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Unit 1.2 Why do Businesses Exist

Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

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Page 1: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

Unit 1.2

Why do Businesses Exist

Page 2: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

Why do businesses exist?

To Provide a Public

Service

For Charitable Reasons

To make a Profit

To Develop a Good Idea - ENTERPRISE

Page 3: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

EnterpriseFeatures: to turn a good idea into a business success; seeing a chance - taking it - making a

success of it; seeing a new or better way of doing

something. People who are willing to take risks to

develop a business idea are called entrepreneurs

Richard Branson (Virgin) and Anita Roddick (Body Shop) are famous entrepreneurs

Page 4: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

What decisions need to be made when coming up with a business idea?

Do I have the skills?

What will the business supply/produce?

Where will the finances come from to start up the business?

What are the aims/objectives of the business?

Where will the business locate?

What are the costs involved?

What if I fail?

Page 5: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

What Are The Aims Of Businesses?

An aim (or objective) is something that an organisation(or person) sets out to achieve.

The aims of business are complex and depend on many factors, for example, the type of business activity, the personality of the owner/manager, the sector of industry which the business is in, the level of competition.

Page 6: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

AimsA business must decide on its own aims

which 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?

Page 7: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

Most businesses aim to achieve some of the following

Survival - to make sure that the organisation/business does not fail or go out of business

Growth - to increase the size of the business, for example more customers, more shops etc

Maximise Profits - to make as much profit as possible

Increase Market Share - to beat competitors and gain more customers, more profits

Page 8: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

Most businesses aim to achieve some of the following (cont)

Improve Conditions - to have charitable aims to help others

Efficiency - to make sure that things are done in the best possible way

Lead the Field - to make their company/organisation the number one in the field (a trailblazer!)

Quality - to produce quality products/services

Page 9: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

Private Sector Aims

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

Page 10: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

Public Sector Aims

help people improve the quality of service offered cut costs raise revenue

Page 11: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

Voluntary Sector Aims

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 to find a cure for diseases

Page 12: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

A STAKEHOLDER is “a person or group of people who have an interest in a business and the way it is run or managed”.

Who can STAKEHOLDERS be and why are they interested in the running of a business?

Managers – want to ensure the business is running efficiently

Inland Revenue – wish to make sure that tax rules are applied

Employees – have an interest in the activity of a business

Suppliers – wish to know if they will be paid

Consumers – they buy their goods/services from the business and are therefore affected by price variations

Shareholders - wish to see how a business performs in the hope that their investment increases

Stakeholders

Page 13: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

Conflict between stakeholdersEach stakeholder in an organisation will have a different reason for wanting it to succeed. Some of these aims compete with one another.

Eg The owners and managers of a business will want HIGH PROFITS which may not be wholly compatible with the wishes of the customer who want LOW PRICES.

Page 14: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

What Impact can Opening A Business have on A Community?

A new business in a town/city or region will provide new jobs, opportunities and hope. A business closing in area will of course provide the opposite – often despair.

Many different factors must be taken into consideration when deciding where to locate a New Business. There are many COSTS and BENEFITS both the business and the local community must consider.

Page 15: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

Can create EMPLOYMENT

May create COMPETITION LOWERING PRICES for consumers

May create more POLLUTION

May BOOST

the local HOUSING MARKET

What impact

can opening

up a Business have on

the communit

y?

May create COMPETITION causing other firms to CLOSE

DOWN

Page 16: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

What can a New Business offer the local community?

The costs and benefits a New Business can bring to a Community fall into two categories

Social Benefits & Costs

• Economic Benefits & Costs

Page 17: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

Social benefits are the positive things the New Business brings to the Community as a whole. These include:

Social Benefits

• Improved Road Networks. (Infrastructure)

• New Housing

• New Schools

Page 18: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

Social Costs

Social Costs are the negative effects a New Business can bring to the Community as a whole. These include:

• Traffic Congestion

• Traffic Pollution = poor air quality• Noise Pollution

• Health Problems

Page 19: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

Economic BenefitsEconomic Benefits are concerned with the positive effects a New Business brings to the local market. These include:

• More jobs = More people employed

• More money available to spend in local businesses

• Improved standard of living

• Businesses in local market grow

Page 20: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

Economic Costs

Economic Costs are the negative effects a New Business may bring to the local market. These include :

• The Council may spend money on premises and roads for the New Business rather than other things.

•Increased expenditure on infrastructure

• Increase in Council taxation

•Rates

•Council Tax

•Water Rates

Page 21: Unit 1.2 Why do Businesses Exist Why do businesses exist? To Provide a Public Service For Charitable Reasons To make a Profit To Develop a Good Idea

The New Business may also face some economic costs by choosing to set up in a particular local community.

This is called an OPPORTUNITY COST and refers to the benefit lost from the next best alternative when making your choice. In other words if you buy a magazine, the opportunity cost is the benefit you could have had by buying an ice cream.

Businesses are constantly faced with decisions where making a choice is required. To make the best decision they have to understand the opportunity they are giving up.

Opportunity Costs