Higher Business Management - Deans Community High School


Nov 20, 2013 (4 years and 7 months ago)


Higher Business

Business in Contemporary Society

What is Business Activity

Everyone in our society has needs and

To satisfy these wants we consume
goods and services

Business activity is any kind of activity
which provides goods and services to
satisfy consumer wants and needs

Basic Needs

Basic needs are the things we need to






Needs in Modern Society

Living in a modern day society what
we consider to be needs different

You may say I need a new flat screen
TV, a new car

In Underdeveloped nations

they still
have basic needs


In poorer countries they may still want
to have the basic needs

Our wants can be distinguished as
being Wants and Advanced Wants

wants may be a new X box

Advanced Wants are luxury items that
we may never have or have to save up
for eg a Ferrari etc


Goods are tangible

we can see and
touch them eg table, chair, washing

They can be split into different

Goods cont

Durable goods

those that last a long
time eg more than a couple of years

cars, washing machines, TVs, etc

Durable goods

those which last
a short period of time eg washing
powder, cornflakes

Goods cont ….

Consumer goods

(we are all

we “consume”

goods and services)

the goods we
use everyday and want to have

Capital goods

used by organisations
to produce other goods and services


Services are intangible

can’t see or
touch them and once they are used
they are gone eg a holiday once the
holiday is over it is just a memory

Services are provided by organisations
and we pay them to provide those
services either directly or indirectly

Services …..

Consumer services

those we use and
want everyday eg holidays, window
cleaner, buses, taxis etc

Capital services

those used by
organisations to ensure the smooth
running of their company eg computer
maintenance, cleaners etc


Natural Resources

are extracted from
nature eg trees, oil, gas etc

made Resources

are made by people
to make other products eg machinery,
computers, glass

Human Resources

people and the
activities they carry out within an

teachers, nurses, factory

Factors of Production

When resources are brought together
into a productive situation they
become known as Factors of
Production and they change their

4 Factors of Production

Natural resources become known as LAND

this is
all natural resources that a business may use

Made Resources become known as CAPITAL

this is equipment, materials eg plastics that a
business may use to provide a product

Human Resources become known as LABOUR

workers in an organisation


it is the initiative and the risk taking
of bringing together the other factors of production
to produce a product or provide a service

entrepreneur is the risk taker

Wealth Creation

If we consider a natural resource and
follow it through all the different
stages of production we will see that
value is added at each stage and this
is what creates wealth

all the
different phases of business activity
create wealth.

Cycle Of Business

Businesses Identify Wants

Produce goods and services

Consumption and Satisfaction of


Business Objectives

A definition of an organisation is “a group of
people working together to achieve the
same aims and objectives”.

Without aims and objectives no
one would
know what they should be doing or even
why they may be doing something

would be disorganised.

Maximising Profit

Businesses aiming to make as big a
profit as possible

which is true in the
long run eg 5 or 6 years. Some firms
may not even strive for this is the
short run. There are other important
objectives for firms.


The business is not aiming to
maximise profits but make enough
profit to keep their shareholders happy

they are keeping some of the profits
back to invest in the company in the


An organisation may aim to expand its
business, through expansion it may
hope to benefit from economies of
scale and so cut its costs of
production. A large organisation may
also achieve some monopoly power
and so be able to charge higher prices.


For some firms this is the most
important goal especially small firms
who are always at risk of going under.
We must remember that this may be
the objective for larger organisations
too who are going through difficult

Creating a good reputation

corporate or social

Firms aim to create a good public
image through eg being green,
sponsoring local football teams,
creating a good image, being
committed to sound working practices

as consumers are very aware of how
companies act a bad image may mean
a loss of customers.

Maximising Sales

This objective can occur when ownership
and control are separated eg when
managers are not shareholders

managers salaries will depend upon the
amount of sales and so the more sales there
are the higher the amount of salary they will

so this may well become an objective
of the managers within an organisation

Managerial Objectives

Again occurs when ownership and control
are separated with managers not having
ownership of the firm. These objectives will
vary from manager to manager depending
upon what each individual manager wishes
to achieve eg one manager may insist that
members of staff report to him/her at all
times or one manager may set aside their
budget for perks of the job eg company cars
or expense accounts

Provision of a service


particularly those in
the public sector may have the
provision of a service as their main

this means they aim to
provide a service in the best way
possible to meet customer needs eg a
hospital or school may have this as
their main objective.

Raising Finance 2/09/10

Long term sources of finance

take up to 30 years to pay back.

Increasing the owners capital

applies to sole traders and

the owner will use their
own funds to invest in the business.

Business Mortgages

money for the sole purpose of buying
business premises

interest is added
on and a payment is made at regular
intervals to pay off the mortgage, the
building is collateral

so if payments
are not met then the building can be

can be paid off over 25,
30 years.


similar to an IOU

a company
can sell debenture certificates to other
organisations or individuals with the promise
that in eg 25 years time the money will be
repaid with interest. The debenture can be
sold on and whoever holds the certificate on
the payment date receives the money. The
org receiving the money may receive a large
amount which they do not have to pay back
until the due date.

Sale and leaseback agreements

firm may sell its assets eg computers
to a leasing company and receive a
certain amount of cash for them

then they lease the equipment

paying a certain sum of money each

the contract may include
upgrades, maintenance and training.

Venture capital

this is where venture
capitalists lend money to businesses
which are considered to be too risky
by banks but are judged to be viable
by specialist organisations. The
venture capitalist may ask for a share
in the business in return for the

term sources of

Bank Loans

apply to the bank for a

you can receive a large amount
of money, which you can pay off in
fixed instalments, you have to pay
back plus interest, the money can be
used as the business wishes, whatever
the company buys belongs to them
right away.

Hire Purchase Agreements

this is money
loaned to an organisation to buy a specific
item eg cars, equipment. Monthly
payments are made with interest added on,
the agreement is for that specific item and
company does not own it until the last
payment is made. Hire purchase payments
can be cheaper than bank loans because
the item purchased is collateral and can be
repossess if payments are not met.

term sources of


are short term

can be
expensive as you are charged interest
daily, you have to arrange an

you cannot just take out
more than you have in your account

this is very expensive. You will have
an overdraft limit and the bank can
call in your overdraft at any time.

Debt factoring

firms can sell on any
debts owed to them to debt factoring
firms eg £10,000 worth of debt, they
sell on for £7,500

they don’t have
the problem of collecting the debt (it
may save them money), they have
cash in hand to buy equipment etc or
tide them over difficult times.

Trade Credit

receiving a period of
time between buying something from
your supplier and then paying for it,
sometimes longer periods of payment
time can be negotiated before
payment is made.



firms combining to
become larger and more powerful. If
firms are joining together on equal
terms this is called a

(Halifax and Bank of Scotland).

If one of the organisations loses its
identity then it is a takeover

Morrisons and Safeway.

There can be friendly takeovers

where the organisation being taken
over agrees to be taken over eg it may
be struggling to survive. Or they may
be hostile takeovers where the
company and its shareholders try to
resist being taken over.

Sometimes an organisation may take
over another organisation purely to
gain its assets

this is known as asset

the company doing the
taking over may sell the assets for a
profit (or may keep them), they will
also have got rid of a competitor and
gain their market share.

Horizontal Integration

Vertical Integration


Conglomerate Integration


the opposite of

cutting back in the areas
they operate in and focus on their core

this is the area in which
they have most skills

they can then
grow and expand in this area

also happen when a company sells off
less profitable parts of the


This involves splitting up a

all the subsidiaries of
the conglomerate become separate
and new companies in their own right


A conglomerate selling off its
subsidiaries to another company

British Aerospace selling off Rover to


A firm may use other companies to
carry out certain activities for them eg
cleaning, catering etc and allows them
to focus on what they do best and so
grow and expand in this area.

Management buy out/buy

Team of managers getting together to buy a
stake in a company can happen when a
subsidiary is being sold off

can happen
when a subsidiary might be getting shut

Buy out is a team of managers within the
company buy the stake.

Buy in is when a team of managers from
outwith the company buy the stake.

Question Examples

Compare three different types of
business organisations in the UK, in
terms of ownership, control and
finance. You should ensure that you
include at least one publicly funded
and at least one privately funded
organisation in your answer.

9 marks

A type of business organisation is a sole trader, a
sole trader is owned by one person, the control of
the business is by the sole owner, a sole trader may
raise finance through the owner investing their own
money in the business.

Whereas the NHS is a publicly funded organisation
and its ownership is the government on behalf of
the public, the control is through NHS trusts, their
finance comes from taxation levied by the

On the other hand a Public Limited
Company (Plc), is owned by
shareholders and is controlled by a
Board of Directors who are voted on
by the other shareholders, a Plc may
raise finance in many ways for
example a bank loan.

Explain the objectives each of these
organisations may have. You should include
at least 3 different objectives for each

Identify 3 stakeholders for 2 different types
of organisations. For each organisation
discuss the different levels of influence
these stakeholders may have on the

The role of enterprise and
the entrepreneur

The entrepreneur brings together and
combines the other factors of
production to provide goods and
services. No enterprising people or
enterprising activities

nothing would

Entrepreneur sets things
in motion by:

Having and developing a business idea

Ensuring the necessary resources are
available to put the idea into practice

Using their own or borrowed money to
finance the idea.

People who are willing to take the risk
of losing their own money and