Define it
Value added
it is the difference between the price and the cost of production
The owners are personally responsible for any debts of the business
Unlimited liability
sole trader
1.Few legal issues in setting up
2.You are your own boss
3.Keep all the profits which gives the owner an incentive to work really hard
4.Business/ financial information is kept private
5.Able to choose when to work
6.Can make all decisions
Measuring the size of a business using the number of employees
-They use machines: Capital intensive
-Companies that hire only part-times
specialisation
When each employee do what they are the best at doing
Integration with firms in the same industry and at the same production stage
Horizontal integration
businesses want to grow
- to increase market share
- to get higher profits
- more prestige
- lower average cost
Partnerships
1.Additional finance can be raised compared to sole trader as all partners contribute funds
2.Responsibility of run business is divided
3.Greater range of skills and ideas can help business be more competitive
4.Decision making is shared which may lead to better decisions
5.Shared cost which can reduce the risk
of expanding the business
-Difficult to control -> leading to mistakes being made
-Lower employee motivation -> increasing labour turnover
-Poor Communication -> possible errors
-Expansion costs so much that business is short in finance
-Difficult to coordinate operation -> reducing efficiency
-Difficult to access to suitable skilled employees
Entrepreneur
A person who organises, operates and takes the risk for a new business venture.
integration with a business in the same industry but a supplier of the existing business
Vertical Backward Integration
A business would stay small
•Personalized service/flexible – close customer relations, niche market, owner's preference, avoid diseconomies of scale.
1.Shares can be sold to friends and friends of friends leading to more money and growth
2.Shareholders have limited liability
3.Continuity: the business will exist even if one shareholder leaves or sell their shares
4.You can control the amount of shares you sell
Public limited companies
1.Significant Legal paperwork & expensive process
2.Sharing financial accounts publicly (including directors’ salaries & detailed operating reports)
Dilution of control
A business Plan
A document containing the business objectives and important details about the operations, finance and owners of the new business.
When there is a decline in the importance of the secondary, manufacturing sector of industry in a country.
De-industrialization
the tertiary sector is more dominant in developed countries
They are richer, they outsource their production to cheaper countries.
Public Limited companies
1.Can raise significant amounts of finance
2.Can grow & expand significantly
3.Limited liability
4.There is no restrictions to buying, selling, or transfers of shares
5.Usually has high status and can attract suppliers prepared to sell goods on credit
Private limited company
1.Large amount of paperwork to complete
2.Shares cannot be transferred or sold to someone else - people may not want to buy shares in a company like this
3.Company accounts are not private
4.Cannot sell shares publicly to grow
5.Owners may expect dividents
Organic growth
Occurs when a business expands its existing operations.
When making a choice, the next best alternative we had to give up is called the
opportunity cost
we need a business plan
easier access to loans, clear direction for the business
Being an entrepreneur
1.Independence - able to choose how to use time and money
2.Able to put ideas into practice
3.May become successful and famous if the business grows
4.May be profitable and make more money then being an employee
5.Able to make use of personal interests and skills
Being an entrepreneur
1.Risk - very high, many entrepreneurs fail
2.Capital - Entrepreneurs have to put their own money into the business
3.Lack of knowledge and experience in starting a business
4.Opportunity Cost - Lose income from not being an employee