Business Studies 0450.pdf

Business Studies 0450 1.1 - 1.4 1.1 - Business Activity : Economic Problem : - Need : A good or service essential for living - Want : A good or service people would like to have, but is not required for living. - Scarcity :...

Business Studies 0450 1.1 - 1.4 1.1 - Business Activity : Economic Problem : - Need : A good or service essential for living - Want : A good or service people would like to have, but is not required for living. - Scarcity : The basic economic problem. When there are unlimited wants and limited resources to satisfy those wants. Opportunity cost : - The next best alternative chosen. - Scarcity —> Choice —> Opportunity Cost Factors of production : - Needed to produces good or services - Land : Natural resources obtained from nature - Labour : The physical and mental efforts provided by workers in the production process - Capital : The finance, machinery, and equipment needed to produce goods and services. - Enterprise : A person who takes risks to bring the production together. Specialisation : - When a person or organisation concentrates on a task at which they are best at. Advantages Disadvantages - Increases Efficiency - Boring for workers to do the - Faster production rates same task. - Quicker to train workers - Demands for more wage/salary - Skill development - Over - Dependency Purpose of Business Activity : - Business : Business is any organisation that uses all the factors of production to create goods and services to satisfy human wants and needs. Added Value : - The difference between the cost of materials bought in and the selling price of the product. - How to increase added value? - Reducing cost of production - Increasing product prices - Designing, Marketing 1.2 - Classification of Businesses : Primary, Secondary & Tertiary Sectors : - Primary : Use/extraction of natural resources - Secondary : Manufacturing of goods - Tertiary : All the services provided in an economy Sector Examples Primary Farming, mining, fishing, forestry, wood cutting Secondary Car manufacturing, steel industries, shoe production, bakery Tertiary Hotels, travel agencies, hair salons - Industrialisation : The process by which an economy is transformed from a primarily sector to a secondary sector. - De-Industrialisation : A process of economic change caused by the removal or reduction of industrial activity in a region Private & Public Sector : - Private sector : private individuals own and run business ventures. - Public sector : governments own and run business ventures. - Mixed Economy : An economic system which includes both private and public sectors. 1.3- Enterprise, Business growth & size : Entrepreneurship : - Entrepreneur : An entrepreneur is a person who organises, operates and takes risks for a new business venture.  Advantages Disadvantages Independence Risk Able to put own ideas into practise Capital May be famous/successful Lack of Knowledge/Experience May be profitable Opportunity Cost Able to make use of personal - interest Characteristics of Entrepreneurs : - R : Risk Taker - I : Innovative - S : Strategic - E : Enthusiastic - R : Resilient Business Plan : - A business plan is a document containing the business objectives and important details about the operations, finance and owners of the new business. Content of a Business Plan : - Description of Business - Products and Services - Market (Market size, Forecast sales, Target market) - Business Location - Organisation and Structure of management - Finance - Business Strategy Benefits of a Business Plan : - To help gain finance - Careful planning reduces risk Why Governments help Business start ups : - To reduce unemployment - To increase competition - To increase output - To benefit society - Can grow further How Governments help Business start ups : - Business ideas and help - Premises - Finance - Labour - Research Methods of Measuring Business Size : - Number of people employed - Value of output - Value of sales - Value of capital employed Measuring Business Size is useful to : - Investors - Governments - Banks - Employees - Competitions Why business owners want to expand : - Possibility of higher profit - More status/prestige - Lower Average Cost - Larger share of its market Different Ways Businesses can Grow : - Internal growth : Occurs when a business expands its existing operations. - External growth : Is when a business takes over or merges with another business. It is often called integration as one business is integrated into another - Takeover : Is when one business buys out the owners of another business, which then becomes part of the predator business - Merger : Is when the owners of two businesses agree to join their businesses together to make one business.  - Horizontal integration : Is when one business merges with or takes over another one in the same industry at the same stage of production. - Vertical integration : Is when one business merges with or takes over another one in the same industry but at a different stage of production. Vertical integration can be forward or backward. - Conglomerate integration : Is when one business merges with or takes over a business in a completely different industry. This is also known as diversification. - Break-Even Analysis : Cost of sales = sales revenue - Decentralisation : Breaking the company down into smaller units - Barrier to Entry : The costs of starting a new business in a new industry. - Liquidity : How quickly you can get your hands on your cash. Benefits of Integration : Horizontal Forward Backward Reduces competition Profit margin to expand Cost of manufacturing business can be controlled Opportunities for Offer customer needs economies of scale and wants Bigger share in market  Problems & Solutions linked to Business Growth : - Difficult to control - Operate in small units - Leads to poor communication - Operate in small units - Short of Finance - Expand slowly - Integration is harder - Different style of management Why some business remain small : - Type of industry - Market size - Owners objectives Cause of Business Failures : - Lack of Management Skills - Changes in Business environments - Poor financial management (Liquidity problems) Why newer business are at risk of failing : - Lack of Finance - Poor planning - Inadequate research - Lack of experience