1. Unit 1 Understanding Business
N5 BUSINESS MANAGEMENT
Unit 1
Understanding Business

2. ROLE OF BUSINESS IN SOCIETY
how businesses satisfy human wants and create wealth
Factors of production and creating wealth
how businesses operate in different sectors of industry
the different sectors of the economy
CUSTOMER SATISFACTION
how businesses maximise customer service
why customer service is important to business success
TYPES OF BUSINESS ORGANISATIONS
Their differing aims, objectives, sources of finance, industrial and economic sectors they operate in
sole trader
partnerships
private limited company
social enterprises
charities
public organisations
how enterprising skills and qualities help business development
OBJECTIVES
Profit, provision of a service, social responsibility, survival, customer satisfaction, market share, enterprise
EXTERNAL FACTORS
political
economic
social
technological
environmental
competitive
INTERNAL FACTORS
How they affect the operation of and decisions made in the organisations listed above; the main ones being:
employees/staff
finance
management
technological systems
STAKEHOLDERS
owners
shareholders
employees
banks
customers
suppliers
local community
pressure groups
local and national government

3. Role of Business in Society
Business provides us with most of the things we use on a daily basis.

4. Needs and Wants Needs are things we can not do with out
Water
Basic food
Heat
Shelter
Wants can be few or endless – we can live without them but would rather not!
Mobiles
Tvs
Internet
Expensive foods and clothing

5. Goods and services A good is something you can see and touch
A good is broken into
Durable (like a washing machine)
Non-durable (like a hamburger)
Services are you can’t see, touch or pick up
Hotels
Airplane travel
Holidays

6. Providing both
Sometimes you just want a sandwich or pasty from a shop – that is a good
Sometimes you want it heated, or to sit at a table – that is a service

7. Factors of production
Resources required to produce goods and services can be divided into 4 main groups knows as the Factors of Production.
LAND – site of factory/premises
LABOUR – people employed to produce the goods
CAPITAL – money required/machinery
ENTERPRISE – idea provided by the owner

8. LAND Buildings – land needed for housing, businesses Water
Farmland – crops,animals
Buildings – land needed for housing, businesses
Water
Coal-mining to provide heat oil/gas-refineries

9. Labour is physical and mental effort.
People who use mental effort include:
Teachers
Bankers
People who use physical effort include:
Assembly workers, eg a car production line
A baker – mixing of ingredients to make bread and cakes

10. CAPITAL
Capital is the money and the things that can be purchased with money to make and sell goods and services.

11. ENTERPRISE
Enterprise means having an idea for a new business and taking risks with the other factors of production to make the business a success

12. CREATING WEALTH
Creating wealth occurs at each stage of the production process.
Value is added by each producer eg
miller adds to the value of the wheat by processing it
Baker adds to the value of the processed wheat by making it into cakes
The total value of the cake is much more than the value of the raw materials used in its production
Therefore each stage creates more total wealth than the previous stage

13. Wool prices are about 50 pence per kilogram and for most farmers the value of the wool does not cover the cost of shearing.
Finished product - £55!

14. Sectors of the Economy The economy consists of 3 different sectors
Private
Public
Third or Voluntary Sector

15. The Private Sector
The Private sector is made up of businesses large and small that belong to individuals. These businesses are concerned with
Increasing profit
Increasing market share
Adding value to their goods and services
Increasing wealth

16. The Private Sector is made up of different types of business
Sole Traders (eg David Graham Cycles)
Partnerships (eg MacPhee and Partners)
Private Limited Companies (eg M&Co)
Public Limited Companies (eg Tesco plc)

17. The Public Sector
The public sector is used to deliver services and goods to a wide number of people in a society.
The public sector of the economy is owned and controlled by the government and local councils. It provides services such as schools, hospitals, the armed forces and social services.
These organisations are funded by taxes, eg corporation tax, income tax, council tax

18. The Public Sector consists of:
National Government
This would include the British or UK government as well as the Scottish Government
Local Government
This would include both councils such as Argyll-Bute or Stirling and towns such as Oban

19. The Third Sector
Non-Profit making Organisations
Social Enterprise

20. The Third Sector
This sector is about delivering goods and services that neither businesses nor the public sector covers
This sector looks for sponsorship for its capital and volunteers for labour

21. The Third sector Non- profit organisations Social Enterprises
Charities
Voluntary organisations
Social Enterprises
have a main social aim rather than profit but are run in a business like way
at least 50% of the profit must be invested into meeting the stated aim of the enterprise

22. The 3 Sectors of Industry
Primary
Secondary
Tertiary

23. The Primary Sector This is EXTRACTING RAW MATERIALS
Extraction industries eg mining or quarrying
Farming
Oil and energy extraction
Fishing
Forestry
Sometimes an economy based on this sector can be very successful – think of oil based economies.
Sometimes the primary sector needs very few people and all the products are exported.

24. The Secondary Sector This is MANUFACTURING
Wealth creation at each stage is very high
This is taking materials from the primary sector and processing them
White goods, clothing, cars, TV’s, yoghurt, bread
When countries move from primary to secondary sectors the change in wealth can be huge

25. The Tertiary Sector This is the SERVICE SECTOR.
Banking, medicine, travel, beauty, restaurants, government jobs, education are examples
A country usually shifts to the tertiary sector when manufacturing is being carried out in a country where it is cheaper.

26. Customer Satisfaction
Customers give a business money in return for goods and services provided in a way that makes the customer happy
Repeat customer- a customer that needs a steady supply of the same or similar goods
One off or single customer - a customer that may need a single item and will never appear again

27. Why is Customer Service Important?
You will gain customer loyalty – customers will keep returning and tell other people – free advertising
Increased sales and profits
A good reputation – your customers say positive things about you
Increased competitiveness – can compete better with other organisations
Staff morale is better – they are happy at work if they don’t have to constantly deal with unhappy customers

28. How businesses maximise Customer Service:
Providing the highest possible quality product
Making sure employees are trained – they should know about products they are selling. Can be expensive
Having a customer care strategy – letting customers know the level of service they should expect
Having a customer complaints procedure - aims to make sure customer complaints are handled in the best possible way
Having an after-sales service - opportunity to ask questions about their purchase after it has been bought
Provide guarantees – eg replacement parts within a year of purchase
Refund and exchange policy – all staff should know about the policy

29. Types of Business Organisation
Sectors of the Economy
Private Sector
Public Sector
Third or Voluntary Sector

30. Private Sector Businesses
Types of Business Organisation
Sole Trader
Partnership
Private Limited Company

31. Sole Trader FEATURES OF SOLE TRADER Aims is to make a profit
Business owned and often run by one person
May employ other people in the business
Tend to be small businesses
Examples: Small shops, Car mechanics, Flower shop
Can you name 3 sole trader businesses in Oban?
Auley’s Bar, David Graham Cycles.

32. Sole Trader ADVANTAGES: Owner keeps all the profits
Owner controls all the decisions
Easy to set up the business.
DISADVANTAGES:
Owner bears all the responsibilities
If owner cannot work the business may suffer – lack of cash
Owner may have difficulty obtaining finance
Owner has unlimited liability.

33. Partnership FEATURES OF PARTNERSHIP Aim is to make a profit
Business between two and twenty partners
Partners usually enter into a legal agreement called a Partnership Agreement which states
States share of profit
Which partner has most responsibility
Partners may invest different amounts of money
This will affect their share of profit
Examples: Dentists, vets and lawyers.
Can you name 3 partnership businesses in Oban?
Oban Chocolate, MacCamley and Laird, Stevenson Kennedy (lawyers)

34. Partnership ADVANTAGES:
Partners can share workload according to skills
Partnerships find it easier to raise finance than sole trader
Risks are shared between partners – risk of poor profit
DISADVANTAGES:
Profits shared between the partners – therefore smaller share
More people to run business – risks of disagreement
Partners usually has unlimited liability
Legal agreement needs to be set up.

35. What are Shares? Companies are owned by people who are shareholders
Anyone over 18 can buy shares
Shareholders are given a share of any company profits
The share of profits is called a dividend and is payable once or twice yearly

36. Private Limited Company
FEATURES OF PRIVATE LIMITED COMPANY
Aim is to make a profit
Name of the business will end with Ltd
Owned by shareholders – minimum of one
Shares in the company are owned privately
Run by a Board of Directors
Such companies are often family businesses.
Examples: MacQueen Bros had recently become a Private Ltd Company
Can you name 3 private limited companies in Oban?
M&Co, MacQueen Ltd, Beaver Timber Ltd,

37. Private Limited Company
ADVANTAGES:
Owner keeps control of the business
Private limited company can raise more finance that a smaller business
Shareholders have limited liability.
DISADVANTAGES
Profits shared between more people
A legal agreement must be set up
Shares cannot be sold to the public, so raising finance can be more difficult than for a public limited company.

38. Public Sector Organisations
FEATURES OF A PUBLICLY OWNED ORGANISATION
Main aim is to provide a service
Funded by taxpayers
Controlled by government
Provide essential services for the whole population
Non profit making
Examples: BBC , National Health Service, Education Services
Can you give an example of a Public Ownership organisation in in Oban?
Local Government

39. Public Sector Organisations
ADVANTAGES:
Less competition
DISADVANTAGES
May have funding issues depending on the economy.

40. Third or Voluntary Sector Organisations
CHARITIES
Charities exist for a variety of different causes. They aim to raise money to fund research or help support those in need.
Use donations from the public
Raise funds in other ways
Do not make a profit
Examples include Oxfam, RSPCA, and Save the Children

41. Third or Voluntary Sector Organisations
SOCIAL ENTERPRISE
Social Enterprises are businesses that trade to tackle social problems and improve life for the community. They make their money from selling goods and services but reinvest a large portion of their profits back into the business or local community.
Examples of Social Enterprise
Atlantis Leisure
Phoenix Cinema

42. Enterprise and Organisations
All organisations exist because someone had an idea and enterprising skills and attitudes!
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

43. Skills and qualities of an entrepreneur
Entrepreneur Skills
Self confidence
Leadership
Organised
Enthusiastic
Problem solving
Creativity
Determination
Risk taking
An Entrepreneur needs the following skills and qualities:

44. Who are entrepreneurs? Richard Branson Linda Bennett Michelle Mone
Alan Sugar
Fraser Docherty
Dragon’s Den team:
Deborah Meaden
Duncan Bannatyne
Peter Jones
Kelly Hoppen
Piers Linney

45. Business Objectives Survival
This means to continue trading and it is often the first objective a business has.
Profit
This means to have more income than costs. It is the main objective of any business in the private sector.
Provision of a Service
To provide people with a service they want. An example could be a government hospital with the aim of providing health care.
Customer Satisfaction
To make customers happy and encourage them to make repeat purchases.
Enterprise
This means to combine resources to produce a prodcut that customers want. It might involove a business developing a new idea and trying to satisfy the wants of customers in a different way- maybe by providing a new product.
Social Responsibility
To be seen as helping society, by improving the environment, creating jobs, promoting education.
Market Share
This can mean two things
Increase market share
Become a market leader

46. Business Influences
There are a number of factors which influence how a business operates
External Factors – things outside the business
Internal Factors – things inside the business

47. External Factors (PESTEC)
POLITICAL
ECONOMIC
SOCIAL
TECHNOLOGICAL
ENVIRONMENTAL
COMPETITIVE

48. Political
The Government can introduce laws that affect every business or just some businesses.
Examples
Minimum wage – this can cost an organisation money
Smoking ban – affected particularly pubs, causing many to close

49. Economic
This refers to changes to the economy during periods of boom and slump which can affect busiensses
Example
During a boom, business do well and make their biggest profits
During a slump or recession, the opposite happens. Customers cannot afford to spend so much money

50. Social
This refers to the structure of the population, peoples tastes and different working practices
Example
Changes in attitudes to working women – has meant more women in the workforce than, for example, 50 years ago
Changes in fashion – what people want to buy can change very quickly

51. Technological
Businesses must keep up with changes in technology. The introduction of the internet and e-commerce has revolutionised shopping in this country.
Example
Increase in the number of on-line retailers like Amazon
Has also changed the way people in businesses communicate with each other – can be expensive for organisations to keep up with developments

52. Environmental
This can refer to businesses making changes to their practices to ensure they are more environmentally friendly or it could refer to the fact that changes in the weather can affect what we buy or sell
Example
Poor weather can lead to crop damage
Extremely hot summers can increase demand for certain products eg ice cream
Businesses, like everyone else, must ensure they increase the amount they recycle

53. Competition
All businesses face competition from other businesses – this can greatly influence the success or otherwise of an organisation
Example
If a competitor lowers prices, other may have to do so in order to maintain sales eg petrol prices

54. Internal Factors
Internal factors are events or situations within the business that affect its overall performance. These can be positive or negative
Internal Factors
Financial
Human Resources
Technological
Management

55. Finance This refers to the availability or lack of finance or money
Example
If there is no finance, a new machine cannot be bought
An organisation can’t run an advertising campaign for their new products
They may have to take out an expensive loan

56. Technology
Businesses can fail if they do not have access to up-to-date technology or if their staff are not trained properly in the use of the technology.
Example
Business who invest in new technology to carry out processes or communicate with customers have the competitive edge over other organisations
IT such as computers, mobile devices allow organisations to keep in touch effectively with customers and employees

57. Human Resources
This refers to the staff in the organisation. Well-trained staff are more productive and have better relations with customers
Example
Staff who feel they have been poorly treated may take industrial action which will adversely affect the organisation
Well-trained staff can produce high quality products and deal properly with customers which will give the organisation a good reputation.

58. Management
Managers are very important members of staff. As they are the ones who make most of the decisions, they can greatly influence the success or otherwise of the organisation.
Example
Good managers will motivate the staff and make them work hard

59. STAKEHOLDERS
A stakeholder is an individual or group of people who have an interest in an organisation and can influence it in different ways

60. Stakeholders – Interest and Influence
Customer
Want good service/quality goods reasonable prices
Can buy or not buy
Can complain
Owner
Successful business
Healthy profits
Make the main decisions
Employees
Want job security, good pay and conditions
Can work hard or not. Can take action or leave
Inland Revenue
Makes sure tax laws are followed
Can change amount of tax due

61. Stakeholders – Interest and Influence
Managers
Want job security, good salary and promotion
Make decisions affecting how well business performs
Shareholders
Want to receive good dividends.
Can vote at AGM
Can buy or sell shares
Suppliers
Want repeat orders
Want to be paid on time
Can decide not to supply. Can change prices
Banks
Want to be repaid loans
Can alter interest rates
Can lend or not lend

62. Stakeholders – Interest and Influence
Local Community
Want jobs in the local area
Want businesses to be socially responsible
Can complain to local council or protest eg write to newspaper
Pressure Groups
Support and promote a cause eg maintain green belt
Can hold demonstrations to raise awareness
Local government
Want jobs in the local area
Want businesses to invest in the local area
Can refuse or grant planning permission
Close down businesses
National government
Want taxes to be paid
Want laws to be followed
Can change tax rate
Can change the law