Business Management Notes Y5 SL

Chapter 1.1: What is a Business?

• A business utilizes resources in order to meet customer demands through offered products or services.
• An entrepreneur undertakes the financial risks involved in starting up and managing a new business.

Business Inputs

• Business inputs encompass human, physical, and financial resources required for producing goods or services.
• The four main inputs are: Land, including all natural resources, labor, covering both manual and skilled work, capital, for setting up and ongoing operations, and enterprise, which is the driving force through risk-taking.

Business Functions

• Human resource management involves identifying, recruiting, and training the workforce.
• Finance and accounting entail monitoring the flow of finances in and out of the business.
• Marketing is responsible for conducting market research.
• Operations management ensures adequate resources for production.

Economic Sectors

• Primary sector businesses extract natural resources (farming, fishing, oil extraction).
• Secondary sector businesses manufacture and process natural resources (furniture, brewing, clothing).
• Tertiary sector businesses offer services to consumers and other businesses (retailing, transport, banking).
• Quaternary sector businesses focus on IT and information service provision (R&D, consulting).

Starting a Business: Opportunities

• Starting a business helps overcome unemployment.
• It enables independence or autonomy.
• It improves the standard of living through higher income.

Starting a Business: Challenges

• Challenges include personal qualities such as lack of innovation, commitment, self-motivation, and risk-taking ability.
• Market challenges involve the inability to identify a profitable market opportunity.
• Financial challenges include issues like insufficient capital and lack of awareness of financial support.
• Other challenges include securing a location and building a customer base.
• Overcoming competition and business records are also challenges.
• Management skills, like leadership and marketing skills, are crucial.
• Dealing with changes, such as new competitors and technological changes, can pose a challenge.

Chapter 1.2: Types of Business Entities

• The private sector includes businesses owned and controlled by individuals or groups of individuals.
• The public sector comprises organizations controlled and accountable to central and local governments.
• Public sector organizations are owned and controlled by the government
• Private sector organizations are owned and controlled by private individuals

Sole Trader/Sole Proprietorship

• A sole trader is a business owned and controlled by one person who is entitled to all profits after tax and has unlimited liability.

Advantages of Sole Traders

• Easy setup with no legal formalities.
• The owner has complete control.
• The owner keeps all profits.
• Flexibility in working hours allows adapting to life demands
• The owner can use their skills.
• Close personal relationships with customers and staff enables understanding of individual requirements.

Disadvantages of Sole Traders

• Unlimited liabilities
• They face often intense competition from larger companies
• Difficult to get additional capital
• Long hours often needs to be worked
• Lack of Continuity as the business is not separate legal status, so the business ends when the owner expires.

Partnership

• A partnership is formed by two or more people carrying on a business together, sharing capital investment, responsibilities, and profits after tax with unlimited liability.

Partnership advantages

• Partners have different areas of specialization in business management.
• All partners provide feedback and decision making is shared.
• Partners have added capital injected by each partner.
• Business losses are shared between partners
• There are few greater privacy and few legal formalities than larger organizations.

Partnership disadvantages

• Unlimited liability for all partners is a key disadvantage.
• All partners are bound by the decisions of any one of them.
• Raising capital by selling shares is not possible.
• All profits are shared, so this reduces profit for everyone
• There is no continuity like sole traders.
• Partners need to discuss and agree major decisions which can take a long time.

Limited Companies

• Limited companies include privately and publicly held companies, where shareholders have limited liabilities, a legal identity, and can continue operations after the death of one of their owners.

Privately Held Companies

• These are limited companies unable to raise share capital from the general public and shares are owned by the original sole trader, relatives, friends, and employees.

Advantages of Privately Held Companies

• Shareholders have limited liability.
• There is a separate identity for the company when the owner expires.
• Share capital can be raised by the sale of shares to family, friends, and employees.
• Status is greater than non company or unincorporated business.

Disadvantages of Privately Held Companies

• Establishing the business has some formal legal requirements.
• There is no guarantee that capital can be raised by the sale of shares to the general public.
• It is very difficult for shareholders to sell shares.

Publicly Held Companies

• Publicly held companies, or plcs, are limited companies whose shareholders have limited liabilities, and are able to raise share capital from the general public via the stock exchange.

Advantages of Publicly Held Companies

• Shareholders have limited liability
• There is a separate legal identity from the business
• There is continuity in the event of the death of an owner.
• Investment is encouraged for shareholders due to ease of buying, and selling shares
• The public has access to substantial capital sources due to the ability to issue a prospectus.

Disadvantages of Publicly Held Companies

• There are many formal things to take care of when building a business
• There is a price that comes with business consultants and financial advisors when creating a plc
• The state of the economy of the Share prices are subject to fluctuation.
• There are many Legal requirements concerning what you can and cannot conceal from shareholders, for example, having to publish an annual detailed report and account.
• The are huge risks due to the chances of a stock exchange takeover
• Influence is gained by short term targets of major investors.

For-Profit Social Enterprises

• Private sector companies operate as for-profit business organizations.
• Social enterprises are businesses with social and environmental objectives that reinvest profits to benefit society rather than maximize returns to owners.
• Three main aims of social enterpises are Economic, Social, and Environmental

Advantages of For-Profit Social Enterprises

• Most governments encourage it via financial incentives
• Cohesive workforce is created due to there objectives of enterprises.
• Products can be marketed easier thanks to trends in “responsible consumerism."

Disadvantages of For-Profit Social Enterprises

• Competitors can often be more effective thanks to low social and environmental objectives
• Products are often made to be targeted at particular markets
• Complete transparency to investors is extremely important.

Social Enterprises in Public Sector

• They are known as public corporations by state owned an controlled enterprises.

Advantages of Social Enterprises in Public Sector

• The main objectives are managed by social and profit objectives
• The continuation occurs due to the subsidaries from the government which can encourage inefficiency's.
• There is a great access to finance

Disadvantages of Social Enterprises in Public Sector

• There is a greater dependency toward inefficiency.
• Subsidies can encourage inefficiencies.
• Decision are governmentally interfered for political reasons

Cooperatives as social enterprises

• Cooperatives are groups of people working together to meet common needs, sharing ownership, and making democratic decisions.
• Three types of cooperatives are; Retail, agricultural, and worker

Non-profit social enterprises

• Organizations that have aims other than making and distributing profit that is governed by a voluntary board

Advantages of Non-profit social enterprises

• There is a direct benefit to local communitys
• Their is a tax exemption on them
• There are government grants, and reductions in production costs
• There is a positive employee impact

Disadvantages of Non-profit social enterprises

• There are very strict guidelines which is hard to adhere to
• It is tough to continue survival when small
• There is a lack of financial control
• There are lower appealing wages

Charities

• Charities are dependent on private contributions and can vary in amount, making it difficult for charity managers to plan.
• Activities to be considered a charity include relief of poverty, advancement of education, health, community, arts, human rights, environmental protection, and animal welfare.

Chapter 1.3: Business Objectives

• A vision statement outlines what the organization wants to achieve in the long term.
• A mission statement defines a business's core aims to motivate employees and simulate external interest.

The statements effectiveness

• Quick guidance about the business's central aims
• It's helpful to motivate employees
• It can guide ethical behaviour
• It can differentiate from competition if the public is properly aware.

###The statements criticism

• They are known as more of a PR move
• They are also difficult to analyse or disagree with.
• They can be too similar and fail to differentiate from competition.

Business Objectives

• These are short to medium term goals that must be achieved for an organization to attain its overall corporate aim.
• Key characteristics of well defined objectives must follow the SMART framework; Specific, measurable, achievable, realistic / relevant, and time specific

The following shows objectives by some business.

• There has to be a profit reward invested and dividend finances
• There needs to be a smaller likeihood of growth to be overthrown
• There needs to be increased efficiency to sack others

Advantages of Ethical

• There needs to be few cases that cost a lot
• There needs to be positive publicty which helps avoid cases that cost a lot.

Limitations of Ethical

• There needs to be a not taking of bribes.
• There needs to be lesser ads of child content
• There needs to be less wrong doing such as wrong prices or a great price
• There needs to be low wages to decrease the chances of labor decreases.

Longterm objectives

• There has to be a reverse in goals for the whole organization
• There has to management from senior members
• There needs to be coordination with the business

Medium Term Goals

• A change has to be ready to be implemented by the next allocated time. -There needs to be little senior management

Corporate social responsibility (CSR)

This is where a business considers what society wants to make good decisions on employees, costumers, and environment as a whole. Advantages -There is going to be new customers in new areas

• There is going to be new efficient employees

Disadvantages

• Short run profits could increase
• Shareholders might not adapt to the new lower prices

Chapter 1.4: Stakeholders

• A stakeholder is affected by a business, classified as internal vs. external, market vs. non-market, or primary vs. secondary.
• Internal stakeholders include employees, managers, and shareholders in sole trader or partnerships.
• External stakeholders are outside the company, including customers, suppliers, government, banks, creditors, competitors.

Responsibilities to Stakeholders

• Employees want fair wages and good working conditions, and businesses must offer job security and training by following employment laws.
• Managers need competitive salaries, and businesses offer opportunities for responsibility and advancement.
• Shareholders desire annual dividends and increasing shares, so businesses should observe company laws and increase shareholder value.
• Customers value quality, safety, and service, so businesses should observe consumer protection laws by avoiding explotation.
• Suppliers need consistent levels and regulations of orders and businesses need to avoid excessive pressures on smaller supplies.
• Governments want creation of tax that is shown properly
• Banks and creditors desire the security of business and if they are being ethical.

Conflict between stakeholders

• Occurs when different stakeholders have different objectives and interests which then effects both negatively, and positively which can then cause the overall interest is conflicted.
• Conflicts are resolved via Arbitration, worker participation and profit sharing.

Chapter 1.5: Growth and Evolution

• Economies of scale (EOS) involve the reduction in per-unit production cost as a business grows, resulting in increased scale of operation and production. Internal EOS is so large that smaller businesses are unlikely to servive.
• Examples
• This includes purchase economics for large orders, technical economies, financial economies when banks trust their ability to return loans, marketing economies where costs increase but can be spread over more sales for big business, managerial economies

Internal disEOS (Diseconomies of scale)

• Factors causing unit costs of production to rise when the scale of operation increases beyond a certain size.
• Comminication overload, communication will drop, a distortion will occur
• Alienation can occur, as workers will feel in significant
• Coordination is slow and difficult

Various scopes of production

Large scope of production and the average costs increases however, what exactly is not determined. Average production costs 0 Economies of scale Diseconomies of scale

External EOS

• Reduction in unit costs of production from industry growth, attracting qualified workers and enabling cooperation.

External disEOS

Is when costs begin to increase in a given region. Economies of scale Diseconomies

Internal/Organic Growth vs External Growth

• Internal Growth uses its own resources to increase operation/revenue scale. The advantages include manageability and lower finance. Also there is no risk of cross cultural. For example shops, can open other shops easily

• External growth is achieved by with taking other business' this requires to be taking same or different industry

• Increase Market Share; Market share can improve quickly while reducing the competitive landscape. Product Diversity Expand your offerings quickly into new product and service areas.

Reasons for companies to remain small

• There is a small market to begin with
• The owner can control the lifestyle of the company
• One person knows everything Keep head costs low because its cheaper. There are very fast decision makers.

External method of growth

Merger: Companies join and shareholders own shares, and boards agree

• there is most likely an equivalent status of power

Acquisition: Its where one party has over 50% of a purchase, may not need to need any mangers

• The smalller company stops, name brand, is used large companies don't always retain employees of the company.

Takeover: An acquisition which is contested - new rates might need to be released _ Managers get fired, there has to be cash outlay to acquire assets.

Horizontal integration

Is where one will do the merge of both businesses together.

• Advantages
• There will be one competitor
• Possible economies with scale
• Scope to rationlise production

Consumers' choices are lessened

• Workers can have job insecurity which is caused by rationalisation.

Vertical integration

This when businesses make their way horizontally by making their own suppliers more independent.

• Advantage: control over quality, price and delivery times of supplies is maintained.
• Con: Consumers may perceive unethical behaviours

Conglomerate integration

• When businesses are diverse and go outside what there known for.
• There is a lack of experience and poor judgement

Join ventures

• Costs and risks are shared
• There are better differences in diverse experiences
• This helps you grow in different markets.

Chapter 1.6: Multinational Companies

• A multinational company (MNC) has its headquarters in one country but operates branches, factories, and assembly plants in other countries.

Advantages of Multinational Companies in host countries

• EconomicGrowth
• EconomicBoosted -Employment opportunities -Quality of local workforce in terms of scale, and technology
• Management expertise within community increases