Unit 1 1.2 Why do businesses exist? Business Management Unit 1 1.2 Why do businesses exist?

UNIT 1.2 Why do businesses exist? In this Unit you will find out about: Reasons why businesses exist – enterprise, profit, charity, public sector Entrepreneurship The risks faced by businesses Aims of different business organisations Costs and benefits of business Stakeholders – who are they? Impact of business on the community

Why businesses exist? Businesses exist for a variety of reasons: Enterprise – to develop a good idea Profit – To make a profit eg ASDA Charity – to raise money for a suitable cause eg Comic Relief Public Service – to provide a service to the community at large eg NHS, Schools

What is enterprise? – “to boldly go” Enterprise includes: Turning a good idea into a business success Seeing a chance and taking it – making a success of it Seeing a better way of doing something People setting up business for these reasons tend to enjoy the challenge and excitement of seeing their idea work. NB you do not need to be a sole trader to be enterprising – people can be enterprising in the private, public or voluntary sector.

How do businesses make a profit? Private businesses are set up to make a profit over a period of time and they do this by: Selling goods to customer at a price which is more than it cost them to provide the goods or services Sales income – Cost of sales = Profit

What is a Charity? A charity is a form of organisation where a group of people work together to support and help others. Funds are raised in a variety of ways and used to improve the living conditions or life of others. Examples of charities are: Comic Relief ARMS Save the Children

What is meant by Public Service? Public Service organisations provide some kind of help or service to the general public. Examples of public service are: NHS Local government services such as roads, libraries, education National government services such as the police or defence

What is an ENTREPRENEUR? An Entrepreneur is someone who Has an idea for a business venture Is prepared to take another’s idea and develop it Is prepared to provide finance to develop an idea Is prepared to take a risk which will in turn result in a new produce or service This is called enterprise

What skills and qualities does an entrepreneur need An Entrepreneur needs the following skills and qualities: Is creative and energetic Has enthusiasm for the task Will use their own initiative Will take risks Is assertive Is a decision maker Can handle different aspects of the business Is a problem solver

Who are the entrepreneurs? Richard Branson Linda Bennett Michelle Moan Dragon’s Den team: Deborah Meaden Duncan Bannatyne Peter Jones James Caan Theo Paphitis

What risks face a new business? Any new business will face risks and these include: People not buying the product or service Profits not high enough to cover the costs in the long term Problems with cash flow – not enough income to cover expenses More money owed to suppliers that can be paid back in the long term All money which has been invested is lost.

What are the aims of businesses? The aims of any business can be complex and depend on many factors: The type of business activity Personality of the owner/manage The sector of industry in which it operates The level of competition

A businesses aims may include: Whether it wants to make a profit? be recognised for providing a quality service expand internationally become environmentally friendly improve conditions for its workforce increase its market share make customers happy develop employees

In general terms most businesses aim to achieve some or all of the following:

SURVIVAL GROWTH MAXIMISE PROFITS INCREASE MARKET SHARE to make sure that the businesses does not fail or go out of business GROWTH To increase the size of the business eg more customers, more outlets MAXIMISE PROFITS To make as much profit as possible INCREASE MARKET SHARE To beat competitors and gain more customers, therefore more profit

IMPROVE CONDITIONS EFFICIENCY LEAD THE FIELD QUALITY To have charitable aims tohelp others EFFICIENCY To make sure that things are done in the best possible wah LEAD THE FIELD To make their company/organisation the number one – a trailblazer QUALITY To produce quality products/services

The aims and objectives of different types of business TYPE OF BUSINESS AIMS/OBJECTIVES Private sector – profit-making company, eg BT survival – break-even maximize profits increase returns to shareholders/owners expand the product/service range expand the business – more outlets improve the quality of products/service Charity, eg British Red Cross help people maximize collections for cash offer a service to the community recruit more helpers open more branches/charity shops widen the scope of assistance Public sector organisationn eg, National Health Service help people improve the quality of service offered cut costs raise revenue to develop employees

What are the benefits and costs of business? These can be divided into 2 sections: Social benefits and costs and Economic benefits and costs

Social Benefits and Costs These are the positive things which happen to a community because of local businesses - Eg – better roads, improved housing, new schools Social Costs These are the negative effects on a community caused by some local businesses - Eg air/noise/water pollution, heavy traffic, health problems, inconvenience arising from building works or redevelopment

Economic Benefits and Costs These are the positive monetary effects on a community caused by some local businesses - Eg – increased income for local people because of local jobs, leading to increased spending in other businesses which helps them. The standard of living is raised in the local area Economic Costs These are the increased community taxes on property leading to - Eg increased expenditure on the local infrastructure

CASE STUDY Turn to page 14 in your text book Read the case study carefully Answer the questions in you jotter

WHO ARE THE STAKEHOLDERS? STAKEHOLDERS are people with any interest or an influence on an organisation. They may be: People with no financial interest eg environmental groups People with financial interest eg shareholders or employees

STAKEHOLDERS Stakeholders can be: MANAGERS of the firm INLAND REVENUE EMPLOYEES of the firm SHAREHOLDERS of the firm SUPPLIERS to the firm

STAKEHOLDERS WILL BE INTERESTED IN MANAGERS running the business INLAND REVENUE the activities of the business to make sure that tax rules are applied EMPLOYEES the activity of the business – the business pays their wages SHAREHOLDERS ensuring that the business performs well and increases the value of their investment – protecting their investment SUPPLIERS getting paid for supplying goods the reputation of the business for paying on time

STAKEHOLDERS IN A FOOTBALL CLUB (plc) Possible influences Possible interests Stakeholders Shareholders Share of profits Maximise profits See club progress in appropriate league Win games Encourage higher ticket prices Lower running costs Vote at AGM Players Win games Build good reputation for club Increase income, sponsorship etc Top class player can bring in Sponsorship and publicity for club

STAKEHOLDERS IN A FOOTBALL CLUB (plc) Possible interests Possible influences Directors Ensure long term success of club Make healthy profit Influenc direction of club Need to balance profit. Growth of club with fans’ needs Media Provide info for fans and therefore increase listeners Raised income from advertising Popularity of sport Pay for televising events thus making clubs money Media coverage can affect outcomes

STAKEHOLDERS IN A FOOTBALL CLUB (plc) Possible interests Possible influences Local Residents Social cost of large stadium nearby – fans behaviour large crowds Increased trade in pubs, shops on match days Community sports projects run by club Local residents want minimised disruption to local area May complain to authorities May not attend matches Fans Attending matches State of ground Players’ skills Efficiency of management Fans associations can discuss matters of interest and influence running of club