Professional Documents
Culture Documents
Table of contents
Table of contents...............................................................................................................................2
Topic: Business aims and objectives ..............................................................................................3
Topic: Starting a business - what is required ...............................................................................5
Topic: Business departments, and what they do .........................................................................6
Topic: Starting a business - getting the finance...........................................................................7
Topic: Growing a business ...............................................................................................................8
Topic: Sole Traders .........................................................................................................................10
Topic: Partnerships .........................................................................................................................11
Topic: Limited Companies..............................................................................................................12
Topic: Franchises...............................................................................................................................14
Topic: Cooperatives ........................................................................................................................15
Topic: The Public Sector.................................................................................................................16
Topic: Stakeholders and business ethics .....................................................................................17
Public sector corporations are run to not only generate a profit but provide a service to the public.
This service will need to meet the needs of the less well off in society or help improve the ability of the
economy to function: e.g. cheap and accessible transport service.
Public sector organisations that monitor or control private sector activities have objectives that are
to ensure that the business they are monitoring comply with the laws laid down.
Health care and education establishments their objectives are to provide a service most
private schools for instance have charitable status. Their aim is the enhancement of their pupils through
education.
Charities and voluntary organisations their aims and objectives are led by the beliefs they stand
for.
Changing Objectives
A business may change its objectives over time due to the following reasons:
A business may achieve an objective and will need to move onto another one (e.g. survival in the first
year may lead to an objective of increasing profit in the second year).
The competitive environment might change, with the launch of new products from competitors.
Technology might change product designs, so sales and production targets might need to change.
Role
Provides a detailed record of the money coming in and going out of the business and
prepares accounts as a basis for financial decisions
Human Resources or Deals with all the recruitment, training, health and safety and pay negotiations with
Personnel
unions/workers
Production
Makes sure that the production plans are met on time and products of the right
quality are produced
Purchasing
Buys all the raw materials and goods required for production
Sales and marketing Sales function deals with all aspects of selling to customers; the marketing function
carries out marketing research, organises advertising and product promotion
In the plan, great care should be taken to estimate and forecast how the cash will come into and leave the
business in the early weeks and months.
This is because in the early days of setting up a business, finance is hardest to manage. It is uncertain how
easy it will be to find customers and will they buy the product or service at the price that is being asked?
The business will be incurring significant start-up costs which will eat into the available funds.
Topic: Partnerships
A partnership is a business where there are two or more owners of the enterprise. Most partnerships are
between two and twenty members though there are examples like John Lewis and some of the major world
accountancy firms where there are hundreds of partners.
A partner is normally set up using a Deed of Partnership. This contains:
Amount of capital each partner should provide (i.e. starting cash).
How profits or losses should be divided.
How many votes each partner has (usually based on proportion of capital provided).
Rules on how to take on new partners.
How the partnership is brought to an end, or how a partner leaves.
The advantages of a sole trader becoming a partnership are:
Spreads the risk across more people, so if the business gets into difficulty then there are more
people to share the burden of debt
Partner may bring money and resources to the business (e.g. better premises to work from)
Partner may bring other skills and ideas to the business, complementing the work already done by
the original partner
Increased credibility with potential customers and suppliers who may see dealing with the
business as less risky than trading with just a sole trader
For example, a builder, working originally as a sole trader, may team up with an architect or carpenter to
form a partnership. Either would bring added expertise, but also might bring added capital and/or contacts.
Of course the builder could team up with another builder as well sharing the risk, and potentially the
workload.
The main disadvantages of becoming a partnership are:
Have to share the profits.
Less control of the business for the individual.
Disputes over workload.
Problems if partners disagree over of direction of business.
The next step for a partnership is to move towards becoming a private limited company. However
some partnerships do not want to move to this stage.
The advantages of remaining a partnership rather than becoming a private limited company
are:
Costs money to set up limited company (may need to employ a solicitor to set up the paper work).
Company accounts are filed so the public can view them (and competitors).
May need to spend money on an auditor to check the accounts before they are filed.
When a partnership finishes then, depending on how the Deed of Partnership is set up, each
partner has an agreed slice of the business.
A company may float on the stock market. This means selling all or part of the business to outside investors.
This generates additional funds for the business and can be a major form of fund raising. When shares in a
plc are first offered for sale to the general public as the company is given a listing on the Stock
Exchange.
Divorce of ownership and control
As a business becomes larger, the ownership and control of the business may become separated. This is
because the shareholders may have the money, but not the time or the management skills to run the
company. Therefore, the day-to-day running of the business is entrusted to the directors, who are employed
for their skills, by the shareholders.
The shareholders are therefore divorced from the running the business for 364 days of the year. They will
have their say at the Annual General Meeting (AGM) of the company, where the directors present the
accounts and results. Very recently a couple of businesses have had very strong shareholder unrest leading
the company to tone down a number of their decisions.
In practice directors tend to have at least a modest shareholding in the company. This provides the director
with an incentive to achieve good dividends and capital growth for the share (an increase in the share
price).
Topic: Franchises
A franchise is where a business sells a sole proprietor the right to set up a business using their name. It
does not have to be a shop, you can have manufacturing franchises, that sell the right to make the product
to other companies, usually in a different geographic area.
Examples of major franchises are:
McDonalds
Subway
Pizza Hut
Holiday Inn
The franchisor is the business whose sells the right to another business to operate a franchise they may
run a number of their own businesses, but also may want to let others run the business in other parts of the
country.
A franchise is bought by the franchisee once they have purchased the franchise they have to pay a
proportion of their profits to the franchiser on a regular basis. Depending on the business involved, the
franchiser may provide training, management expertise and national marketing campaigns. They may also
supply the raw materials and equipment.
The advantages of being a franchisor:
Large companies see it as a means of rapid expansion with the franchisee providing most of the
finance.
If the franchise model works, then there are large profits to made from
- selling franchises
- royalty payments
- selling raw materials and equipment.
The advantages of setting up as a franchisee are:
The franchisee is given support by the franchiser. This includes marketing and staff training. So
starting a business in this way requires less expertise and is less lonely!
The franchisee may benefit from national advertising and being part of a well-known organisation
with an established name, format and product
Less investment is required at the start-up stage since the franchise business idea has already been
developed
A franchise allows people to start and run their own business with less risk. The chance of failure
among new franchises is lower as their product is a proven success and has a secure place in the
market
The disadvantages of setting up as a franchisee are:
Cost to buy franchise can be very expensive (hundreds of thousands of pounds).
Have to pay a percentage of your revenue to the business you have bought the franchiser from.
Have to follow the franchise model, so less flexible. You would probably be told what prices to set,
what advertising to use and what type of staff to employ.
In conclusion, a buying a franchise a good way of an individual setting up a business because:
They do not have to establish themselves in the same as a sole trader might have to.
They will have the support of a tried and tested business model, often with a national marketing
campaign behind them.
Topic: Cooperatives
A co-operative is where a number of individuals or businesses work together to achieve a common purpose.
They are normally formed so individuals and small businesses can benefit from being part of a larger group,
meaning they have more power to buy or bargain.
There are three main types of co-operatives:
Retail co-operatives
Marketing or trader co-operatives
Worker co-operatives
A retail co-operative is probably the most familiar co-op. The Co-Op shops and Leo Hypermarkets are a
regular sight in the high street.
The objectives of a co-op tend to set them apart from other businesses. The objectives are normally more
focused on the members of the co-operative, the local community and the world community. Though profits
are required to enable them to reinvest in their business, they will not be a primary objective.
Though co-operatives exist to overcome some of the trading difficulties faced by small businesses, they can
still face of number of problems in their operation:
The system of one member one vote in some societies means a long, drawn out decision-making process
Co-operatives may find it difficult to raise finance since banks are not so willing to lend them money
because their main aim is not to make a profit
Idealistic and ethical aims may not be agreeable with all members, so creating unrest and disharmony
The aims held by many co-operatives may not lead to profits in the long run (though many co-op shops will
continue to exist at a loss because the owners feel they are providing an important service to the
community.)
Shareholder
Employee
Supplier
Customer
Local community
Government
Environment
Less pollution
Social responsibility for one group can conflict with other groups, especially between shareholders and
stakeholders.
Ethics
Ethics refers to the moral rights and wrongs of any decision a business makes. It is a value
judgement that may differ in importance and meaning between different individuals.
IGCSE Revision notes
Objectives and organisations revision notes
Neil.elrick@tes.tp.edu.tw
Businesses may adopt ethical policies because they believe in them or they believe that by showing they are
ethical, they improve their sales.
Two good examples of businesses that have strong ethical policies are The Body Shop and Co-Op.
Some examples of ethical policies are:
Reduce