Why businesses exist?

2. Why businesses exist? • A business is an organisation that produces goods and services to satisfy people’s wants and needs • Why Exist? – to make a profit, to provide income for owners, other reasons – ethical, social etc

3. Social Enterprise • a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners.

4. Stakeholders – Groups / individuals that are affected by and/or have an interest in the operations and objectives of the business

6. Business Aims & Objectives • Survival – a short term objective, probably for small business just starting out, or when a new firm enters the market or at a time of crisis. • Profit maximisation – try to make the most profit possible – most like to be the aim of the owners and shareholders. • Profit satisficing – try to make enough profit to keep the owners comfortable – probably the aim of smaller businesses whose owners do not want to work longer hours. • Sales growth – where the business tries to make as many sales as possible. This may be because the managers believe that the survival of the business depends on being large. Large businesses can also benefit from economies of scale. • Other – increase market share, breakeven etc

7. Alternative Aims and ObjectivesNot all businesses seek profit or growth. Some organisations have alternative objectives. • Ethical and socially responsible objectives – organisations like the Co-op or the Body Shop have objectives which are based on their beliefs on how one should treat the environment and people who are less fortunate. • Public sector Organisations are run to not only generate a profit but provide a service to the public. This service will need to meet the needs of the less well off in society or help improve the ability of the economy to function: e.g. cheap and accessible transport service.. • Charities and voluntary organisations – their aims and objectives are led by the beliefs they stand for.

8. Aims & Objectives may differ with… • Type of Business – PLC? Sole Trader? Charity? Etc • Circumstances – eg in a recession a business may aim to maintain or increase market share as increasing sales or profit may not be possible • Time – A new business may look to survive and build a good reputation. In the medium term it may look to increase sales and make a profit. In the long term maximising profit may be the objective.

9. Sectors of Business Activity • Primary sector Involves the extraction and production of raw materials, such as coal, wood and steel. A coal miner and a fisherman would be workers in the primary sector. • Secondary sector Involves the transformation of raw materials into goods e.g. manufacturing steel into cars. A builder and a dressmaker would be workers in the secondary sector. • Tertiary sector Involves the provision of services to consumers and businesses, such as cinema and banking. A shopkeeper and an accountant would be workers in the tertiary sector

10. Deindustrialisation – a fall in the relative importance of manufacturing and the secondary sector (falling secondary employment)

11. Primary Employment Fallen

12. Interdependence • Is the way in which businesses depend upon other businesses

13. Identify and explain one reason why businesses such as Payne’s Pastries exist (2) • Identify three possible stakeholders in Payne’s Pastries and explain what they would want from the business (6) • Explain how the objectives of two stakeholder groups in Payne’s Pastries may conflict (3) • Payne’s Pastries is a new business explain how and why its objectives may change over time (6) • Payne’s Pastries is a private sector business. How might its objectives differ to a business in the public sector (4) • Mr Payne was thinking about setting up his business as a social enterprise. Explain what this means and how it might have affected his objectives (3) • State and explain one reason why Payne’s Pastries might be dependent on other businesses in the local area (2) • Look at the PS&T data. Identify and explain two trends you can see in the data (4) • Use the PS&T data to explain what is meant by deindustrialisation. (3)

15. Sole Proprietor • Unincorporated • Owned by one person – although can employ other people • Unlimited Liability – any losses have to be met by the owner. If the business fails and the debts cannot be paid the owner may lose his / her personal possessions. • Pay Income Tax - on Profit

16.   Unlimited Liability Lack of Capital Shortage of Skills Illness / sickness / holidays difficult to cover • Easy to set up • Owner is in sole control • Financial Information is private • Owner keeps all profit

17. Partnership • 2+ owners • Unincorporated • Unlimited Liability • Deed of Partnership – legal document – owners details, how profit / losses shared, how much capital provided, how disputes settled • Sleeping Partner – invest capital but take no part in running the business • Pay Income Tax - on Profit

18.   Shared Profit Unlimited Liability Disagreements Lack of Capital – compared to LTD or PLC • More capital than sole trader • Specialist skills • Shared decision making • Easy to set up • Financial Info Private

19. Private Limited Company • LTD • Incorporated • Limited Liability – If the business fails and cannot pay its debts the owners (shareholders) are not personally responsible • Owned by Shareholders • Shares can only be offered for sale privately – usually to family and friends • Run by Directors • Dividends – share of profits given to shareholders • Corporation Tax – on profit

20.   Financial information available to general public Shares cannot be offered for sale to general public Lack of Capital (compared to PLC) Shareholders may expect dividend • More capital raised from shares • Limited Liability • Separate Legal Identity • Continuity

21. Public Limited Company • PLC • Shares can be offered for sale publicly • Shares bought and sold publicly on stock market • See LTD for other features

22.   Cost of setting up as PLC may be high Takeover – as anyone can buy shares the original owners may lose control of the business • More capital raised from selling shares publicly

23. Other Business Types • Public Sector Organisations - owned / run by the government – objective to provide service • Charities – aim to raise money to support their cause – eg RSPCA • Cooperative – those businesses owned and operated by the people who work in the business – eg John Lewis – profits shared by workers

24. Multinational – Companies that have a head office in one country and manufacturing / service facilities in other countries   Communication Problems Cost of transporting goods between countries Different legal requirements Changes in exchange rates • Lower Costs - Production can be located in countries where production costs are lower (eg China) • Nearer Markets -Manufacturing bases can be located in countries nearer to the markets which they serve

25. Growth of Firms

26. Methods of Growth • Internal – Organic Growth • External – Inorganic Growth

27. External Growth - Integration • There are two main methods of external expansion (Integration) 1.) A Merger – This is where 2 firms agree to join together and operate as one firm 2.) A Takeover – This is where one firm buys another

28. Vertical Integration Backwards - join with a supplier eg……. Lateral Integration –Join with a firm at the same stage of a similar industry eg……. Horizontal Integration – 2 competitors at the same stage join eg……. FIRM Vertical Integration Forwards - join with a firm in a later stage of production eg……… Conglomerate – 2 firms with no obvious link join eg…….

29. Benefits & Costs of Mergers •  • Economies of scale, which reduces unit costs. • Greater market share for horizontal integration, which means the business can often charge higher prices. • Spreads risks if products different. • Reduces competition if a rival is taken over. • Other businesses can bring new skills and specialist departments to the business. •  • Diseconomies of scale if business becomes too large • Hard to Integrate - Clashes of culture between different types of businesses can occur, reducing the effectiveness of the integration. • May need to make some workers redundant, especially at management levels – this may have an effect on motivation.

31. Exam Questions – B&B • Explain one advantage and one disadvantage to Ben of taking on Beth as a business partner (4) • How might the objectives of B&B differ to a public sector organisation or a charity? (4) • Explain one advantage and one disadvantage to Ben and Beth of changing from a partnership to a private limited company (4) • Explain 2 factors that Beth and Ben may have considered when deciding where to locate their craft shop (4) • Beth and Ben’s biggest supplier Biddle’s Biros is an MNC. Explain one advantage and one disadvantage to Biddle’s Biros of being an MNC (4) • Beth and Ben’s biggest competitor is a cooperative. The workers in this business are really motivated, explain why (3) • Beth and Ben now have 10 shops and they are thinking of merging with a competitor. Do you recommend they do this? You should discuss the advantages and disadvantages of mergers in your answer. (6)

34. The Recruitment & Selection Process 1.)Needs Analysis – need for recruitment is identified 2.) Job Description – A summary of the main duties and responsibilities involved in a job 3.) Person Specification – a document detailing the skills and qualities the potential employee needs to have 4.) Job Advert designed and placed 5.) Shortlisting – narrowing down the number of applicants to a more manageable number using CVs and LofA 6.) Send for References – a report from a school or employer on the applicants qualities 7.) Aptitude Tests – test of ability to do the job 8.) Interview 9.) Job Offered / Accepted

35. Internal & External Recruitment • Internal – Filling the job vacancy using employees from within the business  • Gives existing employees greater opportunity to advance their careers in the business • May help to retain staff who might otherwise leave • Employer should know more about the internal candidate's abilities (= a reduced risk of selecting an inappropriate candidate) • Usually quicker and less expensive than recruiting from outside • External  • Wider potential pool of applicants (may find someone better) • Brings new ideas and a fresh outlook to the business • May not be an appropriate person within the business

36. Recruitment Agencies • These businesses specialise in recruitment and selection. They often specialise in recruitment for specific sectors (e.g., finance, travel, secretarial). They usually provide a shortlist of candidates based on the people registered with the agency. They also supply temporary or interim employees. • The main advantages with using an agency are the specialist skills they bring and the speed with which they normally provide candidates. They also reduce the administrative burden of recruitment. (do shortlisting for you. • The cost is the high agency fees charged - often up to 30% of the first year wages of anyone employed. BUT – you only pay if you employ!

37. Reasons for Training Staff • Support new employees (eg INDUCTION) • Improve Skills (eg customer service) • Improve Productivity • Introduction of new technology or systems • Knowledge of appropriate legislation – eg health and safety

38. Benefits of Training • Improve skills and ability to do job • So…… • Motivation UP • Quality / Output / Productivity UP • Customer Satisfaction UP • Sales / Profits UP

39. On the Job – Training whilst remaining in the workplace

40. Off the Job – Training away from the place of work

41. Appraisal • A meeting that takes place at least once a year between the employer and their employee. It is a discussion about the employee’sperformance in the business. • Targets may be set and ways of improving the performance may be suggested. • Training may be offered in order to overcome any areas of weakness.

42. Questions • The HR department has decided to use internal recruitment to recruit a new manager. Explain one advantage and one disadvantage of using Internal Recruitment (4) • Explain what is meant by a Job Description and how it could be used by the school to recruit a new business teacher (4) • Explain what is meant by a Person Specification and how it could be used to recruit a new business teacher (4) • Payne’s Planes needs to recruit 10 new cabin crew. It has already had 60 people apply. Recommend the methods of selection that Payne’s Planes might use to choose between the applicants (8) • Explain two reasons why Payne’s Planes may need to train its workers (4) • Explain two benefits to Payne’s Planes of staff training (4) • Payne’s Planes has just recruited a new trainee marketing assistant. Recommend whether Payne’s Planes should use on the job or off the job training to train the worker (6) • Explain how a yearly staff appraisal might help Payne’s Planes (3)

45. Monetary Methods of Motivation • Time Rate • Overtime • Salary • Piece Rate • Commission • Bonus • Profit Sharing • Fringe Benefits

46. Non Monetary Methods of Motivation • Job Rotation • Job Enrichment • Job Enlargement • Team Working • Award Schemes • Promotion • Leadership Styles

47. Top Tip • You need to apply the method of motivation to the situation. Piece rate isn’t appropriate for sales staff! • Explain!!!! – which of the following is better? • Bonus – because employees will work hard to achieve the bonus and therfore will be more motivated and sell more • Bonus – because employees will be motivated because they will get a bonus

48. Leadership Styles

49. Which Leadership Style? – it depends! • On the business type • On the business situation • On the decision being made • On the workers • You should think carefully about the business, type, situation and the workers when making a recommendation • A leader may use a number of different styles

50. Pay Slip A Teacher Robert Smyth Upper Market Harborough Payments Basic Pay £2656.50 TLR2 £197.00 Deductions Income Tax Pension National Insurance Student loan £469.39 £182.62 £226.55 £144.00 1022.56 Net Pay = 1830.94 Gross Pay = 2853.50 Total Deductions =