UNIT 1 - STARTING A BUSINESS AQA GCSE Business Studies

ENTREPRENEUR DEFINITION QUALITIES A person who has an idea for a new business and is prepared to take risks to make the business work. QUALITIES Hard working Enthusiastic Persistent Willing to take advice

REASONS FOR STARTING A BUSINESS EMPLOYMENT Starting your own business is one way of making sure you are employed and earning a living. PROFIT Starting your own business allows you to keep all the profits rather than working for owners who keep the profits. OWN BOSS Starting your own business allows you to make your own decisions rather than being accountable to someone else. FLEXIBILITY Starting your own business allows you to choose your own hours of work. INTEREST Starting your own business allows you to earn a living pursuing a hobby/interest. GAP IN MARKET Starting your own business allows you to take advantage of a gap in the market – no other business like it in the market

REDUCING RISK OF BUSINESS FAILURE Write a business plan Help with organisation. Help monitor/evaluation business success. Save rather than borrow Reduces debt and amount of interest paid on loans. Carry out market research Able to identify gap in market, customer needs/wants and competition. Choose a limited company Limited liability – only lose what you invest if business fails. Start a franchise Established brand, support/training from franchisor and marketing costs shared. Get advise Get advise Find a partner Can provide advise, expertise and finance.

BUSINESS ACTIVITY Products Goods (physical items) Services (intangible) Businesses offer products and services for sale to consumers. GOODS Items that can physically seen and touched e.g. car, furniture. Some businesses offer both e.g. we choose a restaurant for the atmosphere and environment (a service) as well as the food (a good). SERVICES A service is intangible i.e. you cannot physically touch it.

GAP IN THE MARKET DEFINITION BENEFITS Business produces a product or identifies a service which is not yet available on the market for consumers to purchase. Charger higher price for product/service – less competition. Increased sales – less competition. More customers – selling unique product/service.

Made up of organisations that sell products and provide services. BUSINESS SECTORS PRIMARY SECTOR Made up of organisations in first stage of production. Extract raw materials. Land is used to grow items. SECONDARY SECTOR Made up of organisations in the second stage of production. Primary sector resources are used to manufacture products. TERTIARY SECTOR Made up of organisations that sell products and provide services.

CHANGING TRENDS PRIMARY SECTOR SECONDARY SECTOR TERTIARY SECTOR Numbers employed has decreased Less natural resources to extract. Land taken for housing/business developments. SECONDARY SECTOR Numbers employed has decreased Cheaper to manufacture abroad. More machinery/robotics used in production process. TERTIARY SECTOR Numbers employed has increased More demand for products and services.

I pay McDonalds £100,000 for the Franchise A franchise occurs when a franchisor sells an existing business idea to a franchisee. A franchisor is the seller of the franchise. A franchisee is the buyer of the franchise. Mrs Rae (Franchisee) I want to open a McDonalds franchise McDonalds (Franchisor) McDonalds agrees to allow me to use the company’s name and sell the company’s products I pay McDonalds £100,000 for the Franchise ADVANTAGES DISADVANTAGES Good chance of success – name already established/well known. Franchisee cannot make many decisions – must be run according to the rule of the franchisor. Advise and assistance (e.g. training, marketing) given – franchisor will have experience. Franchisee will never feel business is there own – has been established by franchisor. Reduced marketing costs - franchisor responsible for market research, product development and promoting the business Costly way to run a business – fees, royalties (% profits) and expensive stock must be paid for by the franchisee.

BUSINESS OBJECTIVES DEFINITION OBJECTIVES An objective (or aim) is a target that is set for a business to achieve. EXAMPLES Survival Provide a good product Customer satisfaction Increase market share (sales) Be more ethical Protect the environment

BUSINESS OBJECTIVES WHY SET? EFFECTIVENESS Helps with decision making and establishing priorities. Helps investors understand the direction of the business. Provides a target so that actual results can be compared with planned results. Can motivate everyone connected with the business because they know what they are trying to do. To be effective, an objective must clearly state: What the target is e.g. increase profit by 20% When it has to be achieved e.g. within 2 years Who is to achieve it i.e. who is in charge of making sure the target is hit How to achieve it i.e. what is and what is not acceptable behaviour

MARKET SHARE DEFINITION CALCULATING Market share is used by businesses to determine their competitive strength in a sector. Market share is measured by sales revenue or sales volume (number of products sold). sale of product x 100 total market sales Zone4Sports: 28 x 100 = 35% market share 80 Total sales £m Zone4Sports 28 Kinetics 20 RyderZee 16 Harringtons Total market sales 80

SOCIAL ENTERPRISE A social enterprise is a business which trades to tackle social problems, improve communities, people’s lives or the environment. Profits are re-invested to benefit society, instead of keeping it for private gain. Eden project in Cornwall – Focuses on environmental concerns The Big Issue Magazine - Offers homeless people the opportunity to earn a living by selling it Fairtrade – As it says in the image above

STAKEHOLDERS DEFINITION EXAMPLES Are groups of people that are involved in business activity either directly (internal) or indirectly (external). EXAMPLES Government Suppliers Local Community Employees Owners Customers

STAKEHOLDER INTEREST STAKEHOLDER INTEREST OWNERS Wants to make maximum profit from the business. CUSTOMERS Wants a business to sell quality products and provide good customer service. EMPLOYEES Wants the business to do well so there is job security, chance for promotion and to earn a good wage. LOCAL COMMUNITY Wants the business to behave responsibly e.g. employ local people, reduce noise and traffic congestion. GOVERNMENT Wants business to succeed. Successful businesses will employ more people and pay more tax. SUPPLIERS Wants to be paid on time.

STAKEHOLDER CONFLICT Conflict MANAGER CUSTOMER OWNER SHAREHOLDER OWNER Wants to raise selling prices to maximise profits CUSTOMER Will not want to pay more for their goods OWNER Wants to re-invest profits into the business SHAREHOLDER Will want the profits shared out to them OWNER Wants to pay lower wages to their employees to maximise profits TRADE UNION Trade unions who represent the employees will not be happy with this OWNER Wants to buy stock from suppliers at minimum prices SUPPLIER Will want to make maximum profits.

BUSINESS PLAN DEFINITION SECTIONS A document setting out what the business does at present, plus what it intends to achieve in the future and how this will be accomplished. SECTIONS Financial information Aims and objectives Marketing Research Description of the business

BUSINESS PLAN BENEFITS DIFFICULTIES Helps a business get a bank loan. Helps keep a business organised. Allows success to be monitored and improvements made. A business can plan contingencies. Lack of experience – people starting a business may not have required skills to plan ahead. Uncertainty – not always easy to look ahead and predict what is going to happen in the market.

LEGAL STRUCTURES SOLE TRADER Business owned and managed by one person. Legal structure of business Sole trader Partnership Private limited company (ltd) SOLE TRADER Business owned and managed by one person. PARTNERSHIP Business owned and run by 2 to 20 people. LTD Owned by shareholders. Shareholders tend to be family members or friends.

SOLE TRADER HOW TO SET UP There are no legal requirement to set up a sole trader business. ADVANTAGES DISADVANTAGES Quick and easy to set up – no complicated forms or procedures to follow. Unlimited liability – if the business fails may have to sell personal possessions to cover debts. Decisions can be made quickly – do not have to get agreement from anyone else. Difficult to raise money to expand – seen more of a risk by lenders. Keep all the profits – no one else to share them with. Lack of continuity – if sole trader dies the business ends as well.

PARTNERSHIP HOW TO SET UP ADVANTAGES DISADVANTAGES Partners must draw up a Deed of Partnership. Outlines who is part of the partnership, how much capital each partner has put in, how profits are shared, duties of each partner and how can join and leave the partnership. ADVANTAGES DISADVANTAGES Easy to raise extra capital – all partners can contribute. Partners have unlimited liability – see earlier definition. More expertise – individual partners can specialise in different areas. Decisions can take longer – partners may disagree about the running of the business. Less pressure for each partner – problems and ideas can be shared. Profits must be shared – this can cause resentment if one partner feels they have contributed more to the business.

LTD HOW TO SET UP ADVANTAGES DISADVANTAGES Memorandum of Association: sets out the name of the company, purpose, where it is registered and statement of firms activities. Articles of Association: sets out voting rights of shareholders, how profits are distributed, how directors are elected and duties/powers of directors. ADVANTAGES DISADVANTAGES Limited liability – if the business fails shareholders will only lose the amount they invest. Personal possessions will not be at risk. Difficult and more expensive to set up – complicated paperwork. Business can continue if a shareholder dies – shareholders shares can be transferred to someone else. Cannot sell shares on the Stock Market – limits the amount of capital can be raised. Easy to raise extra capital to expand – more shares can be sold in the company. Accounts must be checked by an independent accountant – expensive.

FACTORS INFLUENCING LOCATION RETAIL MANUFACTORING Cost of rent Available premises Crime/security Customer parking Competition Transport links Communication links (internet access) Type and number of shoppers Availability of labour Water and power supply Climate (if needed for growing) Availability of government grants Transport and communication links Closeness to raw materials Availability of land and labour Closeness to other manufactures/suppliers