Unit 1.2 RevisionUnit 1.2 RevisionUnit 1.2 RevisionUnit 1.2 RevisionSG Business ManagementSG Business Management

Unit 1.2Unit 1.2

What you need to know …

We all need to know …• What enterprise is about• How profit is calculated ie sales less costs• What a charity does• What a public service does• What an Entrepreneur does• The qualities and skills of an Entrepreneur• Aims of different types of organisations eg

public, private and voluntary• The meaning of the term stakeholder• Stakeholders of different types of

organisations ie public, private and voluntary

At credit level, you need to be able to identify, describe and

explain …• The concept of risk in an organisation• Why entrepreneurs are prepared to

take risks eg to earn profit, self-satisfaction etc

• Social costs and benefits eg pollution, better roads etc.

• Economic costs and benefits eg increased community taxes or greater spending as a result of income from jobs etc

What is Enterprise about?

• Turning a good idea into a business success

• Seeing a chance and making it a success/identifying a gap in the market

• Seeing a better/new way of doing something

What is an Entrepreneur?

• An Entrepreneur is prepared to take risks in order to exploit a business opportunity. This term is often used to describe a person starting their own venture, perhaps for the first time. A new firm operating in the market place for the first time is known as a ‘business start-up’.

Personal Characteristics of

Entrepreneurs • What kind of person is willing to take

the risk of starting a business? What are the qualities needed for success? It is difficult to generalise, as each case must be viewed on its own merits. A great deal of research has been carried out to try and find out who makes a good entrepreneur.

Hard Working …• Successful entrepreneurs usually

demonstrate high levels of energy. • Research conducted with 40 successful

business leaders concluded that many ‘don’t know how to stop working, they always seem restless, work 15-18 hour days, take few holidays, … and report great reserves of psychic/physical energy’.

Strong Motivation to Succeed

• Evidence from research suggests that entrepreneurs tend to demonstrate a driving ambition to succeed.

• Many measure their success by the extent to which they satisfy their inner sense of achievement.

• Entrepreneurs have a willingness to take responsibility for finding solutions to problems and a desire to set achievement goals and take calculated risks.

The ability to motivate• Research shows that successful

entrepreneurs are like to be innovative and creative. The ability to develop new ideas for products or services, or think of new ways of satisfying customer needs, gives these individuals a head start in the marketplace when they set up their business.

The ability to motivate• The kind of person most likely to be

successful in starting a business is an innovative and creative thinker.

• It is more important to be hard working than be highly intelligent.

• Ambition to achieve and the desire for power and control are also key factors.

• Successful entrepreneurs are prepared to take risks, and put in the time and effort, to make their business a winner.

How is Profit Calculated?

• Profit is calculated by deducting total costs from sales revenue (income)

Sales – total costs = Profit• Firms aim to keep costs low and

sales high to maximise profit.

Why is profit important?/ What does it show?

• Profit provides a measure of the success of a business

• It gives the company finance to expand the business/reinvest it in new products etc

• It attracts further funds from shareholders enticed by the possibility of high returns on their investment

• Profit is the source of more than 60% of al the finance used to help firms grow; without profit, firms would stand still

What do business aim to do?

In general terms most businesses aim to achieve some or all of the following:

• Survival • Growth• Maximise Profit• Increase Market Share• Efficiency• Improve conditions• Lead the field• Quality

Increase Market Share• In 2003 Asda had a market share of 30%.

2003

15%

30%

18%

25%

12%

Sainsbury

Asda

Morrisons

Tesco

Marks andSpencer

Increasing Market Share

• In 2004 Asda increased their market share to 40% and other supermarkets lost some of their share …

2004

10%

40%

18%

20%

12%

Sainsbury

Asda

Morrisons

Tesco

Marks andSpencer

What are the aims of businesses?

• A business must decide on its own aims depending on the type of organisation, these might include:

• Does it want to make a profit?• Does it want to be recognised for providing a

quality service?• Does it want to expand internationally?• Does it want to become more

environmentally friendly?• Does it want to improve conditions for its

workforce?

Why do businesses need aims?

• In order to survive, all businesses must have clear aims and objectives and a plan of how to achieve them.

• Different businesses will have different aims depending on the type of business eg private, public or voluntary sector organisations.

Private Sector: Profit Making eg BT

Aims/Objectives:• Survival/break-even• Maximise profits• Increase returns to shareholders/owners• Expand the product/service range• Expand the business – more outlets• Improve the quality of products/services

Public Sector: Non Profit Making eg NHS

Aims/Objectives:• Help people• Improve the quality of service

offered• Cut costs• Raise revenue• Break-even

Voluntary sector – Charities eg Red Cross

Aims/Objectives:• Help people• Maximise collections for cash• Offer a service to the community• Recruit more helpers• Open more branches/charity shops• Widen the scope of assistance

What is a Stakeholder?• A stakeholder is an individual or group which

has an effect on and is affected by an organisation.

• Anyone who has an interest in/close links with the organisation can be classed as a Stakeholder.

• Stakeholders are groups of people who can be affected by the decisions of the firm.

• Some businesses believe it is important to focus on the needs of Stakeholder groups, others think that a company’s sold duty is to its Shareholders.

Putting Profit First!• The 1997 Health and Safety Executive (HSE)

report into railway safety came to a disturbing conclusion. ‘Some train operators are misinterpreting or misusing the Executive’s risk assessments as a justification for reducing existing safety levels. The most common justification is that the maintenance of the existing situation is too costly and thus is not reasonable practicable.’ The HSE was suggesting that the newly privatised railway companies were cutting back on safety spending to save money. In other words, putting shareholders before passenger (and staff) safety.

Stakeholders• M – Managers: have an interest in the running

of the business.• IR – Inland Revenue: has an interest in the

activities of the business to make sure that tax rules are applied

• E – Employees: have an interest in the activity of the business – the business pays their wages

• S – Shareholders: have invested money in the business and have an interest in ensuring that the business performs well and increases the value of their investment.

• S – Suppliers: have an interest in getting paid for supplying goods and therefore will want to know if the business has a good reputation for paying on time.

Credit LevelCredit LevelCredit LevelCredit Level

You need to know this!You need to know this!

Why decisions have to be made?

• Will I or will I not?• What if I fail?• Can I do it?• Do I have the skills?• Will my idea work?• Can I manage?• Where will I get the money from?

Why are there risks in business?

• Many factors affect the level of success of any business and these can’t all be controlled. Therefore if a business is to succeed, risks must be taken at various points along the way. These risks are in the main, calculated risks. The person or company making the decision will research all the possible avenues to make sure that the decision is the best one to make.

What are the effects of making decisions?

• Making decisions can be quite daunting because so much can depend on getting it right. What if I fail? Will I have to sack my workers? How will I pay back the money I owe?

• Some decisions are complex because those making them have to think about the impact of their decisions on different things.

The factors that have to be taken into

account …• The effect on the market• The effect on other products• The costs involved• The training implications• The effect on jobs

When a business or organisations makes a decision, for example to locate in a particular part of the country, this can have a number of plus points and minus points.

What are some of the social costs of business to the

community?

• Air pollution• Noise pollution• Water pollution• Traffic congestion• Health problems

What are some of the social benefits of business to the

community?

• Customer satisfaction• Wages/salaries paid to employees• Contribution made to local

community• Improved roads• New schools

What are some of the economic costs of businesses to the

community?

• The economic costs can relate to an economic concept called opportunity cost. This can be defined as costs, not in monetary terms, but in terms of the foregoing alternatives. If the business decides on one option then it foregoes (has to do without) the next best alternative.

Economic Benefits …• People will be employed by the

business and paid a wage/salary• Standards of living will be raised• Other local firms will benefit from

increased spending power of local workforce

Effects of being in business

Social benefits Social costs

Economic Costs Economic benefits