Buisness notes

Scarcity is the basic economic problem. It is a situation that exists when there
are unlimited wants and limited resources to produce the goods and services to
satisfy those wants. For example, we have a limited amount of money but there are a
lot of things we would like to buy, using the money.

Opportunity cost is the next best alternative forgone

SCARCITY → CHOICE → OPPORTUNITY COST

Factors of Production are resources required to produce goods or services like:

• Land~ basic land, base and reward for land is rent.
• Labour~workers involved in the production and reward for labour is
wages/salary
• Capital~ investment and reward for capital is interest
• Enterprise~ person who handles everything and reward for enterprise is
profit

Division of labour is dividing the production process into parts

Specialization is when a person keeps doing the same task over and over again, the
concentration of individuals, firms on producing a limited range of goods

Advantages:
• Workers are trained to do a particular task and specialise in this,
thus increasing efficiency
• Saves time and energy, production is faster by specialising
• Quicker to train labourers: workers only concentrate on a task, they do
not have to be trained in all aspects of the production process
• Skill development: workers can develop their skills as they do the same
tasks repeatedly, mastering it.
Disadvantages:
• It can get boring for workers, doing the same tasks repeatedly
• Higher labour turnover as the workers may demand for higher salaries
and company is unable to keep up with their demands
• Over-dependency~ if workers responsible for a particular task is
absent, the entire production process may halt since nobody else may be able to do
the task.

Cost of production can be brought down by specialisation, in specialisation less

mistakes will be made and less time needed to work

Business is any organization that uses all the factors of production (resources) to
create goods and services to satisfy human wants and needs.

Added value is the difference between the cost of materials and the selling price
of the product
Added value is important because sales revenue is greater than the cost of
materials brought in by the buisness which means the buisness can pay other costs
such as labour costs, management expenses, costs of power and advertising

How to increase added value?

• Reducing the cost of production
• Raising prices
• Branding
• Adding special features
• Provide premium services

• Primary sector~ extracts and uses the natural resources of earth to

produce raw materials by other businesses
• Secondary sector~ manufacturers goods using the raw materials provided
by the primary sector
• Tertiary sector~ provides services to consumers and other sectors of
the industry

• Mixed economy ~ has both private and public sectors

• Capital ~ the money invested into a buisness by the owners
• De-industrialisation ~ when there is a decline in the importance of the
secondary sector in a country
• Resturants will alwoys come in tertiary sector

• Private sector ~ buisnesses not owned by the government, they will make
their own decions about what should be produced
• Public sector ~ government/state owned and controlled buisnesses and
organisations, the government makes decisions about what to produce and how much to
charge consumers, and sometimes the government gives free of charge and they get
the money from taxes, fines.

• Entrepreneur ~ a person who organises, operates, takes the risk for a

new buisness venture
• Buisness plan ~ a plan and document containing the buisness objectives,
important details about the finance, operations, owners of the buisness
• Capital employed ~ total value of capital used in the buisness
• Internal growth ~ occurs when a buisness expands
• A merger ~ when the owners of 2 or more buisnesses agree to join their
buisnesses together to make 1
• Takeover ~ is when a buisness buys out the owners of another buissness
• External growth ~ when a buisness takes over or merges with another
buisness, often called integration

• Buisness plan ~ company description, products and services, marketing,

competitive analysis, executive summary, funding) finance, location
• Buisness strategy ~ Explorers, contents of a buisness plans

Uses of buisness plan:

• It helps gain finance, funding
• Banks and investors require a buissness plan
• It helps the entrepreneur to plan carefully which reduces the risk of
the business failing
• Cash flow ~ money coming (revenue), and money going out of the business
(expenditure)

Measuring buisness size:

• number of employees
• Value of money in buisness
• Value of sales
• Value of capital

• Vertical merger ~ 2 buisnessess that join together in same product but

different stage of production like conglomerate
• secondary → tertiary sector ~ backward vertical
• tertiary → secondary sector ~ forward vertical

• Cash flow ~ money coming (revenue) and going out of the buisness
(expenditures)

Benefits of integration:
• increased productivity
 • Efficiency
• Security
• Improved sales
• Data accuracy
• Visibility

Why do governments want to help new start-ups?

• employment
• growth of the economy
• contribute to the exports of the country
• Start-ups often introduce fresh ideas and technologies into business
and industry

How do governments support businesses?

• Organise advices
• Provide low cost premises
• Provide loans at low interest rates
• Give grants for capital
• Give grants for training
• Give tax breaks/ holidays

Drawbacks of growth:
• Difficult to control staff
• Lack of funds
• Lack of expertise

Why buisnesses stay small:

• Type of industry
• Market size
• Owners’ objectives

Why businesses fail:

• Poor management
• Over-expansion
• Failure to plan for change
• Poor financial management

Why new businesses are at a greater risk of failure

• Less experience
• New to the market
• Don’t a lot of sales yet
• Don’t have a lot of money to support the business yet

Sole trader ~ when the buisness is owned by only that one person always
Advantages:
• Easy to set up
• Full control
• Sole trader receives all profit
Disadvantages:
• Unlimited liability
• Unincorporated business
• Full responsibility
• Lack of capital
• Lack of continuity

• A partnership is a form of buisness in between 2 to 20 people to own,

finance and run a business jointly and to share all profits, when there is more
than 20 people you need to register as a company
• A partnership agreement is a written and legal agreement between
buisness partners and it it is not compulsory but recommended
Advantages:
• Easy to set up
• Partners can provide new skills and ideas
• More capital investments
Disadvantages:
• Conflicts
• Unlimited liability
• Unincorporated buisness
• Lack of capital
• No continuity

Limited liability ~ the liability of shareholders in a company is limited to only

the amount they invested
Unlimited liability ~ the owners of a buisness can be held responsible for the
debts of the buisness they own

Incorporated buisness ~ companies that have separate legal status from their owners
Unincorporated buisness ~ one that does not have a separate legal identity like
sole traders, partnership

• Unincorporated buisness ~ unlimited buisness

• Incorporated buisness ~ limited liability

Private limited ~ the shares will be owned by the original sole trader and family,
relatives, employees, they cannot sell their shares in the stock market, can sell
their shares with each other and with the shareholders agreement and usually has
the words limited, ltd, Pte
Advantages:
• Limited liability
• Incorporated buisness
• Continuity
Disadvantages:
• Legal formalities
• End of year accounts must be public, sent to the government for
inspection

Public limited ~ a buisnesses structure that allows members of the public to hold
shares
Advantages:
• Protection from debt, liabilities
• Can sell shares to the public
• Limited liability
• Continuity
• Rapid expansion possible
• Incorporated buisness

Disadvantages:
• Lots of legal formalities
• You need to go public at the end of the year which is expensive
• Less control and more expectations
• Separate legal identity

Shareholders ~ owners
Stakeholders ~ people interested in the activity of the business
Internal stakeholders ~ people that are impacted by buisness activity inside the
buisness like employees, owners
External stakeholders ~ people who are not owners or employeesbut are affected by
the activity of the buisness
Stakeholders ~ any person or group like government, costumers with a direct
interest in the performance and activity of a buisness
Stakeholders conflict ~ refers to a situation in which the interests or goals of a
different stakeholders in an organisation are in conflict with one another

Gross domestic product ~ gdp

Franchiser ~ owner
Franchisee ~ the person taking the buisness on rent so you can grow the buisness
(third party)
A franchise is a legal contract between a franchisee and franchisee. This contract
allows the franchisee to use the name, logo and marketing methods of the
franchisee. The franchisee can then separately decide which form of legal structure
to adopt

Joint venture ~ when 2 or more buisnesses start a new project together, sharing
capital, risks, profit
Advantages:
• New ideas
• Shared costs
• Expanded networks

Disadvantages:
• Cultural and working clashes
• Unequal involvement
• Need for clear communication and planning