Business AS 9609: Key Concepts

• Notes compiled for Business AS 9609, meant as a crash course for November 2024.

Factors of Production

• Land: Physical space and natural resources required by a business
• Labor: Staff needed by a business to produce goods or services
• Capital: Machinery and equipment used to manufacture products
• Enterprise: A business operated by an individual using land, labor, and capital.

Business Activity

• Aims to satisfy consumer needs and wants by providing community goods and services for profit in return.

Economic Problem and Scarcity

• Scarcity, also known as the Economic Problem, stems from unlimited wants and limited resources within a society

Opportunity Cost

• The benefit sacrificed when choosing one option over another in a business decision.

Value Added

• The difference between the selling price and the total cost of all inputs used to make it

Importance of Value Added

• Enables covering costs, gaining a competitive edge, and boosting profits.

Increasing Value Added

• Achieved through raising selling prices or lowering the cost of materials by finding cheaper suppliers.

Reasons for New Business Failure

• Lack of management skills, poor business idea, unskilled workers, limited capital, lack of market research, wrong marketing media, and legal factors.

Factors for Business Success

• Adequate capital, effective resource management, and entrepreneurial skills.

Dynamic Business Environment

• Rapid changes in technology, economic factors (interest rates, taxes, inflation), and legal changes impact business success

Entrepreneur

• An individual using personal funds to organize production factors, and taking risks to start a business

Intrapreneur

• An employee innovating within a company, utilizing company resources for creative ideas.

Entrepreneurship

• Involves setting up businesses and taking financial risks for profit
• Expanding opportunities boosted entrepreneurship.

Role of Entrepreneurship

• To recognize consumer needs, blend skills, create plans, allocate resources, manage operations, and accept risks

Barriers to Entrepreneurship

• Poor business idea, financial issues, cost of location, and competition

Role of Intrapreneurship

• Involves developing business practices, fostering creativity, and driving innovation.

Entrepreneur and Intrapreneur Qualities

• Hardworking, multi-skilled, organized, innovative, and possessing leadership qualities

Business Risk vs Uncertainty

• Risk involves potential gain or loss; uncertainty lacks knowledge about future events

Role of Business Enterprises

• Reduces unemployment, pays taxes, boosts GDP, provides goods/services, earns foreign currency improving living standards

Business Plan

• A document stating business goals and how to achieve them, persuading investors with financial and other information

Key Business Plan Elements

• Name, objectives, marketing/production/HR details

Business Plan Benefits

• Securing loans, resource planning, timeline establishment, and progress

Business Plan Limitations

• Ignores external factors, relies on inaccurate forecasts, and lacks flexibility

Economic Sectors:

• Primary: raw material extraction i.e. mining, fishing, etc.
• Secondary: manufacturing using raw materials i.e. processing, construction
• Tertiary: goods/services distribution i.e. banking, advertising, transport
• Quaternary: Knowledge and information processing i.e. IT, research, consulting, media

Private Sector

• Businesses owned/controlled by individuals, financed by personal sources, focused on profit

Public Sector

• Businesses owned/controlled by the government, financed by the government, providing affordable basic necessities

Public Sector Objectives

• Providing public and merit goods along with jobs

Public Sector Features

• Profit minimization and government funding prioritization

Public Sector Advantages

• Providing essential goods/services with employment opportunities

Sole Trader Business

• Owned and controlled by one person, is an unincorporated business.

Sole Trader Advantages

• Easy setup, independent decision making, low costs, financial privacy

Sole Trader Disadvantages

• Unlimited liability, limited capital, high competition, low profitibility, ends with owner's death

Limited vs. Unlimited Liability

• Limited liability protects owners' assets; unlimited liability requires personal debt payment

Partnership Business

• Owned/controlled by multiple people, set by partnership deed

Partnership Advantages

• Easy setup, shared debt responsibility, diverse skills, and increased capital

Partnership Disadvantages

• Profit sharing, potential conflict, unlimited liability risk, no legal identity, lack of continuity

Limited Companies

• Private limited company or public limited company

Shareholders

• Own a limited company, may sell shares when their value increases in public firms
• Expect dividends and gain voting rights at AGMs.

Prospectus

• Invites public to buy shares, and details company's records/plans

Private Limited Company

• Shares are not publicly sold, family owned

Advantages of Private Limited Company

• Limited liability, easy finance, reliable status

Disadvantages of Private Limited Company

• legal formalities, high tax, lack of secrecy

Public Limited Company

• Shares are openly traded in Stock exchange

Advantages of Public Limited Company

• limited liability, stock exchange listing with good image and increase in revenues

Disadvantages of Public Limited Company

• Legal formalities, public accounts, control is divided, high tax, heavy capital input

Public Ltd Co. Control vs. Ownership:

• Control: Board of Directors; Ownership: Shareholders

Board of Directors

• Senior managers for company's strategic decisions

Annual General Meeting (AGM)

• Held annually to elect directors, present accounts, approve pay, dividend distribution, and inform shareholders

Problems Changing Legal Structures

• Sole Trader to Partnership: profit sharing, conflicts, impact of bad decisions, lack of independence
• Partnership to Limited Company: loss of control, legalities, public financial records

Incorporated Business

• Sets up separate legal entity, limits owners' liability like private limited company

Unincorporated Business

• Is not registered, sole traders and partnerships are examples of this type

Franchise Business

• Allows others to sell goods/services with licensed brand name

Franchise Benefits to Franchisor

• License fee, business expansion, franchisor doesn't pay opening costs along with monthly percentage of total revenues received

Franchise Benefits to Franchisee

• Reduced risk/advertising costs, easier bank loans, brand, assistance with training

Franchise Drawbacks to Franchisor

• Poor management leads to bad reputation for overall system, franchisee majorly profits, and high supervision is needed

Franchise Drawbacks to Franchisee

• Strict rules, cannot sell own brands/products, limited pricing, image control, expansion limitations and brand of business

Co-operatives

• Owned/operated by members aiming to support local communities, where every member has one vote

Co-operative Types

• Consumer: members are customers
• Agricultural: members are framers, helping lower costs

Co-operative Strengths

• Less disputes, limited liability and economies of scale

Co-operative Weaknesses

• Limited resources, inefficient management, conflicts, long decision times, and loss of member interest

Joint Venture

• Businesses pooling resources for specific project

Joint Venture Advantages

• Sharing costs, local knowledge, reduces risks

Joint Venture Disadvantages

• Shared profit, conflicts and differing management styles

Social Enterprise

• Prioritizes social objectives alongside maximizing profits with a focus on economic, social responsibility and environmental impact known as the triple bottom line

Social Enterprise Objectives

• Economic/Social/Environmental

Common Social Enterprise Goals

• Profit making, efficiency, competition, and using business principles for achievement

Methods of Measuring Business Size

• Number of employees, market share, sales revenue, capital invested and capitalization

Market Capitalization Calculation

• Number of issued shares x market price

Small Business Traits

• Privately owned with few employees and less revenue, eligible support of gorvernemnt

Small Business Advantages

• Control, low overheads and repeat sales

Small Business Disadvantages

• No economies of scale, difficult startup, faces liquidation

Small Business Advantage for Economy

• Creates jobs, caters consumers, creates competition and is good for economy

Family-Owned Business

• Owned/managed by family, business founders often retain ownership/management

Strengths of Family Business

• Trust Environment with continuity in knowlege

Weaknesses

• Lack of Professional skills, limited outside funding and emotional decisions

Business Growth

• Expansion by increased scale of operations

Advantages of Business Growth

• Survive to compete, more sales leads to profits with lower unit costs where risk is shared to increase market share

No Growth

• From lack of funds, business sector, immaturity and focus on personal service

Types of Business Growth

• Internal (organic) and external growth

Internal Growth

• Franchise, outlet, factory expansions that are funded with own resources