Understanding Business

1. Understanding Business 2016-17

2. Contents • Needs/Wants & Goods/Services • Risks • Factors of Production • Entrepreneurs • Sectors of Industry • Sectors of Economy • Business Plan • Sources of Finance • Business Aims • Customer Satisfaction • Private Sector Orgs • Public Sector Orgs • Third Sector Orgs

3. Needs and Wants • A needis anything essential we must have to stay alive. We need food, drink, clothing and shelter. • A want is anything not so essential but something we would still like to have. We want a television, a foreign holiday or designer clothes.

4. Goods and Services • A good (product) is something made by a business that you can touch or see. • Examples - a car, a football, a pair of boots. • A service is something you cannot hold or touch. Often a service allows one person to use skills they have to help others. • Examples - haircut, life insurance, cinema attendant.

5. Opportunity Cost When something is scarce and we can’t have everything we want, we have to make choices. For example: • which pair of jeans will I buy? • which courses will I choose to study? When we make a CHOICE, we decide to give up something in order to get something else. Opportunity Cost – the thing which we have sacrificed.

6. Why Start A Business? You might start off with very big ideas. Only 50% of new businesses starting up survive after 3 years. Task Given the risk, why would people want to start up a business in the first place?

7. Independence – Own Boss Made Redundant – Redundancy Money To Invest You Keep All Profits Your Firm = Your Deadlines You Have A Good Idea – Can’t Persuade Others Difficulty Finding Employment

8. Risk One The business may take time to produce a profit – the owner’s income may be small and vary from week to week.

9. Risk Two The product may not be successful or face a lot of competition.

10. Risk Three The owner may lose the capital they invested if the business is not a success. This may even result in bankruptcy.

11. Risk Four As the business grows the owner needs to learn to delegate responsibility to subordinates – not easy if the owner has built the firm up single-handed.

12. Innocent Drinks The story of the Innocent drinks company - the highs and lows for the founders. It shows the motives behind founding the company, the excitement of start-up, and the integrated nature of the process. The financial aspects are also briefly covered. http://www.bbc.co.uk/learningzone/clips/financial-aspects-of-business-start-up/8490.html

13. Entrepreneurs

14. What is an Entrepreneur An entrepreneur is an individual who develops a business idea and takes on the associated risks and responsibilities.

15. Qualities of an Entrepreneur • Calculated risk taker • Competitive • Confident • Creative/inventive • Determined • Good communication • Hard working • Ambitious • Patient • People skills (respect) • Planning/organisation • Positive attitude • Spot problems • Willing to learn • Adaptable • Persuasive

16. Entrepreneur Case Study • Watch the clip on SuperJam • Write down relevant information about becoming an entrepreneur. Task • From the website below pick one other company of your choice and write down information relevant to becoming an entrepreneur. knox.is/entrepreneurvideos

17. Factors of Production Land – natural resources eg water, trees, fruit, fish Labour – human workers – mental and physical effort Capital – money, buildings and machinery Enterprise – the development of ideas and drive for implementation

18. Sectors of Industry Organisations involved in the extraction of the earth’s natural resources eg farming, fishing, oil Organisations involved in the manufacturing of raw materials to be turned in to finished goods eg cars Organisations involved in the selling of goods and providing services eg bank, hairdressing

19. Sectors of Economy PRIVATE SECTOR Owned and run by private individuals/groups Sole Trader, Partnership, Private Limited Company (Ltd), Public Limited Company (Plc), Franchise PUBLIC SECTOR Owned by the taxpayer and run by the Government NHS, Education, Police, local council’s services THIRD SECTOR Owned and run by private individuals with the purpose of helping a group or raising awareness for a cause. Charities, Non-profit making organisations

20. Types of Business

21. Types of Business Organisation • In the previous slide we have looked at Sectors of the Economy: • Private • Public • Third • If you were to start your own business it would be in the private sector and it would be called a Sole Trader

22. Sole Trader • A sole trader is a business owned by one person. • They control the business as they make all the decisions. • The business is financed by the capital they invest in the business. • Examples of sole traders are: • Plumber • Electrician • Mechanic • Hairdresser However, anyone can start up their own business doing whatever they want.

23. Sole Trader In pairs write down as many advantages and disadvantages of being a sole trader that you can think of – 3 minutes • Advantages • Make your own decisions • Profits are not shared • No special paperwork required • Disadvantages • Long hours • Hard to raise finance • Unlimited liability for debt • Hard to cover illness/holidays

24. Planning Your BusinessThe Business Plan

25. Ideas for a New Business Task 1 • You have decided that you would like to start your own business and become a sole trader. In order to begin any business you must make a Business Planlaying out your business aims. • First you must decide what business you would like to set up. • Decide on 3 businesses you would like to start? • Make a list of the pros and cons for each business? • Choose a business and briefly detail what this business will do. …some ideas are on the next slide….

26. What is a Business Plan? • The business plan is a tool designed to help you lay out the aims and ideas that you have for your business. • It should include relevant information about your business and it will cover areas such as: • Background Information • Marketing Approach • Production • Human Resources • Finance • Location • It is often used as a tool to show to potential investors to convince them that your business will be a success.

27. Time for researchPreparation is essential Task 2 and 3 • Working within the time available, complete the template document which will get you thinking about your business. • You may not have all the answers at the moment, but be as detailed as you can be…

28. Writing the Business PlanConvince others… Task 4 • Using the Guideline Document, create your business plan. • You will submit this business plan for marking by ‘The Bank Manager’ • Use a fresh document and your IT skills to prepare a professional and informative document.

29. The ‘Elevator’ PitchBe straight to the point! Watch the Video… Prepare Your Pitch – Task 5 • What are the key factors about your business? • What do people need to know?

30. Business Aims and Objectives • What is an aim? An aim is where the business wants to go in the future, its goals. It is a statement of purpose, eg we want to grow the business into Europe. Aims are directed towards Customers, Competition and Employees. • What is an objective? Business objectives are the stated, measurable targets of how to achieve business aims. For instance, we want to achieve sales of £10 million in European markets in 2014.

31. Why have aims? BRIEF Task: Why do you think businesses have aims… discuss with a partner and write down as many reasons as you can in 2 minutes.

32. Why have aims? Suggested Answers: • Competitive Advantage • Indicate future direction • Gives an indication of: • Customer service • Quality • Customer support • What employees should believe

33. Possible Aims BRIEF Task: What aims might a company have… again 2 minutes to discuss and come up with as many ideas as possible

34. Aims Survival Maximise Profits Growth Increase Market Share Provide a High Quality Service Eliminate Competition Value for Money Be Socially Responsible Customer Satisfaction

35. Communication of Aims? BRIEF Task: How do businesses communicate their aims?… discuss with a partner and write down as many reasons as you can in 2 minutes.

36. Communication of Aims Mission Statement Business Plans Company Handbook Company Website Company Letterheads/Brochures Annual Report Adverts (newspapers, TV etc)

37. Mission Statement • A mission statement is a statement that defines the purpose of a company – what it stands for i.e. what broad products or services it intends to offer customers. • An effective mission statement should be concise enough for you to describe your company’s purpose and ideals in less than 30 seconds. • Where would I see a Mission Statement? Mission Statements typically appear in business plans or alternatively will appear in the ‘Corporate Relations’ or ‘About us’ sections of websites.

38. Customer Service • Complete Task from the Induction Presentation: • Match It Task – Laminated Job Titles • Barista Discussion

39. Customer Satisfaction • Customers are very important to a business and therefore every business needs to make sure they keep their customers as happy as possible. • Customer satisfaction is important because it can lead to: • Customer loyalty • Repeat purchases • Increased profits/sales/market share • Increased reputation

40. Customer Satisfaction Ways in which business can improve customer satisfaction: Provide a high quality product Highly trained employees Customer care strategy – allows customers to know about the level of service they will receive Customer complaints procedure – this aims to make sure complaints are handled in the best way After-sales service – gives customers a chance to ask questions after they have purchased the product

41. Customer Satisfaction Task • Think about a good and bad experience you have had when buying a product. • What made the experience good/bad? • What did the business do about it? • How did the experience make you feel? • What would have made the experience better? Examples Of The Good, The Bad & The Ugly Of Customer Service On Social Media!

42. Customer Satisfaction Additional Task • Using your research skills produce a short report detailing: • The importance of good customer service • Examples of good customer service (at least 3 real life examples) • Examples of poor customer service (at least 3 real life examples) • Make use of suitable headings to make your report professional

43. Sources of Finance Short-Term Finance • Bank Overdraft • Taking out more money from a bank account than is deposited in it • Trade Credit • Paying for goods from a supplier at a later date (eg 30 days) • Factoring • Selling invoices to another company to collect the money • Grant • One-off payment often from government or the Prince's Trust – does not need to be repaid. • Retained Profits • Profits kept back from previous years

44. Sources of Finance Medium-Term Finance • Bank Loan • Money lent for a specific time period – paid back in instalments with interest • Leasing • Renting – often vehicles or equipment • Hire Purchase • The purchase price is paid in instalments

45. Sources of Finance Long-Term Finance • Owner’s Savings • “the owner’s savings” • Share Issue • A part-ownership in a Ltd or plc (a share) • Mortgage • Loan secured on property • Debentures • Source of finance used by plcs • Venture Capital • Think Dragon’s Den – often used for risky ventures

46. Example: Haddington Conservation Area Regeneration HCARS is a grant programme supported by East Lothian Council and Historic Scotland that makes available funds for regenerating and improving Haddington Town Centre through repairing and enhancing the historic fabric.  The Haddington CARS is an action point in East Lothian Council’s Haddington Town Centre Strategy 2009-2014.  The grant is available for good quality, long lasting repair and enhancement work on projects that are located within the CARS Area.  The scheme funds enhancements and repairs to shop fronts (repainting, signage), small repairs to buildings (sash and case window refurbishment, gutters and downpipes) as well as comprehensive tenement repairs (masonry repairs, roofing etc.).

47. Choosing a Method of Finance If you are asked in a question to give sources of finance for a specific type of business make sure that your answers are relevant eg if asked for a source of finance for a sole trader to expand, debentures would be inappropriate to include in your answer.

48. Finance Task No. 1 Let’s find out about the advantages and disadvantages of each source of finance. You will be provided with an envelope containing a number of cards. Match each source of finance with its advantage and disadvantage.

49. Finance Task No. 2 In groups of 3… Using the completed answer sheet (from Task 1) prepare 3 A4 sheets illustrating the advantages and disadvantages of short, medium and long-term sources of finance.

50. Finance Task No. 3 Real life? Using the template provided carry out some research into the difference sources of finance available today.