Business Notes 2024/2025 PDF

MRS SHAHINDA SAMIH ABO AL KHEIR 1  Course work Unit 1: Economy and You Chapter 1: Basic economic concepts Chapter 2: Understanding business activity Unit 2: Owning and operating a business Chapter 3: Types of business ownership Chapter 4: Entrepreneurship and small business Chapter 5...

MRS SHAHINDA SAMIH ABO AL KHEIR 1  Course work Unit 1: Economy and You Chapter 1: Basic economic concepts Chapter 2: Understanding business activity Unit 2: Owning and operating a business Chapter 3: Types of business ownership Chapter 4: Entrepreneurship and small business Chapter 5: Business ownership and operation Unit 3: Human Resources Chapter 6: Human resources management Chapter 7: Business Management Chapter 8: Leadership in Management Unit 4: Marketing Chapter 9: Marketing in today’s worlds Unit 5: Finance Chapter 10: Managing business finance Unit 6: Influences on business Chapter 11: Business in Global economy Chapter 12: Business ethics and social responsibility MRS SHAHINDA SAMIH ABO AL KHEIR 2   Chapters  Chapter 1: Basic economic concepts  Chapter 2: Understanding business activity MRS SHAHINDA SAMIH ABO AL KHEIR 3  Chapter 1 Business activity  Explain the purpose of business activity? Is to satisfy the needs and wants of society, by using scarce (Limited) resources called factors of production to produce goods and services.  Differentiate between needs and wants? definition Example Needs Is a good or service essential for living Food, clothes wants Is the good or service which people would Cars , holiday like to have, but which is not essential for living. people’s wants are unlimited  What is the economic problem? There exist unlimited wants but limited resources to produce the goods and services to satisfy those wants. This creates scarcity  What is scarcity? It is the lack of sufficient products to fulfill the total wants of the population.  Explain the factors of production? Definition Example Land Earth’s and natural resources & Oil, gas, metals raw materials Labour Human resources employed Engineer Capital Man-made resources or It is finance , machinery and manufactured resources equipment Enterprise Taking risks , making decision, Owner, entrepreneur and combine factors of production  Explain opportunity cost. Is the good or service we give up, the next best alternative foregone. Example a piece of land either build hospital or school, if you choose school, hospital is the opportunity cost. MRS SHAHINDA SAMIH ABO AL KHEIR 4   Differentiate between specialization and division of labour ? definition Example specialization When individual and Businesses Carrefour specialized in concentrates on what they are best at computers Division of The production process is divided into One cut the wood , other labour different tasks and each worker polish the table performs one of these tasks. It is a form of specialization As the factors of production are in limited supply, it is therefore important to use these resources in the most efficient ways possible. Nearly all workers specialize in particular skills and may businesses specialize in one type of product.  Specialization is now very common because: 1. Availability of specialized machinery 2. Increasing competition, so business have to keep costs low 3. Specialization lead to higher living standard MRS SHAHINDA SAMIH ABO AL KHEIR 5   What are the advantages and disadvantages of specialization? Advantages Disadvantages Increase efficiency and output Efficiency might fall As workers are trained in one task and specialize As workers become bored doing just one job , which lead to demotivation Time will be saved Production might be stopped Less time is wasted moving from one work bench If one worker is absent and one else can do the to another job Less training cost Quicker and cheaper to train workers as fewer skills need to be taught Added value  It is the difference between the selling price of a product and the cost of bought-in materials and components.  Why is added value important? 1. Can pay other costs, such as labour costs and management expenses 2. Able to make a profit, if consumers are convinced by this then they might be prepared to pay higher prices.  How could a business increase added value? 1. Increase selling price but keep the cost of materials the same, though: a. Higher quality image for it product or service b. High quality package. For example: A jewelry shop could employ very experienced and knowledgeable sales staff, decorate costs to look luxurious 2. Reduce the cost of materials but keep the price. For example, a building firm could use cheaper wood, bricks and other materials when constructing a home or shop. Note: lower priced materials might reduce the quality of the product. MRS SHAHINDA SAMIH ABO AL KHEIR 6  Chapter 2 Classification of businesses  What are the different sectors of production? Definition Example Primary Extraction of raw materials Agriculture , mining Secondary Manufacturing or construction Oil refining Tertiary Providing service Banking  The production of goods passes through 3 main stages, they are called the levels of business activity  Stage 1: Primary stage of production. This stage involves the earth’s natural resources. Primary sector of industry include farming, fishing, forestry and the extraction of natural materials, such as oil and copper ore.  Stage 2: Secondary stage of production. This stage involves taking the materials and resources provided by the primary sector and converting them into manufactured or processed goods. It include building and construction , computer assembly and baking  Stage 3: Tertiary stage of production. This stage involves providing services to both consumers and other businesses. It includes transport, banking, insurance, hotels and hairdressing. Business Primary Secondary Tertiary Insurance Forestry Coal mining Computer assembly Travel agent Bakery Car showroom MRS SHAHINDA SAMIH ABO AL KHEIR 7   What is the difference between the private sector and public sector?  Private sector: is that part of the economy which includes businesses controlled by private individuals and firms  Public sector: is that part of the economy in which businesses are controlled by the government, local authority.  The advantages and the disadvantage of private sector It is often claimed that private sector businesses are more efficient than public sector businesses. This might be because: 1. Their main objective is profit and therefore costs must be controlled. 2. Also private sector owners might invest more capital in the business than the government can afford. 3. Competition between private sector businesses can help to improve product quality. However, a business in the private sector might make more workers unemployed than a public sector business in order to cut costs. A private sector business is also less likely to focus on social objectives. Capital: is the money invested into a business by the owners MRS SHAHINDA SAMIH ABO AL KHEIR 8   Chapters Chapter 3: Types of business ownership Chapter 4: Entrepreneurship and small business Chapter 5: Business ownership and operation MRS SHAHINDA SAMIH ABO AL KHEIR 9  Chapter 3 Types of business ownership Sole trader: a business in which one person provides the permanent finance and, in return, has full control of the business and is able to keep all of the profits. This type of business organization is most commonly established in the construction, retailing, hairdressing and catering trades Advantages Disadvantages 1. Little capital to start up 1. Limited capital to owner’s savings , profits made by the business Growth would be slow 2. Few legal formalities 2. Unlimited liability *: this means that the owner’s personal possessions and property can be taken to pay off the debts of the business 3. The profit wouldn’t be shared 3. No continuity So the sole trader has an incentive to Can’t pass the business to his work hard sons, if the owner die the business will legally not exist any longer. 4. He is his own boss 4. Carry out all the main functions ( Complete control , no one share not enjoying benefits of decisions (he is his own boss) specialization) 5. Personal contact with customers 5. He has no one to discuss business The ability to respond quickly to their matters needs and demand 6. He does not have to give 6. No separate legal identity information about his business to anyone else He enjoys complete secrecy in business matters. MRS SHAHINDA SAMIH ABO AL KHEIR 10 Partnership A business formed by 2 or more people to carry on a business together, with shared capital investment and, usually, shared responsibilities. E.g. lawyers, accountants, doctors,,, etc. A partnership agreement is the written and legal agreement between business partners. It is not essential for partners to have such as agreement but it is always recommended. The written partnership agreement contains:  The amount of capital invested in the business by each partner  The tasks to be undertaken by each partner Unincorporated business: is one  The way in which the profits would be shared out that does not have a separate legal identity. Such as sole traders and partnership Advantages Disadvantages 1. More capital which allow 1. Unlimited liability expansion of the business. 2. Responsibilities are shared. One 2. Suffer of disagreements among of the partner specialized in the the partners accounts other will concentrate on marketing 3. New ideas , skills and 3. Profit is shared specialization 4. Losses are shared 4. No continuity and didn’t have a separate legal identity. 5. Capital is limited, as some countries limit the number of partners to 20 which means that the business growth would be limited 6. Holding responsibility for the actions of other partners MRS SHAHINDA SAMIH ABO AL KHEIR 11   Limited companies There is one essential difference between a company and an unincorporated business, such as sole trader or partnership. A company is a separate legal unit from its owners – it is an incorporated business. This means that:  A company exists separately from the owners and will continue to exist if one of the owners should die.  A company can make contracts or legal agreements  Company accounts are kept separate from the accounts of the owners.  Separate Legal identity A company is recognized in law as having a legal identity separate from that of its owners. This means, for example, that if the foods sold by a company are found to be dangerous, the company itself can be taken to court – not the owners. Companies are jointly owned by the people who have invested in the business. These people buy shares in the company and they are therefore called shareholders. And they will receive dividends Dividends: are payments made to shareholders from the profits (after tax) of a company. They are the return to shareholders for investing in the company.  Private limited company (Ltd) A small to medium – sized business that is owned by shareholders who are often members of the same family. This company cannot sell shares to the general public. Advantages Disadvantages 1. Limited liability 1. Possibility of losing control 2. Continuity 2. Shareholders must agree on selling shares 3. Separate legal identity 3. Can’t be sold in the stock exchange 4. Owners still have control if they kept the majority of the shares 5. More capital MRS SHAHINDA SAMIH ABO AL KHEIR 12   Public limited company PLC A limited company often a large business, with the legal right to sell shares to the general public – share prices are quoted on the national stock exchange.E.g. CIB, Marks and spencer The main difference between Ltd and Plc. other than selling shares in the stock exchange, will be the ‘divorce between ownership and control’ The original owners of the business are usually still be able to retain a majority of shares and continue to exercise management control when it converts to ltd. This is most unlikely with Plc. due to the sheer volume of shares issued and no. of people and institutions as investors. The distinction between ownership and control can lead to conflicts between shareholders and board of directors, e.g. shareholders aim for profits, while the directors aim for long term growth. So shareholders own the business but they must elect a board of directors who control the management and decision making through the Annual General Meeting. The annual general meeting: is a legal requirement for all companies. Shareholder may attend and vote on who they want to be on the Board of Directors for the coming year. Advantages Disadvantages Limited liability More regulations and controls in order to protect the interests of the shareholders for example ,must publish the financial information Incorporated business which means Selling shares to the public is Continuity and Separate legal identity expensive e.g. annual general meeting of shareholders, cost of business consultants Ease of buying and selling of shares Legal formalities of forming such a for shareholders – this encourages company are quite complicated and time investment in plcs. consuming Access to substantial capital sources Original owners of the business may due to ability to issue share to sell to the lose control over it when it ‘goes public’ public MRS SHAHINDA SAMIH ABO AL KHEIR 13   Other forms of business organization  Franchises A business that uses the name, logo and trading systems of existing successful business e.g. Mc Donald’s and Body Shop. Franchiser (original idea), franchisee (pay for the use of business idea and name). To the franchisor To the franchisee Advantages * The franchisee buys a license * The chances of business from the franchisor to use the failure are much reduced brand name because a well – known product * Expansion of the business is is being sold much faster than if the * The franchisor pays for franchisor had to finance all new advertising outlet * All supplies are obtained from * The management of the a central source – the franchisor outlets is the responsibility of the *There are fewer decisions to franchisee make than with an independent * All products sold must be business – prices , store layout obtained from the franchisor and range of products will have been decided by the franchisor *Training for staff and management is provided by the franchisor *Banks are often willing to lend to franchisees due to relatively low risk Disadvantages *Poor management of one *Less independence than with franchised outlet could lead to a operating a non – franchised bad reputation for the whole business business *May be unable to make *The franchisee keeps profits decisions that would suit the from the outlets local area, for example , new products that are not part of the range offered by the franchisor *License fee must be paid to the franchisor and possibly a percentage of the annual turnover MRS SHAHINDA SAMIH ABO AL KHEIR 14  Chapter 4 Entrepreneurship and small business Comparing the size of businesses  Businesses can vary greatly in terms of size. On the one hand, firms can be owned and run by a single individual (sole trader). At the other extreme, some businesses employ hundreds of thousands of workers all over the world.  Who would find it useful to compare the size of businesses? Investors – before deciding which business to put their savings into Governments – often there are different tax rates for small and large business Competitors – to compare their size and importance with other firms Workers – to have some idea of how many people they might be working with Banks – to see how important a loan to the business is compared to its overall size.  How business size can be measured?  Business size can be in measured in a number of ways. The most common are: 1. Number of employees 2. Value of output 3. Value of Capital employed 4. Value of sales 1. By number of employees Adv.: Easy to understand Some firms use production methods which employ very few people but which produce high output levels, it called capital intensive firms. E.g automated factories. Therefore, a company with high output levels could employ fewer people than a business which produced less output. MRS SHAHINDA SAMIH ABO AL KHEIR 15  2. By value of output Adv.: this a common way of comparing business in the same industry. Problem: a firm employing few people might produce and sell several very expensive computers each year. This might give higher sales figures than a firm selling cheaper products but employing more workers. 3. By capital employed This means the total amount of capital invested into the business. Problem: A company employing many workers may use labor – insensitive methods of production. These give low output levels and use little capital equipment. 4. Value of sales This is often uses when comparing the size of retailing businesses for example food supermarket. Problem: it could be misleading to use this measure when comparing the size of businesses that sell very different products (for example, a market stall selling sweets and a retailer of luxury handbags or perfumes) There is no perfect way of comparing the size of businesses. It is quite common to use more than one method and to compare the results obtained  How can businesses grow?  Why business want to expand?  Benefits 1. Higher profit 2. More status and prestige for the owner and the manager 3. Lower average cost ( economies of scale) 4. Increase market share  benefits a. More influence when dealing with suppliers b. Consumers attracted to the big name. MRS SHAHINDA SAMIH ABO AL KHEIR 16 Business can expand in 2 main ways  Internal growth  External growth  Occurs when a business expands  Is when a business takes over or its existing operations, this growth merges with another business. It is is often paid for by profits from the often called integration as one firm exiting business. is integrated into another one.  For , example, a restaurant owner could open other restaurants in other town  Merger: is when the owners of two businesses agree to join their firms together to make one business. E.g Sony Ericson  Takeover: is when one business buys out the ownership of another business which then becomes part of the ‘predator’ business. E.g chipsy and lays  Three examples of mergers are:  Horizontal integration  Vertical integration  Conglomerate merger  Horizontal merger When one firm merges with or takes over another one in the same industry at the same stage of production e.g. Pepsi and coca cola. Benefits: 1. Reduces the number of competitors 2. Larger market share  Vertical integration Is when a firm merges with or takes over another firm in the same industry but at a different stage of production. It can be “Forward” - when a firm integrates with another firm which is at a later stage of production, MRS SHAHINDA SAMIH ABO AL KHEIR 17 Benefits of forward vertical integration For example, car manufacturer takes over a car retailing business 1. Gives an assured outlet for their product 2. Increase profit margin 3. The retailer could be prevented from selling competing makes of car Or Backward – when a firm integrates with another firm at an earlier stage of production. Benefits of backward vertical integration For example, a car manufacturer takes over a firm supplying car body panels. 1. The merger gives an assured supply of important components. 2. Increase profit margin 3. The supplier could be prevented from supplying other manufacturers  Conglomerate integration Is when one firm merges with or takes over a firm in a completely different industry? This is known as diversification. Benefits: 1. The business has diversified its activities and this will spread the risks taken by the business. 2. Transfer of ideas between the different sections of the business MRS SHAHINDA SAMIH ABO AL KHEIR 18   Problems linked to business growth and how these might be overcome Problem resulting from expansion Possible ways to overcome problem Larger business is difficult to control Operate the business in small units – this (diseconomies of scale) is form of decentralization Larger business leads to poor Operate the business in smaller units communication Use latest IT equipment and telecommunications Expansion costs so much that business is Expand more slowly short of finance Integrating with another business is more Introducing a different style of difficult than expected (for example , management requires good different management styles ) communication with the workforce **Entrepreneur: is a person who organizes, operates and takes the risk for a new business venture.  What are the advantages and disadvantages of starting up your own business or being an entrepreneur? Benefits of being an entrepreneur Disadvantages of being an entrepreneur Independence Risk Able to choose how to use time and Many new entrepreneurs’ businesses fail, money especially if there is poor planning Able to put own ideas into practice Capital (incentive to work harder) Entrepreneurs have to put their own money into business and, possibly, find other sources of capital. May become famous and successful if Lack of knowledge and experience in business grows ( which mean higher staring and operating a business status ) May be profitable and the income might Opportunity cost be higher than working as an employee Lost income from nit being an employee for another business of another business Able to make use of personal interests and skills MRS SHAHINDA SAMIH ABO AL KHEIR 19   Characteristics of successful entrepreneurs Characteristics of Reasons why important successful entrepreneurs Hard working Long hours and short holidays are typical for many entrepreneurs to make their business successful Risk taker Making decisions to produce goods and services that people might buy is potentially risky Creative A new business needs new ideas –about products , services , ways of attracting customers – to make if different from existing firms Optimistic Looking forward to a better future is essential – if you think only of failure , you will fail Self-confident Being self – confident is necessary to convince other people of your skills and to convince banks, other lenders and customers that your business is going to be successful Innovative Being able to put new ideas into practice in interesting and different ways is also important independent Entrepreneurs will often have to work on their own before they can afford to employ others. Entrepreneurs must be well – motivated and be able to work without any help Effective Talking clearly and confidently to banks , other lenders , communicator customers and government agencies about the new business will raise the profile of the new business Contents of a business plan and how business plans assist entrepreneurs A business plan: is a document containing the business objectives and important details about the operations, finance and owners of the new business.  The contents of business plan include the following: Description of the e.g. history of the business and its objectives business Products and services It may include details of the product and how it is to be manufactured and distributed The market Describes the market the business is targeting. e.g. total market size , target market Business location and Include the physical location and how the firms delivers how products will reach products and services to customers customers Organization structure It usually includes the number and the level of skills and management required for the employees MRS SHAHINDA SAMIH ABO AL KHEIR 20  Financial information In include income statements and statements of financial position Sources of capital Forecast cash flow and working capital Business strategy Explains how the business intends to satisfy customer needs and gain brand loyalty  Without the business plan, the bank will be reluctant to lend money to the business. This is because the owners of the new business cannot show that they have thought seriously about the future and planned for the challenges that they will certainly meet.  Advantages of a business plan : 1. Support loan applications 2. Clear aims to guide for business 3. Provides an estimate of costs 4. Provides a checklist 5. Helps understand the possible risks 6. Helps decision making  Why government support business start – ups? 1. To reduce unemployment New business will often create jobs to help reduce unemployment 2. To increase competition New businesses give consumers more choice and compete with already established businesses. 3. To increase output The economy benefits from increased output of goods and services 4. To benefit society Entrepreneurs may create social enterprises which offer benefits to society other than jobs and profit MRS SHAHINDA SAMIH ABO AL KHEIR 21   Why the government should not support businesses : 1. Opportunity cost Instead of supporting unsuccessful business, they can provide more health care or medical care or public goods 2. Inefficiency Failing businesses will keep on operating inefficiently as they are always supported by the government, wasting scarce resources.  How governments support business start ups Business start – ups Governments often give support by : need Business idea and help Organizing training for entrepreneurs that gives advice , and support sessions offered by experienced business people Premises Enterprise zones , which provide low – cost premises to start – up businesses Finance Loans for small businesses at low interest rates Grants , if businesses start up in depressed areas of high unemployment Labour Grants to small businesses to train employees and help increase their productivity research Encouraging universities to make their research facilities available to new business entrepreneurs  Why some businesses remain small? There are several reasons why businesses remain small, include: The type of industry the business For example , if the industries offer operates in personal services or specialized products e.g. car repairs , window cleaning plumbers Market size If the total number of customers – is small , such as luxurious cars or expensive fashion clothing Owners’ objectives Some business owners prefer to keep their business small, to keep control of a small business. MRS SHAHINDA SAMIH ABO AL KHEIR 22   Advantages of small businesses 1. Very easy for new businesses to set up and creates new competition 2. Easy to control the business. 3. Providing personal service, as there will be direct contact with customers 4. Knowing all their staff which will lead to motivated employees and increase productivity.  Causes of business failure The main reasons why some businesses fail include the following Lack of management skills Lack of experience can lead to bad decision such as locating the business in an area with high costs but low demand Changes in the business environment Failure to plan for change, this adds to the risk and uncertainty of operating a business, e.g. new technology, powerful new competitors and major economic changes. Liquidity problems or poor financial Shortage of cash , means that workers , management suppliers …etc. , cannot be paid what they are owed Over-expansion When a business expands too quickly if can lead to big problems of management and finance  Why new businesses are at greater risk of failing? Due to: 1. Lack finance 2. Poor planning and inadequate research 3. The owner of a new business may lack the experience and decision – making skills of managers who work for larger businesses. MRS SHAHINDA SAMIH ABO AL KHEIR 23  Chapter 5 Business ownership and operation Business objectives: are the aims or targets that a business works towards.  Benefits of setting objectives: 1. Helps to motivate people They give workers and managers a clear target to work towards. 2. Helps taking decisions As will decisions will be focused on:’ will it help achieve our objectives’. 3. Help unite the whole business Clear and measurable objectives help unite the whole business towards the same goal. 4. Measure the business performance Business managers can compare how the business has performed to their objectives – to see if they have been successful or not.  Different business objectives The most common objectives for businesses in the private sector are to achieve:  Business survival  Profit  Returns to shareholders  Growth of the business  Market share  Service to the community MRS SHAHINDA SAMIH ABO AL KHEIR 24   What are the private sector objectives? Definition Explanation Making profit Profits are obtained when TR Business aim either to maximize profit greater than TC or make a satisfactory profit It is often said that the owners of a business will aim for a satisfactory level of profits which will avoid them having to work too many hours or pay too much in tax to the government. The owners will each take a share of these profits. Profits are needed to : Pay a return: to the owners of the business for the capital invested and the risk taken. Provide finance : for further investment in the business Value added The difference between selling How can a business increase its added price and the value of inputs value? 1. Making a production process more efficient (by eliminating wastes decrease cost of production) 2. Encouraging customers to purchase a product at a greater price( through promotional campaigns) 3. Adding new features to a product ( E.g CD player to the car) 4. Offering addition services (parking service) Survival New business is difficult for it to earn large profits so its main objective to survive also through difficult time such as recession The business may aim to grow in order Growth Either through internal growth: to : Achieved by increasing its size 1. Make job more secure and output. 2. Increase salaries and status to Or managers External : Merge and takeover 3. Open up new opportunities an help spread the risks 4. Obtain a higher market share to increase sales MRS SHAHINDA SAMIH ABO AL KHEIR 25  5. Obtain cost advantages called economies of scale. Increase the Is the percentage of total Increase market share gives a market share market sales held by one business: brand or business 1. Improve reputation 2. Increase influence over Market share % = suppliers Company sales × 100 (keen to sell to business relatively larger Total market sales than others in the industry ) 3. Increase influence over customers (e.g. setting high prices). Returns to Often set by the managers to *It can be increased in 2 ways: shareholders discourage the shareholders Increasing profits: and the share of from selling their shares and profit paid to shareholders as dividends. helps managers to keep their Increasing share price: managers can jobs. try to achieve this just by making profits but by putting plans in place that give the business a good chance of growth and higher profits in the future. Providing a Social enterprise: has social It has 3 objectives for their business: service to the objectives as well as an aim to Social: to provide jobs and support for community – make a profit to reinvest back disadvantaged groups in society m such the objectives of into the business. as the disabled or homeless. Environmental : to protect the social environment enterprises Financial: to make a profit to invest back into the social enterprise to expand the social work that it performs.  Objectives of public sector businesses Financial : meet profit targets set by government – sometimes the profit is reinvested back in the business and on other occasions it is handed over to the government as the ‘owner’ of the organization. Service: provide a service to the public and meet quality targets set by government. For example, health services and education services will be expected to achieve targets laid down for them, and state – owned train and postal services will have reliability and punctuality. Social: protect or create employment in certain areas – especially poor regions with few other business employers. MRS SHAHINDA SAMIH ABO AL KHEIR 26   The main internal and external stakeholder groups and their objectives. Stakeholder: is any person or group with a direct interest in the performance and activities of a business. MRS SHAHINDA SAMIH ABO AL KHEIR 27 Conflicts of stakeholders’ objectives Managers have to compromise when they come to decide on the best objectives for the business they are running, they would be unwise to ignore the real worries or aims of other groups with an interest in the operation of the business. Managers will also have to be prepared to change the objectives over time. Growth could be the best option during a period of expansion in the economy is in recession. MRS SHAHINDA SAMIH ABO AL KHEIR 28