Business Management

1. Business Management UNIT 1 1.1 - What do businesses do?

2. Businesses make goods Some examples of goods made Computers Cars Washing Machines Mobile phones Sweets Clothes Seafood DVD players I-pods Businesses provide services Some examples of services provided Banking Insurance Education Hairdressing Public transport Entertainment – cinema What are goods and services?

3. Goods and services can be described as Tangible goods – can be seen, touched and handled – eg washing machine, car Intangible goods – cannot be touched or handled – eg public transport, hair dressing

4. Goods and services can be described as Durable goods and services – long lasting – eg clothes, education Non-durable goods and services – used up quickly – eg sweets, cinema

5. WHAT ARE CAPITAL AND CONSUMER GOODS? • Consumer goods • Goods sold to people (ie consumers – us) for their own use • Capital goods • Goods used by a business to make consumer goods and other capital goods

6. Difference between Needs and Wants • The following are examples of goods we buy As consumers, we buy the goods offered by a range of organisations/ businesses.

7. WHAT IS A NEED? A NEED is something an individual must have in order to survive – these are the basic needs or wants • Food • Shelter • Clothing • Drink

8. WHAT IS A WANT? It is important to distinguish between what we need and what we want I’ll tell you what I want, What I really, really want, So tell me what you want, What you really, really want....

9. WHAT IS A WANT? A WANT is something an individual would like to have, or wishes for – they are not essential for survival When a want is fulfilled it gives the consumer Satisfaction. Examples are: • I-pod • Sports Car • Video Camera • Expensive jewellery

10. HOW DOES A BUSINESS KNOW WHAT WE NEED OR WANT? • A business will use Market research to identify what consumers need and want. • This information helps the business in decision making eg whether a new product/service should be developed

11. Types of business organisation

12. 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? Albany Stores, Esplanade Post Office, Flower basket.

13. 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. Sole Trader

14. 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? Munros Garage, MacCamley and Laird, Stevenson Kennedy (lawyers)

15. 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. Partnership

16. 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

17. 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 ofone • 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? Direct Footwear Services Ltd, MacQueen Ltd, Beaver Timber Ltd,

18. 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. Private Limited Company

19. Public Limited Company (plc) FEATURES OF A PUBLIC LIMITED COMPANY • Aim is to make a profit • Name of the business will end with plc • Owned by shareholders – minimum oftwo • Minimum share capital of £50,000 • Shares in the company can be bought and sold on the Stock Exchange • Run by a Board of Directors Examples: BP plc, Boots plc, Tesco plc. Can you name 3 public limited companies operating in Oban? Tesco plc, Boots plc, W H Smith plc

20. ADVANTAGES: Public limited company can raise more finance than private PLC can borrow more money Shareholders have limited liability. DISADVANTAGES: PLC has no control over who buys its shares Profits shared between many more people Expensive to set up Accounts must be published annually. Public Limited Company (plc)

21. Unlimited liability Sole trader or unlimited partners have full responsible for the debts of the business. If the business does not have enough money to pay its debts the owners or partners must pay the debts from their own personal funds. May result in the owners having to sell their own possessions to raise the money. Limited Liability In a Private or Public Limited company the shareholders liability is limited to the amount they have invested, or agreed to invest in the company. The will not have to sell their own possessions to pay the debts of the business. Limited and Unlimited Liability

22. FRANCHISE What is a Franchise? • A franchise is an agreement or license between two parties which gives a person or group of people the rights to market a product or service using the trademark of another business. • Examples of a Franchise are: • McDonalds • Domino Pizza • Body Shop Can you name 3 franchises in Oban? Subway, BSM, Interflora

23. Franchise There are 2 parties to a franchise agreement: Franchisor – the person owning the rights to the product or service being offered Franchisee – person or group of people purchasing the rights to sell the product or operate the service.

24. Features of a Franchise • The Franchisee pays to copy the business idea, image, name of an existing company • A MacDonald’s burger in Fort William will be look and taste exactly the same as one bought in Glasgow • The franchisee pays a licence and shares profits with the franchisor • Franchisee is restricted on what they can charge for the goods and what they can sell.

25. Reduces the risk of business failure The business has been tested and proven on the market Allows small businessman to compete with larger business concerns Economies of scale Support offered by franchisor – advertising etc Trade under a recognised brand. Training provided by franchisor No previous experience required Exclusive territorial rights Back-up provided for administration and trouble shooting. Advantages of a Franchise

26. Franchisee may suffer from bad service provided by another of the franchisees in a different area Highly specialised business and limited to what the franchisor wants to do – no room to expand products If the franchisee wishes to sell their business they must gain consent of franchisor Franchisee may not like the interference. Disadvantages of a Franchise

27. Public Ownership 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 • Nonprofit making Examples: BBC , National Health Service, Education Services Can you give an example of a Public Ownership organisation in in Oban? Local Government

28. ADVANTAGES: Less competition DISADVANTAGES May not be as profitable as private sector businesses. Public Ownership

29. What is the aim of a Charity? • Aim to care for those in need or help

30. Main features of a Charity • Use donations from the public • Raise funds in other ways • Do not make a profit • Examples include Oxfam, RSPCA, and Save the Children

31. Sizes of Business Organisations Small businesses • Often owned and run by one person • Or owned and run by a partnership • Sell goods or services locally • Employ fewer than 50 people Eg hairdressers, electricians, computer trainers

32. Sizes of Business Organisations Medium-sized Businesses • Owned and run by a group of people (eg partnerships, shareholders or directors) • Can sell goods and services locally and or nationally • Employ between 50 people and 250 Eg manufacturers – clothes, National car hire companies, theatres, insurance companies

33. Sizes of Business Organisations Large Businesses • Owned by a large number of people eg shareholders and run by people appointed by them - directors • Produce and sell goods and services in several locations – often in several locations • Employ more 250 people – sometimes hundreds of thousands Eg Car manufacturers – Ford; retail food outlets - Marks & Spencer; Banks; Oil companies

34. Features of Local business organisations Small to medium sized Services local markets Employs small number of people Has only a few outlets For example Mathesons Furniture MacQueen Bros Alba Local Business

35. National Businesses Features of National Business organisations • Have household names • Easily recognised eg logos • Employ large workforce • Have branches/factories in major towns and cities For example • Boots The Chemist • River Island • Thorntons

36. Multi-National businesses • Features of Multi-national businesses • sell goods or provide services worldwide • operate in more than one country

37. The Economy can be divided into 3 Sectors:

38. SECTORS OF THE ECONOMY Private – • ownedby sole traders, partnerships, limited companies and public limited companies – • financed byprivate monies from shareholders and banks • aims– • To maximise profits • To turn innovative ideas into successful businesses • To expand the business

39. SECTORS OF THE ECONOMY Public – • owned by the state • financed by the state, eg through council tax, income tax • aims • To provide the same quality service to everyone in a country • To make good use of taxpayers’ money and provide the services that an area needs

40. SECTORS OF THE ECONOMY Voluntary – • ownedby those taking part in the activities • financed by donations, gifts and fund raising activities • aims • To provide support for worthy causes • To provide the best service and facilities for the members of welfare, social and sports organisations.

41. SECTORS OF INDUSTRY

42. SECTORS OF INDUSTRY PRIMARY SECTOR – agriculture, fishing, mining This involves the extraction of raw materials • Oil Production • Fishing • Forestry

43. SECTORS OF INDUSTRY SECONDARY SECTOR – manufacturing This involves the manufacture of goods • Car manufacturing • Engineering • Shipbuilding

44. SECTORS OF INDUSTRY TERTIARY SECTOR – service This involves the provision of services • Insurance • Hairdressing • Leisure • Public Transport • Education • Fire Service

45. PRODUCTION AND CONSUMPTION Production is the process of making goods so that they can either be consumed, or further processed before being consumed eg before a jumper can be knitted thefarmer must produce the wool, the sheep is sheared, the wool is then washed spun, dyed, packaged and knitted into the final garment. Consumption is when the customer purchases the goods or services produced by the business.

46. PRODUCT-LED AND MARKET-LED PRODUCTION Products and services can be supplied to the market for a variety of reasons: Product-led – a business makes/produces goods and provides services, basically because they are good at it. Market-led - a business makes/produces goods and provides services to meet identified consumers’ needs.

47. THE PRODUCTION PROCESS/CHAIN The production process will follow several stages and involves the transformation of raw materials into finished articles: INPUT – raw materials PROCESS – Manufacturing stages SOLD TO CUSTOMERS OUTPUT– Finished goods

48. Example of the production chain The production of a cake for tea: The farmer – produces wheat The miller – produces flour The baker – makes the cakes and adds the cream The retailer – sells the cakes to Ms MacIver Ms MacIver’s son eats the cakes

49. Farmers rear sheep to obtain wool Sheep sheared – wool - basic raw material produced Wool delivered to spinning factory Wool is washed, spun, dyed and packaged Wool delivered to textile company Skilled workers use machinery to ‘knit’ the jumper Manufacturers package the final product Delivered to the retailers – world wide Retailer sells the jumper to the customer. Another example of the production chain

50. 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 to purchase • ENTERPRISE – idea provided by the owner