Professional Documents
Culture Documents
How Businesses Operate
How Businesses Operate
Supermarkets sell goods - physical products you can see and touch.
A business is an individual or organisation that makes goods or provides services. Examples
of businesses include supermarkets and hairdressers.
Goods are physical products that can be seen or touched. Examples of what are
called tangible goods are a television, chocolate bar or a hairdryer.
Services are provided by businesses but cannot be seen or touched. Examples of what are
called intangible services are cutting hair, driving a taxi to take people somewhere, or
screening a film in cinema.
water
shelter
food
clothing
Wants are items that an individual would like to have but do not require for survival such
as:
phone
computer
television
car
to make a profit
to be their own boss
to provide a service
to fill a gap in the market
to develop a hobby
because they have the required skills
because they were made redundant or don't like their current job
Factors of production
Land - the natural resources used in the production of a product such as water, oil,
fields or wood.
Labour – the people that work in the business such as teachers, joiners, builders or
doctors.
Capital – the money and equipment used to produce the product or service such as
machinery or delivery trucks.
Enterprise – having an idea of how to use the land, labour and capital to make a
profit. For example, Arnold Clark, who founded a business selling cars, showed
great enterprise.
What is an entrepreneur?
For an entrepreneur to be successful they require a range of skills and qualities
An entrepreneur is a person who starts their own business. They have the idea that is required
to combine the factors of production in such a way as to make a profit.
Skills
A skill is an ability that has been developed through training or experience. Some of the skills
required by an entrepreneur are:
problem solving – be able to overcome difficulties in order for the business to survive
ICT – have the necessary skills when using software to communicate or to complete
professional documentation
motivational – the ability to get staff on board and work hard to achieve the aims of the
business
interpersonal – the ability to deal with customers, suppliers and staff effectively
decision-making – to ensure the correct decisions are made to fulfil the aims of the business
leadership – the ability to show confidence and lead workers to achieve goals
organisational – the ability to organise staff and resources to achieve aims
communication – the ability to make instructions clear
finance – the ability to manage finances correctly so the business makes a profit
management – to ensure they can organise the staff that work for them
One young entrepreneur discusses setting up his own jam business
Qualities
A quality is used to describe the nature or personality of an individual. Some of the qualities
required by an entrepreneur are:
Sources of finance
When setting up a small business it may be necessary to obtain finance to fund start-up costs
such as the purchase of machinery, property or advertising materials.
Bank loan - A bank loan is a fixed amount of money that is given to a business by a
bank. The loan has to be repaid over time with interest, usually in
monthly instalments.
Personal savings - Money invested in a business by the owner from their own
personal funds. This does not need to be paid back.
Family and friends - Businesses can obtain a loan from family or friends. This may
not need to be paid back or might be paid back with little or no interest charges.
Grant - A grant is a fixed amount of money usually awarded by the government.
Grants are given to a business on the condition that they meet certain criteria such
as providing jobs in areas of high unemployment. Grants do not need to be paid
back.
Bank overdraft - A bank overdraft is a facility that will allow you to withdraw more
money from your account than is available. Bank overdrafts can be easier to obtain
than a bank loan.
Mortgage - A sum of money borrowed from the bank that is secured against a
property and paid back in instalments usually over a long period of time.
Venture capital - Venture capitalists provide money, advice and professional
expertise to a business. Venture capital is usually used when there is an element of
risk with the business.
Business plan
A business plan is a document that sets out the aims and objectives of a business and how it
plans to achieve them.
A business plan can be used to work out whether your business is going to be profitable. It
can also be used to attract investors or to secure a loan from the bank.
Types of business
Sole trader
A sole trader is a business owned by one person. Examples of sole traders are hairdressers,
butchers, and electricians.
Sole traders can only raise limited finance. They will receive the money from family and
friends or their own savings, or they might be able to get a bank loan, if the bank likes the sole
trader’s business plan.
Advantages Disadvantages
Keeps all the profits they make Takes on all the risk of starting the business
Can run the business as they see fit Is personally responsible for any losses and debts
Makes all the key decisions themselves Can only raise limited finance
Partnership
A partnership is a business set up by more than one individual. Partnerships can have 2-20
partners. Examples of partnerships include estate agents, doctor and dental practices, and
lawyers.
Advantages Disadvantages
Different partners can bring different skills to the Partners may disagree about the future direction
business of the business
Workload and responsibility is shared Profits must be shared between 2-20 people
Advantages Disadvantages
More partners means a partnership can raise more Partners are personally responsible for any
money than a sole trader losses and debts
Not all businesses are about making a profit - some aim to make a difference or provide a
service. These can include charities and community groups.
All money raised in charity shops must go into helping a specific cause.
A charity is an organisations set up for a specific cause. Charities receive money from
donations and sales in charity shops. All money goes to help the specific cause.
Examples of charities include Oxfam, Save the Children and Cancer Research UK.
Community organisations exist to provide a service for people. All of the profit goes back into
the organisation. Examples of community organisations include rugby or golf clubs.
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