BUSINESS STUDIESS REVISON NOTE

Chapter 1
Business activity produce goods and services to satisfy needs and wants
Needs things which is essential for living
Wants - things which is not essential for living
Economic problem not enough goods and services to meets customers needs
and wants
Factors of production the resources needed to produce goods and services
-Land all natural resources, such as minerals, ores, oil, fields and forests
-Labour the numbers of people available to work
-Capital machinery, equipment and finance needed for production of goods
and services
-Enterprise people prepared to take the risk of setting up businesses
Scarcity not enough goods and services to meet the unlimited wants of
customers
Opportunity cost the next alternative given up by choosing another item
Specialisation people and business concentrate on what they are best at
Division of labour production is split up to in to separate task and each worker
does just one of those tasks
Pros:

Specialized workers are good at one task and increases efficiency and output
Less time wasted switching jobs by the individual

Cons:

Boredom from doing the same job every day. Effect: lower efficiency
Workers only can do one job and cannot do others jobs well. Effect: no
flexibility
If one worker is absent and no one can replace him. Effect: the production

Consumer goods - physical and tangible products which are sold to final consumer

Durable consumer goods can be used over and over again

Non-durable consumer goods can only be used once

Consumer services intangible products which are sold to final consumer

Capital goods - physical goods, such as machinery, and delivery vehicles, used to
help produce other goods and services.
Added value take some raw materials convert to a new product

Branding increases added value because people want or feel they

should buy the item form particular company.
Personalised service able to charge a higher price although the
materials to produce the goods is very similar
Product features can increases the added value because there is
more features in a same product like other company product
Convenience Most of the consumer ready to pay higher price for
goods and service that they can get immediately because they are
busy

Chapter 2
Primary sector The business activity that involve in extracting natural resources.
E.g. farming, forestry, mining... (earns the least money)
Secondary sector - The business activity that involve in manufacturing goods
from natural resources. E.g. construction, car manufacturing, baking... (earns a
medium amount of money)
Tertiary sector - The business activity that involve in supplying service to
consumers and other business. E.g. banks, transport, insurance... (earns the most
money)
Chain of production the production and supply of goods to the final consumers
involves activities for primary, secondary and tertiary sector
Industrialisation - a country is moving from the primary sector to the secondary
sector.
De-industrialisation - a country is moving from the secondary sector to the
tertiary sector.
Change in consumer behavior for Industrialisation and de-industrialisation

Consumers have higher incomes - demand for better qualities and wider
choices of products
Better education consumers expect better products and know that they
can buy goods from suppliers in a different region or country through e
commerce.
More leisure time consumers work fewer hours that they used to.
The demand for leisure activities, such as cinemas, restaurants and
holidays, has increased.

Mixed economy an economy where the resources are owned and controlled by
both the private and public sectors
Private sector the part of the economy where that is owned and controlled by
individuals and companies for profit
Public sector - the part of the economy where that is owned and controlled by the
state or government
Chapter 3
Characteristics of successful entrepreneurs
- Innovative: Good at thinking of new ideas for goods and services or new ways of
presenting existing goods and services
- Self-motivated and determined: They have the drive to keep going, even when
things get difficult
- Self-confident: They have a strong belief in their own ability and ideas
- Multi-skilled: They have the ability to see an idea through from development to
profitable sales. This requires a good understanding of the functions of finance,
operations, human resources and marketing
- Leadership qualities: They have good communication skills, the ability to
motivate others and are good decision makers
- Initiative: They not only have good ideas but are also able to develop a good
plan for achieving the business's objectives
- Results driven: They are focused on achieving results and make sure products
are sold for profit
- Risk taker: They are prepared to take risks, knowing that failure is a possibility.
They see failure as a positive experience to be learned from
- Good at networking they are prepared to learn from other.

Contents of a business plan

A business plan describes:

The business this part of the plan includes details of the entrepreneur, the
idea for the business and information about the skills and expertise of
managers or workers who need you be recruited
The business opportunity here you will find information about the product
and why the entrepreneur believes customers will buy it; this part of the plan
includes market research
The market the current size, potential for growth and the products main
competitors
The objective of the business that is what the business hopes to achieve
Financial forecasts a cash flow forecast and projected sales, revenue and
profit, for atleast the first year of trading

How business plans assist entrepreneurs

The information it contains can be used to persuade lenders such as banks

and investors to provide finance to the business.
The plan gives the business a sense of purpose and direction. It sets out the
resources required by the business such as finance, the number and skills of
workers needed, and how the goods and services will be market to
consumers.
The objectives and financial forecasts provide the business with targets to
aim at and enable the business to monitor is progress

Why and how governments support business start-ups, e.g. grants,

training
- To create jobs so unemployment rates are lower
- Increase variety of products available so consumers have more choice
- Create more competition, which usually results in lower prices and better quality of
goods and services
- To create large businesses which the country could benefit from for the economy
Government supports include:
- Grants and interest free or low interest loans

- Lower taxation rates on profits in the early years

- Rent free premises for a certain period of time
- Free or subsidised training for workers
Methods of measuring business size

Number of employees. Does not work on capital intensive firms that use
machinery.

Value of output. Does not take into account people employed. Does not
take into account sales revenue.

Value of sales. Does not take into account people employed.

Capital employed. Does not work on labour intensive firms. High capital but
low output means low effiency.

Limitations of methods of measuring business size

Because many methods are not as straightforward as it seems, this is because the
methods can produce different results so more than one method should be used in
measuring the size of the business.
Business Growth
All owners want their businesses to expand. They reap these benefits:

Higher profits

More status, power and salary for managers

Low average costs (economies of scale)

Higher market share

Types of expansion:

Internal Growth: Organic growth. Growth paid for by owners capital or

retained profits.

External Growth: Growth by taking over or merging with another business.

Types of integration (and main benefits):

- Horizontal integration: merging with a business in the same business sector.

Reduces no. of competitors in industry

Economies of scale

Increase market share

- Vertical integration:
Forward vertical integration:

Assured outlet for products

Profit made by retailer is absorbed by manufacturer

Prevent retailer from selling products of other businesses

Market research on customers transfered directly to the manufacturer

Backward vertical integration:

Constant supply of raw materials

Profit from primary sector business is absorbed by manufacturer

Prevent supplier from supplying other businesses

Controlled cost of raw materials

Conglomerate integration:

Spreads risks

Transfer of new ideas from one section of the business to another

Why some businesses stay small:

There are some reasons why some businesses stay small. They are:

Type of industry the business is in: Industries offering personal service or

specialized products. They cannot grow bigger because they will lose the
personal service demanded by customers. E.g. hairdressers, cleaning,
convenience store, etc.

Market size: If the size of the market a business is selling to is too small, the
business cannot expand. E.g. luxury cars (Lamborghini), expensive fashion
clothing, etc.

Owners choice: Owners might want to keep a personal touch with staff and
customers. They do not want the increased stress and worry of running a
bigger business and want full control

Why some (new or established) businesses fail

Causes of business failure
- Poor planning
- Poor cash-flow management
- Poor management skills
- Lack of objectives
- Economic influences
- Competition
- Poor marketing
- Poor choice of location
- Lack of finance
Why new businesses are at greater risk of failing
Because they are new to the market and may not have a lot of recognition so there
may not be a lot of sales and they usually don't have enough money to support
themselves after a certain period of time
Sole trader - A business that is owned and controlled by just one person who takes
all of the risks and receives all of the profits
Advantages:
- Quick and easy to set up
- Makes all the decisions
- Has complete control
- Keeps the profit
Disadvantages:
- Unlimited liability (responsible for business debts)
- May not be able to raise funds to expand the business
- Maybe have to work long hours
- Difficult to compete with larger rival firms

- May not have the business skills to run a business

Partnership: A business formed by two or more people who will usually share
responsibility for the day-to-day running of the business.
Advantages:
- Easy to set up a deed of partnership
- Partners invest in the business so greater access to funds
- Shared decision making
- Shared management and workload
Disadvantages:
- Unlimited liability
- Share the profits
- Business ceases to exist if one partner leaves
- Decisions binding on all partners
- Difficult to raise finance
Private Limited Companies
Private Limited Companies have separate legal identities to their owners, and thus
their owners have limited liability. The company has continuity, and can sell shares
to friends or family, although with the consent of all shareholders. This business can
now make legal contracts. Abbreviated as Ltd (UK), or Proprietary Limited, (Pty) Ltd.
Pros:

The sale of shares make raising finance a lot easier.

Shareholders have limited liability, therefore it is safer for people to invest

but creditors must be cautious because if the business fails they will not get
their money back.

Original owners are still able to keep control of the business by restricting
share distribution.

If one of the shareholders die, it also continue operating

Cons:

Owners need to deal with many legal formalities such as The Articles of
Association and The Memorandum of Association before forming a private
limited company.

Shares cannot be freely sold without the consent of all shareholders.

The accounts of the company are less secret than that of sole traders and
partnerships. Public information must be provided to the Registrar of
Companies.

Capital is still limited as the company cannot sell shares to the public.

Public Limited Companies

Public limited companies are similar to private limited companies, but
they are able to sell shares to the public. A private limited company can
be converted into a public limited company by:
1. A statement in the Memorandum of Association must be made so that it says
this company is a public limited company.
2. All accounts must be made public.
3. The company has to apply for a listing in the Stock Exchange.
A prospectus must be issued to advertise to customers to buy shares, and
it has to state how the capital raised from shares will be spent.
Pros:

Limited liability.

If one of the shareholders die, it also continue operating

Potential to raise limitless capital.

No restrictions on transfer of shares.

High status will attract investors and customers.

Cons:

Many legal formalities required to form the business, and it is stricter than
private limited company

Many rules and regulations to protect shareholders, including the publishing

of annual accounts.

Selling shares is expensive, because of the commission paid to banks to aid

in selling shares and costs of printing the prospectus.

Difficult to control since it is so large.

Owners lose control, when the original owners hold less than 51% of shares.

Franchises: A business system where entrepreneurs buy the right to use to the
name, logo and product of an existing business
Advantages (to entrepreneurs):
- Less chance of failure
- Franchises often provides advice and training to the franchisee
- Franchisors finance the promotion of the brand through national advertising
- The franchisor would have already checked the quality of suppliers
Disadvantages:
- Initial cost of buying into a franchise can be very expensive
- The franchisor will take a percentage of the revenue or profits made by the
franchisee each year
- There are very strict controls over what the franchisee is allowed to do with the
product, pricing, store layout
- The franchisee doesn't gain any personal recognition, they only gain recognition
because of the existing brand
Joint ventures: Two or more businesses agree to work together on a project and
set up a separate business for this purpose
Advantages:
- Reduces risks for each business and cuts costs
- Each business brings different expertise to the joint venture
- Market and product knowledge can be shared
Disadvantages:
- Any mistakes made may damage the reputation of all firms in the joint venture
- The businesses have different business cultures or styles of leadership, making
decision making difficult

Difference between unincorporated businesses and limited companies

An unincorporated business does not have a separate legal identity from
its owners. Whereas, an incorporated business does.
Concepts of risk, ownership and limited liability
Unincorporated business ownership has a greater legal and financial risk
than incorporated business because
- Owners and the business have the same legal identity, e.g. if a customer is injured
from the business's products, then the owners may be sued for damages
- Owners have unlimited liability for business debts
Unincorporated business is the business does not have a separate legal identity
from its owners.
Incorporated business is the business has a separate legal identity from its
owners.
Shareholder is a person or an organisation who own shares in a limited company.
Ordinary shareholder is the owner of a limited company.
Dividend is a payment, out of profits, to shareholders as a reward for their
investment.
Limited liability is when the owner is not personally responsible for the business's
debts
Unlimited liability is when the owner is personally responsible for the business's
debts.

Business organisations in the public sector

Public corporations:
A business owned by the government and run by Directors appointed by the
government. These businesses usually include the water supply, electricity supply,
etc. The government give the directors a set of objectives that they will have to
follow:

to keep prices low so everybody can afford the service.

to keep people employed.

to offer a service to the public everywhere.

These objectives are expensive to follow, and are paid for by

government subsidies. However, at one point the government would realise they
cannot keep doing this, so they will set different objectives:

to reduce costs, even if it means making a few people redundant.

to increase efficiency like a private company.

to close loss-making services, even if this mean some consumers are no

longer provided with the service.

Pros:

Some businesses are considered too important to be owned by an

individual. (electricity, water, airline)

Other businesses, considered natural monopolies, are controlled by the

government. (electricity, water)

Reduces waste in an industry. (e.g. two railway lines in one city)

Rescue important businesses when they are failing.

Provide essential services to the people (e.g. the BBC)

Cons:

Motivation might not be as high because profit is not an objective.

Subsidies lead to inefficiency. It is also considered unfair for private

businesses.

There is normally no competition to public corporations, so there is no

incentive to improve.

Businesses could be run for government popularity.

Objective is a statement of specific target to be achieved.

SMART objectives is a list of criteria that must have in business objectives
Objectives need to be SMART

S Specific objectives are aimed at what the business does, e.g. a hotel might
have an objective of filling 60% of its beds a night during October, an objective
specific to that business.
M - Measurable the business can put a value to the objective, e.g. 10,000 in
sales in the next half year of trading.
A Achievable and agreed by all those concerned in trying to achieve the
objective.
R Realistic and relevant the objective should be challenging, but it should
also be able to be achieved by the resources available.
T- Time specific they have a time limit of when the objective should be achieved,
e.g. by the end of the year.
Business objectives
- Survival: To last at least more than a year
- Profit: To gain more money for the owners
- Growth: to gain recognition, reduce costs, reduce competitiveness, increase
profits
- Market share: Increased market share often develops a strong brand image
which makes it easier to sell products to customer
- Corporate social responsibility (CSR): The environmental, social, ethical
impacts of business's decisions
Objectives of social enterprises
- Help people who are in need
- Help the underprivileged
- Help the economy
- Help the government
- Help decrease unemployment rates
- Increase GDP
Why?

The activity of pressure group

The media, which has created a greater awareness of social, ethical and
environmental issues among consumers

The role of trade unions and other workers representative groups

The role of governments and laws they pass at local, national and
international level

Corporate social responsibility (CSR) is a business taking responsibility for the

impact their activities might have on society and the environment
Pressure group is organisations of like minded people who put pressure on
businesses and government to change their policies to reach a predetermined
objective.
Social enterprise is a business with social objectives that reinvests most of its
profits back into the business or into benefiting society at large
Stakeholder is an individual or a group which has an interest in a business
because they are affected by its activities and decisions
Internal stakeholder

Owners

1. Profit, return on capital.

2. Growth, increase in value of business.

Workers

1. High salaries.
2. Job security.
3. Job satisfaction.

Managers

1. High salaries.
2. Job security.
3. Growth of business so they get more power, status, and salary.
Internal stakeholder

Customers

1. Safe products.
2. High quality.
3. Value for money.

4. Reliability of service and maintenance.

Government

1. Employment.
2. Taxes.
3. National output/GDP increase.

Community

1. Employment.
2. Security.
3. Business does not pollute the environment.
4. Safe products that are socially responsible.
Objectives of public sector organisations

Provide affordable and goods quality goods and services

Make sure the customers around the state or country can have the services
or goods provided

Motivation is the factors that influence workers towards achieving set business
goals
The factors that influence motivation at work

Money
Job security
Promotion
Training

Status
Responsibility
Clean and safe
workplace

Friendship
Variety of tasks
Fringe benefit

Benefits of a well motivated workforce

Improved productivity
More competitive
Low rate of absenteeism
Low rate of labour turnover
Better quality goods and services

Labour productivity is a measure of the efficiency of workers by calculating

the output per worker.

Absenteeism is worker absent without a good reason

Labour turnover is the rate at which workers leave a business.

Maslow

Maslow created what is know as the hierarchy of needs.

In this diagram, there are 5 different types of motivation:

Physical needs: basic requirements for survival.

Safety needs: the need to by physically safe.

Social needs: the need to belong and have good relationships with coworkers.

Esteem needs: the need for self-respect and to be respected by others.

Self-actualisation needs: the need to reach your full potential.

Cons:

Some levels are not present in some jobs.

Some rewards belong to more than one level on others.
Managers need to identify the levels of motivation in any job before using it
to motivate employees.

Herzberg's theory:

Herzberg's theory is separated into two factors, hygiene factors and

motivators factors

The hygiene factors include:

- Working conditions: Things like how clean and safe the workplace is and
what facilities are provided for workers, such as washroom, drink machines etc
- Relationship with others: This considers the importance of having
friendship, relationships with managers and a sense of belonging to the
workplace
- Salary and wage: People need to be paid well to be encouraged to do the
job, but it is not the only factor
- Supervision: This considers the importance of leadership styles and how
the workers are supervised and how decisions are made
- Company policy and administration: These include rules and
procedures that affect the way workers work and their relationship with others

The motivators include:

- The work itself: The tasks and what the workers need to do. Some people
may find that work needs to be varied and challenging, this is known as job
enrichment
- Responsibility: Giving workers more responsibility for the tasks they
perform, like making decisions which shows that the managers trust them and
value them

- Advancement: Workers have the opportunity for promotion

- Achievement: Workers need to feel that they have reached challenging

goals
- Recognition achievement: Workers need to have their achievements
recognised by managements and the other people they work with, this can
related to 'self-esteem' in Maslow's hierarchy of needs

F.W.Taylor theory:

Money is the main motivator.

If employees are paid more, they work more.
Work is broken down into simple processes, and more money is paid
which will increase the level of productivity an employee will
achieve.
The extra pay is less than the increased productivity.

Cons:

Workers are seen rather like machines, and this theory does not take
into account non-financial motivators.
Even if you pay more, there is no guarantee of a productivity rise.
It is difficult to measure an employees output.

The theory of economic man is the view that humans only motivated by
humans

Hygiene factors is the factors that must be present in the workplace to

prevent job dissatisfaction

Motivators is the factor influence a person to increase their efforts

Financial rewards

Hourly wage rate: Time rate is payment according to how many hours an
employee has worked.

Pros: easy to calculate the wage of the employee

Cons: difficult to measure the output of a worker.

Piece-rate is paid depend on how many units the worker has produced.

Pros: the worker was paid on how many units he has produced.

Cons: the quality will be poor

Salary is fixed annual payment to certain grades and types of staff not based
on hours worked or output.

Pros: dont receive more pay if they use longer time to finish the task

Cons: it is not linked to worker effort or the amount produced

Commission is payment to sales staff based on the value of the items they
sell.

Pros: the payment is linked to the value of the items the workers sell.

Cons: the workers dont know how much will they earn

Bonus is an additional reward to worker for achieving target set by

managers

Pros: it is linked to the workers performance

Cons: if the target is unrealistic, it will demotivate worker.

Fringe benefits is non-cash rewards often used to recruit or retain workers

and to recognise the status of certain employees

Pros: it helps in recruitment and retention of workers.

Cons: it is often linked to status and not performance

Profit-sharing is an additional payment to workers based on the profits of

the business.

Pros: It is directly linked to the performance of the business.

Cons: profit given to employees may reduce dividends

Non-financial reward

Job rotation: Workers in a production line can now change jobs with each
other and making their jobs not so boring. It helps train the employee in
different aspects of their jobs so that they can cover for other employees if
they do not show up.

Job enlargement: Adding tasks of a similar level to a worker's job. Job

enlargement simply gives more variety to employees' work which makes it
more enjoyable.

Job enrichment: Adding tasks of a higher level to a worker's job. Workers

may need training, but they will be taking a step closer to their potential.
Workers become more committed to their job which gives them more
satisfaction.

Job satisfaction is how happy and content a person is with their job.

Quality circles are a group of workers who meet regularly to discuss work
related problems.

Team-working is organising production so that groups of workers complete

the whole unit of work.

Delegation is passing responsibility to perform tasks to workers lower down

in the organisation

Simple hierarchical structures: span of control, hierarchy, chain of

command and delegation

Span of control: the number of subordinates reporting to each

supervisor/manager

The factors that affect the size of span of

control:

The difficulty of tasks

The experience and skills of workers
The size of business
Levels of hierarchy
Management style

Wide span of control

Pros:

Less expensive as fewer managers/supervisors are needed

Less supervision improves workers motivation
Faster communication and decision-making

Cons:

Fewer managers/supervisors reduces promotion opportunities

Less control over subordinates work
Effective communication may be difficult

Narrow span of control

Pros:

Effective communication is easier

Better control over workers and theirs work
More managers/ supervisors increase promotion opportunity

Cons:

Communication and decision-making is often slower

More expensive because more managers are needed
more supervision may reduce workers motivation

Chain of command: The route in which authority is passed down an

organisation, e.g. the accountant is directly responsible to finance Director

Pros:

Communication is faster and more accurate. The message has to

pass through less people.

Managers are closer to all employees so that they can understand

the business better.

Hierarchy: The number of levels in an organisational structure

Organisational structure is the formal, internal, framework of a business

that shoes how it is managed and organised.

Pros:

The charts show how everybody is linked together. Makes employees aware
of the communication channel that will be used for messages to reach them.

Employees can see their position and power, and who they take orders from.

It shows the relationship between departments.

Gives people a sense of belonging since they are always in one particular
department.

Functional departments are the main activities of business: finance,

marketing, operations, human resources and research and development.

Subordinate: an employee who is below employee in the organisations

hierarchy.

Delayering is reducing the size of the hierarchy by removing one or more

levels most often middle management

Centralised organisation is one where all the important decision-making

power is held at head office, or centre.

Decentralised organisation is one where all the important decision-making

powers are passed down the organisation to lower levels.