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BUSINESS STUDIES
REVISION BOOKLET
INDUS INTERNATIONAL SCHOOL
2014-15

1
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1 Business Activity
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3 Enterprise, business growth and size
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5 Business objectives and stakeholder objectives

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BUSINESS STUDIES
REVISION BOOKLET
INDUS INTERNATIONAL SCHOOL
2014-15
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This is the basic
Economic Problem
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These resources are also known as factor of production
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Capital
Finance, machinery and equipments needed to produce goods and services
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Usually the owner or founder of a
business
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So a business activity takes inputs (factors of productions), processes it
and gives an output
Opportunity Cost: Because of Unlimited needs and wants and limited resources we have
make a choice
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This next best
alternative foregone while making a choice is known as Opportunity Cost
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Importance of Specialisation
Specialisation results in greater efficiency and productivity
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This leads to lower cost of production
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By doing the same job repeatedly, the workers become ‘experts’, they commit less mistakes
and hence leads to less wastage
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Specialisation is good for workers too
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However, In specialisation each worker is assigned a particular piece of work and he or she
does that particular task
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Repetition of work leads to a mundane routine for workers, this kills their
motivation
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This will lead to more errors and affect the quality
of production
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Now If a worker cannot complete his or her job on time this may
result in a bottleneck for the whole production process
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If by any reason, that
particular skills becomes obsolete, the worker will become redundant and might end up
losing her job
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This costs
money which adds up to the cost of production
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Ways of adding value
There are different ways through which businesses can add value to their products and
services
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Consumers are prepared
to pay more for products which have a strong brand attached to it
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Advertising:Through advertising the business can create a strong brand loyalty among its
customers and in the process charge more for its goods or services
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Consumers are willing to pay a little extra for customised
services
Providing additional features:A product or service with additional features or functionality
can make the consumers pay extra
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Toyota has 12 versions of its Innova model
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By offering convenience: Consumers love convenience
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For example, free home
delivery of your weekly grocery
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First of all, it can charge more to its customers
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A business can differentiate itself from its competitors
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A business can save the cost on advertising and other promotional activities once it has
created a perception of high quality and brand loyalty among its customers
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BUSINESS STUDIES
REVISION BOOKLET
INDUS INTERNATIONAL SCHOOL
2014-15
4
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Business can be categorised in three broad
categories or stages
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Secondary Sector
All businesses which manufacture and process the raw materials which can be used by the
end consumers are known as Secondary Sector businesses
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Tertiary Sector
Whereas all the businesses which provide services and assist both the primary and secondary
sector businesses can be classified as Tertiary sector businesses
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Every business will aim to make as much profit as possible i
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profit is the main motive
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Firms will only produce those goods which consumers want and are willing to pay for
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There is wide variety of goods and services in the market
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Disadvantages
Public goods may not be provided for in Market economy, thus the government will have to
interfere to provide these types of goods
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BUSINESS STUDIES
REVISION BOOKLET
INDUS INTERNATIONAL SCHOOL
2014-15
Social cost may not be considered while producing goods and services
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Planned Economy/ Command Economy
Features
Government decides how all scarce resources were to be used
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The economy only has Public Sector
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Government ensures that everybody is employed
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Production of goods is decided by government thus there is no consumer sovereignty
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Mixed economy
Features
Mixed economy is a combination of market economy as well as government planning
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Some businesses are owned by private individuals
while some businesses are owned by the government
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Mixed economy attempts to overcome the disadvantages of a market economic system by
using government intervention to control or regulate different markets
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Positive attitude
There might be initial hurdles and failures in ventures
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He always sees the light at the end
of the tunnel and continues with his journey
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BUSINESS STUDIES
REVISION BOOKLET
INDUS INTERNATIONAL SCHOOL
2014-15
Risk taker
"nothing ventured, nothing gained"
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Excellent leadership qualities
A successful entrepreneur must have excellent leadership qualities
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They foster a
positive environment and then proliferates these values through the team
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They usually identify gaps in consumer demands or needs which have been
ignored for long
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Dependable
Successful, sustainable business people maintain the highest standards of integrity because, at
the end of the day, if you cannot prove yourself a credible business person and nobody will
do business with you, you are out of business
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In short, he should be dependable
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Successful
entrepreneurs figure out how to get the most out of these resources
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Communicators
A successful entrepreneur must be a good communicator
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Achievement oriented
Successful entrepreneurs are achievement oriented
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But how
do we categorize these businesses as big or small
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e
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Example Microsoft has
less employees but still it the biggest business on earth
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Take the example of software
companies and consultancy firms like McKenzie & Co
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So while deciding the size of business as big or small a combination of factors needs to be
considered
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Why the owners of a business may want to expand the business?
Businesses have different objectives
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Some owners might be content with the small size of their business,
whereas there will be business owners who may want to expand the business
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More stability: Big businesses are more stable and less vulnerable to market adversities
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Attract the best talent: Bigger businesses usually offer better salaries/perks to their staff
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This leads to better efficiency for the
business and thus more profits for owners
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As production
increases, it brings in advantages related with economies of scale for the business
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New business owners frequently lack relevant business and management expertise in
areas such as finance, purchasing, selling, production, and hiring and managing employees
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Business owners underestimate how much money is needed and they are forced to close
before they even have had a fair chance to succeed
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Poor inventory management
Poor inventory management might lead to too much of cash being blocked as stock
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Over-investment in fixed assets
Blocking too much of cash in fixed assets can again pose danger for the business and can
contribute to business failure
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Poor credit
management, forward planning and cash flow problems might contribute to it
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The risk of utilizing business funds for personal use by the owner might lead to cash
shortage for the business
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Types of business organisation
What is a Sole trader or Sole Proprietor form of business?
The sole trader is the oldest and most popular type of business
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A sole proprietorship, is a type of business entity which legally has no separate existence
from its owner
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All debts of the business are debts of
the owner
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A sole proprietorship essentially means a person does business in his or her own name and
there is only one owner
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A sole proprietorship need not worry about
double taxation like a corporate entity would have to
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In
some jurisdictions, for example the United States, the sole proprietor is required to register
the trade name or "Doing Business As" with a government agency
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BUSINESS STUDIES
REVISION BOOKLET
INDUS INTERNATIONAL SCHOOL
2014-15
Advantages to a Sole Proprietor
An entrepreneur may opt for the sole proprietorship legal structure because no additional
work must be done to start the business
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A sole proprietor is not separate from the individual; what the business makes, so does the
individual
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g homestead or
qualified retirement accounts) are at risk
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For example, a single
member corporation or limited company still only has one owner, who can make decisions
quickly without having to consult others, but has the advantage of limited liability
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Typically a sole proprietorship reports its income and deductions on the
individual's personal tax return
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A sole proprietorship often has the advantage of the least government regulation
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It can also sometimes be more difficult to raise bank finance, as sole proprietorships cannot
grant a floating charge which in many jurisdictions is required for bank financing
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This form of business will have unlimited liability, so that if the business is sued, the
proprietor is personally liable
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As soon as the owner decides not to have the
business anymore, or the owner dies, the business ceases to exist
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Another disadvantage of a sole proprietorship is that as a business becomes successful, the
risks accompanying the business tend to grow
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In the United States, a sole proprietor could also form a
limited liability company, or LLC, which would give the protection of limited liability but
would still be treated as a sole proprietorship for income tax purposes
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Partnerships are often
favored over corporations for taxation purposes, as the partnership structure does not
generally incur a tax on profits before it is distributed to the partners (i
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there is no dividend
tax levied)
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Advantages of Partnership
Easy to set up
More capital can be brought into the business
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Partners share responsibilities and duties of the business
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Disadvantages of Partnership
There is unlimited liability: All the partners are responsible for the debts of the firm and if the
business goes bankrupt, all the partners will have to clear the debts even if they have to sell of
their personal belongings
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There is a limit to the capital invested
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There is no continuity of existence
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Partnership Deed
Before starting a partnership business, all the partners have to draw up a legal document
called a Partnership Deed of Agreement
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These are:
Names of included parties - includes all names of people participating in this contract
Commencement of partnership- includes when the partnership should begin
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Duration of partnership - includes how long the partnership should last
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BUSINESS STUDIES
REVISION BOOKLET
INDUS INTERNATIONAL SCHOOL
2014-15
Business to be done - includes exactly what will be done in this partnership
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Name of firm - includes the name of the business entity
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Division of profits and losses - includes what percentages of profits and losses each partner
will receive
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Ending of the business - includes what happens when the business winds down
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Date of writing - includes simply the date that the contract was written
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These are businesses where a number of
owner(shareholder) pool in their resources to do a common business and to share the profits
and losses proportionally
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As a result, should the company experience financial distress because of normal business
activity, the personal assets of shareholders will not be at risk of being seized by creditors
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Difference between Limited companies and partnership
Limited companies can issue shares whereas partnership business cannot
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It means that if the company
experience financial distress because of normal business activity, the personal assets of
shareholders will not be at risk of being seized by creditors
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Separate Identity: Limited companies are considered as human beings in the eyes of the
law
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They can sue and get sued on their own name
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This is not the case in
Partnership or sole trader businesses
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Public Limited Companies

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BUSINESS STUDIES
REVISION BOOKLET
INDUS INTERNATIONAL SCHOOL
2014-15
Private Limited Companies
Private limited Companies
These are closely held businesses usually by family, friends and relatives
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However, their shares do not trade
on public exchanges and are not issued through an initial public offering
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Advantages
Limited Liability: It means that if the company experience financial distress because of
normal business activity, the personal assets of shareholders will not be at risk of being seized
by creditors
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Minimum number of shareholders need to start the business are only2
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Scope of expansion is higher because easy to raise capital from financial institutions and the
advantage of limited liability
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The shares in a private limited company cannot be sold or transferred to anyone else without
the agreement of other shareholders
Public Limited company
Limited companies which can sell share on the stock exchange are Public Limited companies
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Minimum value of shares to be issued
(in UK) is £50,000
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The business has separate legal entity
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These businesses can raise large capital sum as there is no limit to the number of
shareholders
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Disadvantages

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BUSINESS STUDIES
REVISION BOOKLET
INDUS INTERNATIONAL SCHOOL
2014-15
There are lot of legal formalities required for forming a public limited company
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In order to protect the interest of the ordinary investor there are strict controls and regulations
to comply
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The original owners may lose control
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What is Public Sector?
The public sector is a part of the state that deals with the delivery of goods and services by
and for the government, whether national, regional or local/municipal
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The organization of the public sector (public ownership) can take several forms, including:
Direct administration funded through taxation; the delivering organization generally has no
specific requirement to meet commercial success criteria, and production decisions are
determined by government
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What is a Co-operative?
A cooperative is defined as an autonomous association of persons united voluntarily to
meet their common economic, social, and cultural needs and aspirations through a jointlyowned and democratically-controlled enterprise
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There are different types of co-operatives:
Housing cooperative
A housing cooperative is a legal mechanism for ownership of housing where residents either
own shares reflecting their equity in the co-operative's real estate, or have membership and
occupancy rights in a not-for-profit co-operative and they underwrite their housing through
paying subscriptions or rent
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When
the building is finished, each member is the sole owner of a homestead, and the cooperative
may be dissolved
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It is common for locally-owned grocery
stores, hardware stores and pharmacies
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Utility cooperative
A utility cooperative is a public utility that is owned by its customers
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In the US, many such cooperatives were formed to provide rural
electrical and telephone service
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There are no outside owners in a "pure"
workers' cooperative, only the workers own shares of the business, though hybrid forms in
which consumers, community members or capitalist investors also own some shares are not
uncommon
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However, in India there is a form of workers' cooperative which insists on
compulsory membership for all employees and compulsory employment for all members
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This system was advocated by the Indian
communist leader A
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Gopalan
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Employees can also
generally become members
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A well known example in the United States is the
REI (Recreational Equipment Incorporated) co-op, and in Canada: Mountain Equipment Coop
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The UK also has a number of
autonomous consumers' cooperative societies, such as the East of England Co-operative
Society and Midcounties Co-operative
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Coop is another Swiss cooperative which operates the second largest supermarket chain in
Switzerland after Migros
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In the United States, there are both marketing and supply cooperatives
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There are also agricultural supply cooperatives, which
provide inputs into the agricultural process
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Most emerging countries are developing agricultural cooperatives
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It is
important to understand exactly what you're being offered
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A true business format franchise occurs when
the owner of a business (the franchisor) grants a licence to another person or business (the
franchisee) to use their business idea - often in a specific geographical area
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In return, the franchisee usually pays an initial fee to the franchisor and then a percentage of
the sales revenue
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But the franchisor keeps control over how products
are marketed and sold and how their business idea is used
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Other types of arrangement
Different types of sales relationships are also sometimes referred to as franchises
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You have more freedom over how you run the business
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Licensee - you have a license giving you the right to make and sell the licensor's product
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Multi-level marketing

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BUSINESS STUDIES
REVISION BOOKLET
INDUS INTERNATIONAL SCHOOL
2014-15
Some businesses offer franchises that are really multi-level marketing
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You get commission on any sales you
make, and also on sales made by other distributors you recruit
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But there are also a number of drawbacks
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You can check how successful other franchises are
before committing yourself
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You benefit from any advertising or
promotion by the owner of the franchise - the "franchisor"
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You usually have exclusive rights in your territory
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Financing the business may be easier
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Risk is reduced and is shared by the franchisor
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Relationships with suppliers have already been established
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As well as the initial costs of buying the franchise, you
pay continuing royalties and you may have to agree to buy products from the franchisor
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You
might not be able to make changes to suit your local marke
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Other franchisees could give the brand a bad reputation
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Reduced risk means you might not generate large profits
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Stakeholders and their objectives
Many people are involved in running a business
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These individuals or groups are known
as stakeholders
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They lead and control the workers Job security,
to achieve organisational goals
Status and growth of the business

Consumers

These are the people who buy the goods
and services of the business
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The
Successful businesses,
government charges a tax from the business
employments to be created, more
and also monitors the working of
taxes, follow laws
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