that-git/laglasgowbusiness.doc

a business document so good that it has been from "Los Angeles", to "Glasgow" and likely the rest of the english speaking world

Business Management – Business in Action

What is a business?

A business is a particular type of organisation – one which involves people and resources in the making of a good or the providing of a service. All businesses have a name, a set of aims they wish to achieve, an image, resources and rules.

Task 1

Use the Internet to find out the aims of the following businesses. Record your answers in the table below.

Name of Business	Aims

Needs and Wants

We buy the goods and services provided by a range of businesses – we are called consumers. We buy these goods and services to satisfy needs and wants.

To survive we all have basic needs. These include:

• Food/Water
• Clothing
• Shelter

Once these needs have been satisfied individuals always look for and want more in order to make their lives more comfortable and enjoyable. For example we do not NEED a new iPad to survive, we just WANT it. Perhaps we have seen it advertised on TV or a friend has one and so we would want one also.

• Holidays
• Cars
• Ipad

Task 2

Using the table below identify whether the item in column A could be considered to be a NEED or a WANT

Item	Need or Want
Water	Need
Computer
House
Visit to hairdresser
Meat and vegetables
Holiday to Florida
Life saving medicine
Jewellery

Businesses exist to look after or satisfy these NEEDS and WANTS. They make goods such as food products, shoes, clothes and electrical goods. Some businesses exist to provide services like transport, hairdressing, banking, fast-food take-away and holidays.

Goods

• Cars
• Washing machines
• CD players
• Sweets
• Clothes
• Seafood
• Shoes
• Furniture
• Books

Services

• Hairdressing
• Car servicing
• Insurance
• Banking
• Enterainment (eg, cinema and theatre)
• Education
• Public Transport

Task 3

Using the table below, name a business that you use or know of who provides the following goods and services

Good or Service	Name of a Business Organisation
Holidays	Thomas Cook
Fast food take-away
Banking
Shoes
Clothes
Hairdressers
Television sets
Football matches	(I wonder which type of football they are refering to)

Goods are tangible, which means they can be seen and physically touched. Services are intangible, which means that they cannot be seen or physically touched Goods and services can be durable (long-lasting) or non-durable (used up quickly). A cinema is an example of a non-durable service – it provides entertainment in the form of a film for about 2-3 hours on average. After that, the service is no longer available. A television set is an example of a durable good – it should last for a few years, at least.

Task 4

Businesses produce goods or services. Indicate whether the items listed below represents a good or a service. The first one has been done for you.

Item	Good or Service
Cars	Good
Banking
Education
Cinema
Ice-Skating
Cakes
Train Journey
Holiday to Florida
Coffee
Newspaper
Mobile phone
Beautician

Task 5

Some goods and services are durable and other goods and services are non-durable. Indicate, in the table below, whether the items listed are:

• good or service
• durable or non-durable The first one has been done for you.

Good/Service	Good/Service	Durable/Non-durable
Computer	Good	Durable
Mars Bar
iPad
Visit to the theatre
House
Car
2-year gym membership
Haircut
DVD
Bicycle
Big Mac and fries

Task 6

Try and find the following key words in the word search below.

• NEED
• WANT
• BUSINESS
• GOOD
• DURABLE
• NON-DURABLE
• SERVICE
• AIMS
• TANGIBLE
• INTANGIBLE
• RESOURCES

1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20
A	N	E	R	Y	L	K	L	J	J	W	E	A	D	Q	M	F	H	Q	D
D	Y	E	J	K	L	D	H	J	K	W	L	W	Q	J	H	T	W	K	U
L	I	U	E	S	S	D	M	H	J	H	A	Y	R	K	H	D	C	M	R
E	V	Q	C	D	V	C	X	Z	W	Q	E	N	H	Q	E	H	W	G	A
J	Q	W	R	Y	U	S	B	H	F	D	Q	E	R	J	J	L	R	W	B
T	V	W	C	C	B	C	X	V	W	V	W	R	T	A	I	M	S	K	L
A	L	E	H	Q	K	Q	E	K	R	E	N	Q	J	Y	A	H	J	K	E
N	B	U	S	I	N	E	S	S	H	S	J	R	H	Q	J	I	K	Q	J
G	L	W	J	S	N	W	J	K	E	J	T	Q	N	J	J	N	Y	Q	J
I	H	J	Q	V	J	W	H	J	Q	J	K	J	0	Y	J	T	G	E	Q
B	K	J	J	J	K	W	M	H	G	H	J	H	N	B	Q	A	E	H	K
L	S	J	Q	E	R	H	R	L	O	H	K	Y	D	F	G	N	H	J	L
E	L	E	G	H	Q	H	H	E	O	H	Y	E	U	J	T	G	H	H	L
K	G	J	R	H	W	G	J	M	D	J	K	W	R	Q	W	I	Q	R	Y
M	K	K	R	V	Y	P	P	W	E	T	Y	I	A	Y	O	B	H	D	U
N	J	T	K	R	I	Y	L	P	P	Y	O	P	B	P	K	L	I	P	Q
L	U	I	U	U	T	C	H	D	K	K	L	Y	L	L	K	E	K	L	P
Y	I	Y	L	U	U	Y	E	F	K	K	L	N	E	U	L	Y	J	K	E
E	R	O	T	T	P	Y	H	V	L	Q	N	K	Q	Y	M	O	G	J	O
J	Y	P	R	E	S	O	U	R	C	E	S	J	G	T	T	P	L	Y	R

Business Resource (Factors of Production)

In order to make a good or provide a service a number of ingredients/resources are required, eg, Land, Labour, Capital and Enterprise. These are also referred to as the FACTORS OF PRODUCTION.

FACTORS OF PRODUCTION

Land means the natural resources that businesses use – Plot of land, coal, forests, water, wood, fields, rivers etc	-	Labour means the workforce of a business and includes – Joiners, shop assistants, teachers, clerical staff, electricians, cleaners etc
|		|
Capital means the tools, machinery and equipment that a business owns – Tractors, Lorries, motor vehicles, buildings, factories, tools and equipment etc	-	Enterprise means the business ideas that an entrepreneur or owner has on how to use land, labour, capital in his or her business to make profit – Richard Branson & Virgin

Task 7

If you were to make a list of the resources (ingredients) which are required to build a house, your list might include:

• Wood
• Joiners
• Ladders
• Slates
• Plot of land
• Bricks
• Electricians
• Plastic
• Building Company
• Drill (Frack Frack Frack!)
• Paint
• Cement mixers
• Glass
• Nails
• Brick Layers

Complete the table below by placing each resource under the appropriate heading.

Land	Labour	Capital	Enterprise

Sectors of Industry

Businesses exist to produce different goods and services and as such exist in different sectors of industry. There are 3 main sectors as shown in the diagram below.

• PRIMARY
• SECONDARY
• TERTIARY

1. Businesses which exist in the primary sector of industry are those that are concerned with using natural resources such as farming, oil drilling, mining, fishing, and forestry. In other words these businesses are concerned with growing products or extracting resources from the ground.
2. Businesses which exist in the secondary or manufacturing sector of industry are concerned with the making of products. Manufacturing businesses can take the raw materials from other industries in the primary sector and convert them into different products. For example kellogg’s will purchase crops from farmers to manufacture breakfast cereal.
3. Businesses which exist in the tertiary sector do not produce a product. They are concerned with providing services like banking, tourism, beauticians, hairdressers, fitness centres and entertainment like film and TV.

SECONDARY SECTOR↓	TERTIARY SECTOR↑
This sector has declined in the UK.	This sector has increased in the UK.
Today there are fewer firms who actually manufacture a product.	Today there are more businesses that actually provide a service.

Task 8

Decide which sector each of the following areas of business should be included – primary, secondary or tertiary.

The first two have been completed for you

Area of Business	Primary	Secondary	Tertiary
Car manufacturing	?	?	?
Airline company	?	?	?
Insurance	?	?	?
Persimmon House Construction	?	?	?
Education	?	?	?
Butchers shop	?	?	?
Fishing	?	?	?
Plumber	?	?	?
Public transport	?	?	?
Car manufacturer	?	?	?
Farming	?	?	?
Furniture maker	?	?	?
Fire service	?	?	?
Estate agent	?	?	?
Ship building	?	?	?
Local radio station	?	?	?
Mining	?	?	?
Teacher	?	?	?
Wind production	?	?	?
Doctor	?	?	?
Forestry	?	?	?
Lawyer	?	?	?
Hairdressing	?	?	?
Engineering industry	?	?	?
Leisure industry	?	?	?
Stone quarrying	?	?	?
Oil refinery	?	?	?

Task 9

Progress Check 1

Answer the following questions in sentences on A4 paper.

1. Using examples, explain the difference between a consumer need and a consumer want.(4)
2. Give an example of a business or organisation which provides a service for consumers.(2)
3. What does the word ‘durable’ mean? Give one example of a durable good.(2)
4. Explain, using examples, what is meant by tangible goods and intangible services.(4)
5. Name the 4 Factors of Production and give one example of each.(4)
6. Name one famous entrepreneur that you have heard of.(1)
7. Businesses can be classified as belonging to one of 3 sectors of industry. What is the name given to each of these 3 sectors?(3)
8. State one example of a type of business that belongs to each of the 3 sectors.(3)

TOTAL MARKS: 23

Before you submit your work to your teacher, remember to indicate (by ticking the boxes below) that you have self assessed and peer assessed.

• Self Assessed
• Peer Assessed

Enterprise and Entrepreneurs

Definition

An entrepreneur is an individual who develops a business idea and combines the factors of production – land, labour and capital – in order to produce a good or provide a service usually with a view to earning profit.

An entrepreneur is someone who has a good BUSINESS idea and is prepared to take the risk of investing their money to develop the idea.

Most entrepreneurs start as a small business and are responsible for all aspects of managing it. However, as the business grows, the role of the entrepreneur may alter as he/she will then have to employ workers and managers and delegate work for them to carry out.

Task 10

Use the Internet and find out what products or services the following entrepreneurs have had success with.

Entrepreneur	Product/Service
Anita Roddick
Alan Sugar
Richard Branson
Tom Farmer
Duncan Bannatyne
Michelle Mone

Entrepreneurship

Skills of an Entrepreneur

An entrepreneur must:

• take risks – seeing a chance – taking it – risking their own money to invest in the idea;
• have good communication skills – enabling them to communicate with employees, suppliers and of course the customers;
• rise to the challenge – doesn’t give up easily – finds solutions to overcome problems;
• have good decision-making skills – deciding which product to produce, best methods of raising finance, what price to charge customers and which staff to hire;
• have good leadership skills – being able to lead and motivate his/her workers to ‘achieve the dream’!

Task 11

Visit the website

• Select 2 top business entrepreneurs from the list.
• Prepare a short Powerpoint presentation detailing their history and charting their success.
• Present your findings to the class.

Gaps in the Market

Spotting a gap in the market means that you have come up with an idea for a product or service which is not being offered by another company and is not already available in the market place. It may be developing a hobby they enjoy or using a special skill or talent they have to come up with a new business product.

Spotting a GAP in the market is a classic key success factor in business!

If an entrepreneur moves quickly to get a product on the market before anyone else, then the financial rewards can be great as customers have to buy from you as there are no other products available to them.

The gap in the market might be providing a product or service in a completely different way. LoveFilm rents DVDs, but they captured the market by sending them through the post rather than following the videoshop model, adding convenience and a huge list to choose from. Moonpig did exactly the same with greeting cards.

Businesses use the law to protect their business idea/product/service by registering ownership of the invention and patenting it. They may even sue for damages if others try to copy their work through the Copyright Act or they can register a trademark to make their company stand out from the rest. Nike has trademarked their “swoosh” logo and their “just do it” slogan.

Coca Cola have also patented their product to prevent anyone else using their logo

Task 12

Find the following key words in the word search below:

• FACTORS OF PRODUCTION
• LAND
• LABOUR
• CAPITAL

• ENTREPRENEUR
• PRIMARY
• SECONDARY
• TERTIARY
• PATENT

1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20
F	D	F	G	F	E	G	Y	F	W	Q	G	E	F	T	Y	W	D	W	Q
F	A	F	G	J	K	L	L	A	N	D	J	K	L	G	Y	M	N	N	Y
G	G	C	N	N	N	L	K	P	J	Y	J	L	O	I	P	O	P	M	J
G	F	D	T	E	W	H	W	A	G	E	Q	W	D	F	G	S	B	K	O
T	G	H	D	O	D	G	H	W	E	F	H	E	W	Q	S	Q	E	H	R
E	F	H	G	R	R	W	E	W	G	E	K	L	Y	T	R	K	I	L	P
R	J	U	P	J	P	S	E	C	O	N	D	A	R	Y	G	T	U	I	U
T	J	I	K	O	P	I	O	H	J	L	O	L	A	B	O	U	R	M	P
I	J	K	O	J	U	J	Y	F	G	T	Y	U	T	Y	K	I	R	T	J
A	P	H	L	O	P	H	J	L	P	O	P	B	N	M	J	O	I	J	K
R	J	K	O	I	O	U	I	O	P	R	I	M	A	R	Y	K	L	O	P
Y	F	G	S	W	G	H	E	H	J	K	O	G	U	I	O	P	K	J	L
A	Q	Q	W	E	G	D	F	H	H	J	E	D	L	K	J	U	L	P	E
S	D	E	R	Q	W	Q	A	S	W	S	D	U	U	J	K	L	T	U	I
S	C	A	P	I	T	A	L	S	D	U	D	R	H	C	J	T	H	J	Y
A	S	J	K	U	I	K	E	E	W	E	E	W	H	J	T	H	Y	Y	U
A	S	Y	Y	U	O	P	U	P	A	T	E	N	T	H	G	I	S	D	F
G	H	L	O	P	J	O	Y	L	S	R	P	F	B	B	B	Q	O	C	V
B	E	N	T	R	E	P	R	E	N	E	U	R	B	H	K	T	C	N	G
W	R	Y	U	I	I	L	O	P	B	E	H	F	G	G	F	G	E	R	Q

Sources of Help and Advice

There are many sources of help and advice available for small businesses. A great deal of advice is available on-line. In addition many organisations exist that provide support to new and developing businesses. Here are some examples.

Bank

A bank will give financial advice, eg, on how to manage money coming in and going out of your business.

Enterprise Agency

For example Business Gateway offers free business advice and support service through local advisers. They offer training courses for people wanting to set up a new business and give advice on such things as preparing a business plan.

Lawyer

A lawyer will provide legal advice to keep you on the right side of business law.

Chambers of Commerce

A local chambers of commerce – an organisation set up to help business people network (make contact with other business people who may support them). It will also offer advice on how your business can become more competitive and successful.

Entrepreneurs

Other entrepreneurs may give advice on which suppliers to choose or what mistakes to avoid.

World Wide Web (Internet)

A vast amount of information is available on line which provides advice for people thinking about starting up in business.

The Princess Trust

The Princess Trust provides practical and financial support for young people (18-30) setting up in business. It will assist them with producing a business plan, give advice on applying for grants and will also provide grants if certain criteria are met.

Task 13

Using the Internet access the website Watch the video clip and study the website and then answer the following questions on a sheet of A4 paper:

1. What criteria must be met to qualify for support from the Princes Trust?
2. How do you apply for support?
3. What help and support may be offered?

Cycle of Business

The process of buying and selling goods is an on-going process. This is the reason that enterprise is a long term process and why many shops have been on the ‘High Street’ for a very long time, for example, Marks and Spencer’s, Next and New Look.

Study the diagram below.

1. Businesses produce goods and services to meet customers’ wants.
2. Customers buy goods and services to satisfy their wants.
3. Wealth is created for businesses and for their employees and owners.
4. Customers have money to spend from their wages and want other goods and services. repeat

STEPS

1. Entrepreneurs set up in business selling goods and services that consumers need and want.
2. Consumers use their income and go out to the shops and buy goods and services in order to satisfy their needs and wants.
3. The businesses supplying the goods and services begin to earn PROFIT and this means they can pay employees wages and the owners also become wealthy.
4. Consumers now have even more income to spend (from their wages) and so want even more goods and services.
5. Businesses are now required to expand and produce more goods and services for consumers - and so the PROCESS goes on.

Task 14

Progress Check 2

Answer the following questions in sentences on A4 paper.

1. Explain what is meant by an entrepreneur.(2)
2. Identify and briefly explain the key skills an entrepreneur should possess.(5)
3. What is meant by the term “gap in the market”.(2)
4. Briefly describe the main sources of help and advice available to small businesses or to someone thinking about setting up in business.(6)
5. Explain why the ‘cycle of business’ is an on-going process.(4)
6. In what ways can a business use the law to protect their business idea or product?(1)
7. Name 2 British successful entrepreneurs and identify the product that led to their success.(4)
8. There are 3 main sectors of industry – primary, secondary and tertiary. What sector would an estate agent belong to? Why?(3)

TOTAL MARKS: 27

Before you submit your work to your teacher, remember to indicate (by ticking the boxes below) that you have self assessed and peer assessed.

• Self Assessed
• Peer Assessed

Task 15

In the table below, column A contains key business words/phrases and column B contains the definitions of key business words/phrases. Your task is to use the table on the next page and write the correct definition opposite the key word/phrase.

Key Business Word	Definition
Entrepreneur	Essential goods required for survival.
Factors of Production	These are goods and services that are not needed for survival.
Tangible Goods	A person who combines the factors of production to set up in business to earn profit.
Durable Goods	This refers to tools, machinery and equipment used by a business.
Need	These can be seen and touched and include things like TV’s and clothes.
Want	An organisation to help and advise people who wish to set up in business.
Tertiary Sector	These are provided by hairdressers, travel agents and nurses.
Capital	These can be seen and touched and last for a very long time.
Princes Trust	These are the ‘ingredients’ used for production and include, land, labour and capital.
Services	This is the sector of the economy responsible for providing services.

• Self Assessed
• Peer Assessed

The Business Plan

A business plan is a document which outlines the objectives of a business and how it intends to achieve these objectives. These are used mainly when starting out in business. You need to find out if it is financially viable (wise) to actually set the business up in the first place. You will need to work out all your costs and carry out market research on potential customers to find out if sales income will be enough to cover these costs and earn profit.

The entrepreneur can therefore decide whether it is worthwhile going ahead with the business idea or whether the anticipated profit is too low a level to justify financing his/her idea.

It is also likely to be used to convince investors, for example, a Bank Manager to lend the business cash in order to get it started. Banks and other lenders are more likely to lend to entrepreneurs who have been thorough in their planning and research.

To be convincing, it must therefore contain essential information:

• General details – the name of the business, proposed location and what it is going to produce;
• The market – who are the potential customers?
• Human resources – who will be employed and work for the business?
• Finance – what are the expected costs of running the business, what sales income is expected and what is the expected profit? Also where is the start-up cash coming from, ie, all from the owner/s or partially from a loan?

The Business Plan can also be used when planning for expansion. You may want to redo your business plan with the new costs and benefits – this will help you decide if expansion is the right thing for your business.

Task 16

Sample Business Plan

BUSINESS PLAN OF BANNERMAN ENTERPRISE

Areas of a Business Plan	Details under each Area of a Business Plan	example of what our Business Plan would look like
GENERAL DETAILS	Business Name Type of Ownership What does the business do?	Bannerman Enterprise Sole Trader Operate in private sector – we sell greetings cards
THE PRODUCT	Description of goods/USP	Greetings cards, wrapping paper, balloons, mugs, pens and small gifts
HUMAN RESOURCES	Key people and experience/skills, can be displayed on an organisation chart	Marketing dept, Human Resources, Operations dept, Finance dept
PREMISES AND EQUIPMENT	Where is the business to be based, what equipment will be required.	Based in Baillieston Road Glasgow. Equipment required – shop fittings, cash register, motor van.
THE MARKET	Who are the customers? Price of the goods services. Who are the main competitors? Market research results	Consumers of all ages based in the Baillieston area. 25% mark-up on all goods purchased 2 other Card shops located within a 25 mile radius. Who would buy our products and what price they were willing to pay
FINANCE	Who are the investors and where is the money coming from? Estimated cash budget and trading, profit and loss statements. Costs and expected revenue	Start up capital invested by sole trader and external financing, eg, bank Estimated Cash Budget, T,P and Loss Account and Balance Sheet provided. Costs – stock, maintenance, wages and general expenses. Revenue shown on Break-even chart provided.

Study the business plan above and then answer the following questions on A4 paper.

1. What type of business is being created?
2. How is the new venture being financed?
3. Are there any potential competitors, which could be a threat to the new business?
4. Are there any potential competitors, which could be a threat to the new business?
5. What are likely to be the main costs for the business?
6. What did the market research focus on?

Task 17

Case Study – completing a Business Plan

(You may wish to work in pairs to complete this task)

You have decided to open a business - Ground Force - using your skills as a landscape gardener. You have worked with a local firm and have spotted a gap in the market for a local domestic gardening service.

You will be working from your own home – a room in your house will be converted into an office for the business. You will provide a full garden design service including paving, decking, laying lawns and planting trees and shrubs.

Your market includes retired people and working families who are keen to upgrade their gardens. Most Glasgow based companies specialise in garden maintenance rather than garden design and deal mainly with commercial companies, so there is very little competition. You will initially distribute leaflets around the area to let people know about your business. You also plan to advertise in local shops and newspapers.

You will need to employ 2 other people to work with you – someone who has expertise in building walls and a qualified gardener. You will do all your own paperwork and carry a mobile phone to save the expense of an Administrative Assistant.

You estimate your income to be £45,000. You know this is realistic having worked locally for a landscape company.

Cash flow will be a problem. You are at present trying to negotiate credit terms of 60 days from your suppliers and will only accept cash payments from your customers – you will not offer customers any work on credit. You will pay all bills from the cash you receive. Estimated costs in the first year are £14,000 giving an estimated profit of £31,000.

You are lucky enough to have had a small lottery win and have £8,000 to invest in your business. You will use some of this money to buy the following equipment: spades, rakes, lawnmowers and cement mixers etc.

You should:

1. Draft your Business Plan on the template provided on the next page.
2. Access your computer and load the electronic template ‘Business Plan’ and complete a final version of your plan.
3. Put your name in the footer and print one copy. Save your work using the filename BP1/own initials.
4. You should display your Business Plan on the classroom wall.

Remember to:

• Self Assessed
• Peer Assessed

BUSINESS PLAN

Business Details	Product Details	Market Structure	Marketing Information	Resources Required	Finance Required
Business Name: Business Address: Business Type:	Product/Service:	Customers: Competitors:	Pricing/mark-up: Promotion: Place it will be sold:	Staff: Premises: Equipment:	Start up:

Remember to complete your final copy on the computer!

Sources of Finance

At some point a business may need to borrow money from banks or other investors for purposes such as paying the staff wages, or buying a piece of machinery or for expanding the business.

Businesses can access many different sources of finance. The source of finance used depends on what the finance is for, and how long it is required for

source	pro	con
BANK OVERDRAFT	A customer can overdraw from their bank account, ie, spend more than they have in their bank account up to an agreed limit. They could, for example, pay wages from their bank account even though they have no money in their account.	This can work out expensive if used for a long time as interest is charged daily. The facility may be withdrawn immediately if the limit is exceeded.
TRADE CREDIT	Businesses can buy goods from suppliers and then arrange to pay for them at a later date. This gives the firm time to sell the products at a higher price, earn a profit and then pay their suppliers – hopefully before the bill or invoice arrives.	Sometimes suppliers offer a cash discount (reduction in price) for prompt payment. The firm will lose the cash discount if they take too long to pay. Also suppliers may be reluctant to sell more goods on credit if the business struggles to pay on time.
FACTORING (DEBT COLLECTOR)	When customers who buy on credit fail to pay on time or attempt not to pay at all the business can use a factoring service. The factor will buy the debts of the business and they will then attempt to recover payment from the customers. This saves the business time pursuing customers and ensures the business receives most of the money it is owed.	The factor charges the business a fee for their service and so this reduces the amount of cash they will actually receive. Factors tend only to be interested in pursuing customers who owe large amounts of money to the business.
SHORT-TERM BANK LOAN	The bank may provide a loan to the business for a fixed amount to be paid back over a fixed period of time in fixed monthly instalments. The loan may be used to buy an essential piece of equipment or to obtain extra cash to pay bills. Because it is a short- term loan there will be less interest payments.	When the business tends to be small, or newly formed, they tend to be more of a risk. As such these loans can be more difficult to obtain and the interest rate to be paid tends to be much higher.
HIRE PURCHASE	Higher purchase allows a business to buy an asset such as a delivery van and pay it back over 36 months. A deposit is required followed by payment over a few years. This allows the business to purchase items like machinery and equipment with only a small initial outlay of money.	The business does not legally own the asset (machinery or equipment) until the last payment has been made. Interest is usually charged and so it can be an overall more expensive way of purchasing large items.
LEASING	When a business uses a leasing system it never owns the asset. The business simply ‘rents’ the asset. For example Arnold Clark now offers a leasing system to allow small businesses to rent motor vehicles and vans. The advantage is that the leasing system will replace the asset every couple of years and they are also responsible for any repairs.	The business will never actually own the asset. Rental charges or leasing costs can build up over a long period of time and so it may actually work out cheaper to actually purchase the asset in the first place.
ADDITIONAL CAPITAL	This is where the amount of money invested in the business by the owner is increased by the owners (they take more of their own personal savings and ‘lend’ it to the business. Or they may decide to invite a partner to join the business. The business does not need to pay back the money which has been invested and there is no interest to pay or any other costs involved.	The owner/s are now risking more of their own personal money as more of their private savings are ‘tied up’ in the business. If a partner is now involved in running the business, profits now have to be shared and so each owner gets a smaller share of the profits
MORTGAGE	A common method of financing land and premises such as shops is to take out a mortgage which is a type of long-term loan secured against the title deeds of a property or piece of land. The business is given a long period of time (25 years) to pay the mortgage back.	Interest has to be paid on top of the initial amount borrowed. If the business does not pay the mortgage back or falls drastically behind with repayments, the lender (bank or building society) can claim ownership of the property or land etc.
LONG-TERM BANK LOAN	The bank may grant a loan for a fixed amount, to be paid back over a fixed period of time in fixed instalments. A long-term loan might be taken out to buy a very expensive piece of machinery and be re-paid over a 5 year period. As such the business is able to purchase machinery now and use it in the business to start generating profit.	The business has now incurred debts and must ensure that all monthly payments are made on time. Interest is usually charged on top of the initial loan amount and so this can be a very expensive way of purchasing equipment and machinery.
GRANT	A Source of finance from central government or local government, Business Gateway or the Princes Trust. In most cases the money does not have to be repaid.	It is usually a one-off payment and certain conditions or criteria must be met before it can be obtained. Usually the business is told what the money must be used for.
RETAINED PROFITS	A business can use its profits to purchase machinery and equipment. The advantage is that there is no interest to be paid and the business is not incurring any debts. The business will own the assets straight away.	When a business spends all of its profits it can run into cash flow problems. They may not be able to pay for any unexpected costs or expenses as all profit has been spent.

Task 18

Progress Check 3

Answer the following questions in sentences on A4 paper

1. What is the purpose of preparing a Business Plan? (2)
2. Why is it important to have a thorough and convincing Business Plan? (1)
3. What essential information should be included in a basic Business Plan? (4)
4. What is meant by the term ‘competitor’? (1)
5. Name and explain the most appropriate source of finance for an entrepreneur wishing to purchase a shop costing £150,000. (3)
6. What is meant by the term ‘market research’? (2)
7. Explain the difference between leasing a motor vehicle and purchasing a motor vehicle using hire purchase. (4)
8. What do the following sources of finance all have in common: (1)
   • Bank overdraft
   • mortgage
   • short-term
   • loan

TOTAL MARKS: 18

Before you submit your work to your teacher, remember to indicate (by ticking the boxes below) that you have self assessed and peer assessed.

• Self Assessed
• Peer Assessed

AIMS OF DIFFERENT KINDS OF ORGANISATIONS

	Private Sector	Public Sector	Third/Voluntary Sector
Examples	Sole Traders Partnerships Private Limited Company (Ltd) Public Limited Company (plc)	Central Government Local Government	Charities Social Clubs, eg bowling clubs
Main aims:	spotting a gap in the market turning a new idea into a success maximising profits	to provide a high quality product/service to all citizens of the country to provide essential services such as hospital care, education, defence and police provide services which are not entirely profit driven	fund raising to support causes raise awareness, eg, famine in Africa clubs provide services and facilities for members They do not aim to make a profit, though they may achieve a surplus of income over expenditure.

SOLE TRADER (not to be confused with soul traders)

A sole trader is a one-owner business (it is owned and controlled by one person). Most small businesses are sole traders, for example, hairdressers or plumbing businesses.

Finance is available from the owner’s own savings, bank loans and government grants.

Sole traders usually aim to survive and maximise profits.

• One person owns and runs the business
• Work may stop or business may close if owner is ill
• Owner is responsible for all business debts (Unlimited Liability)
• Difficult for owner to get time off
• Owner gets to make all the decisions
• Relatively easy to set up
• Survival and growth
• May be limited finance available
• Business accounts are kept private
• Main aim is to make a profit
• Owner keeps all the profits
• If owner dies the business may cease trading

Task 19

Study the diagram above.

The diagram outlines some of the features, aims, advantages and disadvantages of being a Sole Trader.

Working in a group, decide whether each point represents a feature, aim, advantage or disadvantage.

Complete the table below – the first two have been done for you.

Features	Aims	Pros	Cons
One person owns and runs the business			Difficult for owner to get time off

PARTNERSHIP

A partnership is a business with two to twenty partners – people who own and control the business together. The partners must produce a Partnership Agreement which outlines all the rules and conditions that each partner must adhere to. It also outlines the procedures to be followed when any partner joins, leaves or dies.

• Between 2 and 20 people own and run the business
• Partners bring different skills and knowledge
• Partners are responsible for the debts of the business (Unlimited Liability)
• Partnerships aim to earn a profit
• Survival and growth
• Easier for partners to take time off
• Disagreement and arguments between partners
• Workload can be shared between partners
• May be easier to obtain loans from banks and other lenders
• Profits have to be shared
• Partners can specialise in different aspects of the business
• More capital (money) available

Task 20

Study the diagram above. The diagram outlines some of the features, aims, advantages and disadvantages of being in a Partnership.

Working in a group, decide whether each point represents a feature, aim, advantage or disadvantage.

Complete the table below – the first two have been done for you.

Features	Aims	Pros	Cons
	Survival and growth		Profits have to be shared

PRIVATE LIMITED COMPANY (Ltd)

This is a company whose shares are owned privately, ie, shares are not available to the public on the Stock Market. Sometimes they are family owned companies where all members of a family are shareholders, for example, Ryanair, Arnold Clark and Baxters Food Group Ltd. There must be at least one director and a secretary who keeps all company records. Shareholders have limited liability meaning they can only lose the value of their shares and not their private assets or belongings.

• Usually a family owned business
• Private shareholders own the business
• The company aims to maximise profits
• Owners have limited liability – can’t lose personal belongings
• Cannot sell shares on the stock market
• Final accounts must be prepared and made available to interested parties
• Shareholders appoint directors to run the company
• Control of the company remains within the family and not lost to outsiders
• Company name ends with Ltd
• Easier to raise finance from banks and other lenders
• Profits have to be shared between shareholders
• Survival and growth

Task 21

Complete the table below – the first two have been done for you.

Study the diagram above.

The diagram outlines some of the features, aims, advantages and disadvantages of forming a Private Limited Company.

Working in a group, decide whether each point represents a feature, aim, advantage or disadvantage.

Complete the table below – the first two have been done for you.

Features	Aims	Pros	Cons
Company name ends with Ltd			Cannot sell shares on the Stock Market

PUBLIC LIMITED COMPANY (plc)

A public limited company (plc) is a company whose shares are available for purchase by the public on the Stock Market. There must be a minimum of two shareholders and a minimum of £50,000 to start the company. The company is owned by members of the public (shareholders) who appoint a board of directors to manage and control the company on their behalf. Examples include – BT, Vodafone, Tesco, Stagecoach and Celtic FC.

• Limited liability – shareholders can only lose the values of their shares
• Public Limited Companies aim to maximise profits
• Costly and fairly complicated to set up
• They have no control over who buys shares on the Stock Market
• Growth and survival
• Members of the public can buy shares in the company on the Stock Exchange
• Can become very powerful and dominant businesses
• Members of the public must be able to access all financial records
• Name of company ends with the letters plc
• Owned by shareholders and managed by Board of Directors
• Easy to borrow huge amounts of money from banks and other lenders
• Public Limited Companies tend to be large

Task 22

Study the diagram above.

The diagram outlines some of the features, aims, advantages and disadvantages of forming a Public Limited Company.

Working in a group, decide whether each point represents a feature, aim, advantage or disadvantage.

Complete the table below – the first two have been done for you.

Features	Aims	Pros	Cons
Members of the public can buy shares in the company on the Stock Exchange		Can become very powerful and dominant businesses

Task 23

Progress Check 4

Answer the following questions in sentences on A4 paper.

1. State 2 advantages of operating as a Sole Trader.(2)
2. Who owns a Public Limited Company and who manages a Public Limited Company?(2)
3. Shareholders have limited liability. What is meant by the term ‘limited liability’?(1)
4. Baxters Food Group (Ltd) is an example of a Private Limited Company. Give 2 other examples of a Private Limited Company.(2)
5. What is the maximum number of people who can operate as a Partnership?(1)
6. Explain why the partners in a partnership might decide to change to a private limited company?(2)
7. What are the main aims of businesses that operate in the private sector?(2)
8. What are the main aims of organisations that operate in the public sector?(2)

TOTAL MARKS: 14

Before you submit your work to your teacher, remember to indicate (by ticking the boxes below) that you have self assessed and peer assessed.

• Self Assessed
• Peer Assessed

Important Definitions

Key Word	Meaning
Stock Market	Where people buy and sell shares in companies – this is now mainly done on-line
Limited Liability	Investors in a business (company) can only lose the value of the shares they own – their private belongings cannot be taken to pay the company’s debts.
Companies Act	An act of law which sets out rules and procedures which companies must abide by.
Shareholders	A person who invests (uses his/her own money) to buy a share in a company. Shareholders jointly own the company.
Board of Directors	A group of highly skilled and professional managers who are appointed by the shareholders (owners) to run the company on their behalf.
Annual Accounts	Statements which are produced once per year and shows the value of the businesses assets and how much profit the business has made in the current year.

FRANCHISE

A franchise is a business agreement where one business can operate under the name of another business. The franchisee pays the franchisor a percentage of his/her annual sales or profits or agrees to pay a set fee each year. This then allows the franchisee to operate with the business name (which is usually very well known) and sell the products and services associated with the business name.

Franchisor	Franchisee
this is who owns the original business.	this is who has bought the right to use the original business name and enter into trade selling its products.

• The franchisee is joining a popular, established and highly successful business
• The franchisee must use the franchise logo, colours and store layout
• Less risky method for the franchisee to set up in business
• A franchise system is a very quick and efficient way for the franchiser to achieve growth
• The entire franchise aims to survive
• The franchisor will provide advice, training and support to the franchisee
• A franchise allows the franchisor to increase market share (size)
• If one franchisee makes a mistake and attracts bad publicity it could impact on the entire franchise
• Profit maximisation is the aim for both the franchisor and franchisee
• The franchisee pays an annual fee to the franchisor for use of the company name
• The franchisor will impose restrictions and rules that the franchisee must follow
• Can be very costly to join (purchase) a successful franchise

Task 24

Study the diagram above.

The diagram outlines some of the features, aims, advantages and disadvantages of operating as a franchise.

Working in a group, decide whether each point represents a feature, aim, advantage (to either the franchisor or franchisee) or disadvantage (to the franchisor or franchisee).

Complete the table below – the first two have been done for you.

Features	Aims	Pros	Cons
The franchisee pays an annual fee to the franchiser for use of the company name		The franchisor will provide advice, training and support to the franchisee

Task 25

Read the following case study on franchising of the pizza delivery business and then answer the following questions on A4 paper.

Delivering Fast Food Franchising

1. Domino’s Pizza leads the UK market for home delivered pizza and is also the world’s largest franchise for this type of distribution.
2. Franchising means selling the rights to use a firm’s logos, operating methods and brand name. Other franchised operations include Pizza Hut Express, Perfect Pizza and its partner brand Papa John’s. There is also a flow of newcomers such as EasyPizza and Telepizza. In a market dominated by franchise operations, why is this type of business organisation so successful for numerous pizza brands? And why is franchising the business organisation of choice for many individuals wanting to start their own business.

Franchising or direct control?

3. PizzaExpress restaurants expanded entirely through franchises during the 1970’s and 1980’s but the owner Gondola plc bought back the contracts in the mid 19990’s. Its objective was to give the company greater control over its brand, outlets and reputation. This has been achieved, but the growth in the business has been almost half of that of franchised operations.

4. Investment has not been a problem for the Pizza Hut restaurant chain in the UK, with the massive resources of Whitbread funding its growth. However, the company has decided to use the power of franchising to develop its home delivery brand, Pizza Hut Express, as it has identified more growth in this segment. In fact expansion across the country has been achieved almost entirely through franchising. It is believed that there are as many as 2,000 franchisees awaiting approval to own a Domino’s delivery outlet alone.

5. Despite losing some control over the business franchising is a cost-effective way for an organisation to grow. Most of the set-up costs are paid by the franchisee. Additionally the annual franchise fees go straight to the franchising company’s profits. In the case of Domino’s this helped to boost their profits by 35% in 2006 to £8.8 million.

6. Domino’s believes it can achieve a market penetration of over 1,000 franchised units in Britain. An individual Domino’s outlet can serve up to 20,000 homes and, as the UK has around 25 million households, its projected growth and profits may continue for some time to come. The company intends to open 250 new outlets over the next 5 years. Similarly, Perfect Pizza plans to create more than 2,000 jobs in 100 new franchised takeaways and increase its market share to 15%. The company, which already has 200 outlets, intends to carry out the expansion over the next 5 years in the north of England and Scotland.

Advantages of Franchising

7. Despite the costs of buying a franchise and territory, business start-ups based on franchising have a far lower failure rate than independent firms. An entrepreneur needs cash of at least £50,000 to start with will-known franchises such as Domino’s and Pizza Hut Express. The associated risks of such a level of investment – and the need to take out additional loans – are reduced because trading strategies and methods have been tried and tested by these established brands.

8. Many young (consumers) people will not use unknown independent outlets. Names and logos such as Pizza Hut and Dominos have wide customer loyalty, ensuring the franchised outlet has immediate demand. Additionally, large franchise businesses have marketing budgets way beyond other independent sole traders. As an example, Domino’s has bought the right to use The Simpsons in its latest promotional campaign; such an investment would be impossible for an small-scale independent sole trader.

9. Television advertising has played a major part in the success of Pizza Hut. To achieve good national exposure requires an investment of at least £500,000; small independent (sole trader) pizza delivery services could never compete at this level.

10. The potential danger for new franchises is the saturation of the pizza delivery market, over-supplied by competing brands. There are also concerns that the increasing concern about high levels of fat in our diet may eventually affect pizza sales.

Questions

Answer the following questions in sentences on A4 paper.

• Who leads the market on pizza delivery?(paragraph 1)(1)
• Explain what is meant by franchising.(paragraph 2)(2)
• State what other home pizza delivery businesses now operate as a franchisee?(paragraph 2)(5)
• Why did Pizza Express buy back all franchised outlets?(paragraph 3)(1)
• How many franchisees are waiting to join Dominos?(paragraph 4)(1)
• Why is franchising considered a cost-effective way to grow?(paragraph 5)(2)
• Perfect Pizza plans to open 100 new franchises – how many new jobs will this create?(paragraph 6)(1)
• Why are the risks of failure lower for a franchise rather than an independent sole trader?(paragraph 7)(2)
• What reason is given to suggest that independent sole traders are not able to compete with franchises?(paragraph 9)(1)
• What 2 factors could pose a threat to pizza franchises?(paragraph 10)(2)

Task 26

Marks and Spencer’s plc is one of the longest surviving and best known businesses on the high street today.

You should visit the website Study the information on the website. Consider such factors as:

Employment	Customers	Environment
how many people are employed by Marks and Spencer’s?	how many people visit M& S stores in an average week?	how are M&S working to become a more environmentally friendly organisation?

Take note (on a sheet of A4 paper) of any interesting facts regarding the operation of this business.

Prepare a short Slideshow to record your findings – maximum 4 slides.

Present your findings to the class.

PUBLIC SECTOR

Central Government	Local Government
Westminster Government & Scottish Parliament	Local Councils

Central Government

The Westminster (Houses of Parliament) and the Scottish Parliament provide important national services such as

• Health
• Transport
• Defence

Finance

this comes mainly from taxes paid by the public.

Objectives

• provide a high quality and efficient service (eg, National Health Service);
• to improve society;
• to make effective use of taxes.

Central Government is organised and operated by elected politicians. To help achieve its aims and objectives Central government delegates resources and responsibility to Local government.

Local Government

Local Government (Local councils) are set up by central government (Scottish Parliament) and are run on its behalf by locally elected councillors. The day to day running of services is organised by managers and employees of each council. A local council aims to meet the needs of local people and businesses. Local councils do not aim to make profit – rather they are required to provide the most efficient service possible within allocated budgets.

Local government functions include the organisation of:

• education and leisure services - staffing, buildings, museums, pools and sports centres, childcare, psychological services, halls and community facilities, libraries;
• social work - community care, children and family services;
• planning and transport - roads, public transport, economic development, flood prevention, development of new buildings;
• environmental services - refuse collection and disposal, street lighting, food safety, health promotion, animal welfare, maintenance of parks and cemeteries;
• housing - allocation and maintenance of public housing, homeless provision, rent collection, building new council houses;
• finance - annual budgets for managing income and spending, financial reports, collection of Council Tax and business rates;
• information technology – use of ICT across all council services.

It is clear, therefore, that the work of local government has a huge impact on the lives of residents of the area. However, local governments generally have to act within central government policy even if it is something of which they are not particularly in favour. There is constant monitoring of local government activities in an effort to ensure that 'best value' is always being attained.

Finance

Local governments are financed in a variety of ways:

• government grants - the main source of local government income. This money comes from the UK government via the Scottish Parliament and accounts for about 40% of total council income;
• council tax - an amount of money paid by each household based on the value of the property. Each local authority sets its own council tax rate;
• non-domestic rates - paid by businesses. This is set by the central government and is the same across the country charges for services: such as entrance to leisure facilities, housing rents;
• the sale of assets - such as council houses.

Public Corporations

These are companies that are owned and controlled by central government. The government appoints a chairperson and board of directors to run the company on the government’s behalf. Examples of Public corporations include the BBC and Royal Mail.

VOLUNTARY (THIRD) SECTOR

These organisations have different aims from those of private sector enterprises. They are ‘not for profit’ organisations and very often their reason for existing is to help a charitable cause in some way.

Charities

The government regulates the activities of charities and keeps a Register of Charities in the UK. Charities are exempt from paying most taxes. Charities are often set up as trusts with no individual owner, and overall management and control is undertaken by unpaid trustees (people who are placed in a position of trust with the responsibility for looking after the interests of others).

Finance

• Donations from the public
• Donations from companies
• Government grants
• Lottery Grants
• Profits from charity shops

Objectives

• To provide a service
• To relieve poverty
• To fund medical research
• To provide protection to the vulnerable

Voluntary Organisations

Voluntary organisations are run and staffed by volunteers. Examples include the Scouts, youth clubs, Brownies, sports clubs. They bring together people with similar interests. They are run by a committee of elected volunteers.

These organisations can raise finance by applying for grants from the lottery, Sports Council or local authorities. They may also charge a fee to become a member of their organisation or to use their facilities.

WELL KNOWN CHARITIES

• Cancer Research UK
• CHAS
• Kidney Research UK
• Save the Children
• Bernardos
• UNICEF
• RSPCA
• Age Concern
• Oxfam

Task 27

1. Select one of the charities from the diagram above.
2. Use the Internet (or other sources of information) to research your chosen charity. Find out the charities aims and objectives, achievements to date, how it raises finance and any other relevant information.
3. Present your findings in a Powerpoint presentation – maximum of 4 slides.
4. Design a poster (on the computer or on A4 card) to raise awareness of your chosen charity.
5. Display your poster on the classroom wall.

Task 28

Progress Check 5

Answer the following questions in sentences on A4 paper.

1. Explain the difference between a franchisee and a franchisor.(2)
2. Starbucks is a well-known franchise. Name 2 other well-known businesses that operate as a franchise.(2)
3. State 2 advantages and 2 disadvantages for a franchisee.(4)
4. State who owns a plc and who manages a plc.(2)
5. Outline the difference between Central Government and Local Government.(4)
6. List some of the main services provided by Local Government.(4)
7. Name 2 well known charities and state what causes they support.(4)
8. Outline some of the ways in which charities finance their organisations?(3)

TOTAL MARKS: 25

Before you submit your work to your teacher, remember to indicate (by ticking the boxes below) that you have self assessed and peer assessed.

• Self Assessed
• Peer Assessed

CUSTOMER SERVICES/CUSTOMER SATISFACTION

Overview

To survive, businesses must meet the needs of customers. So what are the needs of customers? Here are some factors which are important to customers:

• Good quality products

• Attractive packaging

• Durability (products that will last)

• Up-to-date, fashionable products

• Good Prices

• Good Image

• Easily available

• Guarantees with the product

• Good after-sales service (refunds if customer is not happy)

Businesses use market research to identify consumer needs/wants. This could be as simple as asking your restaurant customers to fill in a questionnaire commenting on the quality of the food, or the service they received etc. This will allow the restaurant owner to identify any areas of weakness that can be improved on – and thereby satisfy the customers so that they continue to return to the restaurant.

Market research can also help identify gaps in the market, ie, come up with a new idea for a new product or service to satisfy consumer wants.