will be run. It is owned by shareholders. The more shares you own, the more control you get.

Private Limited Companies – Ownership is restricted Private means that shares can only be sold if all the shareholders agree. Private limited companies have Ltd. after their name. Directors and employees run the business. Owned by shareholders – usually friends and family own the shares. Shareholders put money into the business and receive a Share Certificate in return. They then receive a share of the profits (dividends).

Advantages of Private Limited Companies Limited Liability – you can’t lose more than you invest! Easier to raise finance Company is a legal entity separate from its owner Being incorporated, the company can continue trading after a shareholder dies – unlike partnerships.

Disadvantages of Ltd Companies More expensive to set up due to all the legal work involved Company is legally obliged to publish its financial accounts every year. Examples; taxi firms, builders, etc.

Public Limited Company – Anyone can buy shares Public means that anyone can buy shares in the company – if they can find someone who wants to sell them. Public Limited Companies have PLC after their name. Firms generally become PLCs when they wish to expand.

Advantages of PLCs Much more capital can be raised by a PLC than by any other type of business Easier to expand business by selling shares to raise the finance

Disadvantages of a PLC Each shareholder has very little say in how the company is run – unless they own a lot of shares. It’s easier for someone to buy enough shares to take over the company – if they think they can make more profit.