Igcse Business Studies Revision Notes

• Cambridge Business Studies Notes

IGCSE Business Studies Notes. 1. BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 1 P a g e 1. Understanding business activity Chapters covered in this unit: 1.1 Business Activity 1.2 Classification of Businesses 1.3 Enterprise, business growth and size 1.4 Types of business organisation 1.5 Business objectives and stakeholder objectives. BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 2 P a g e 1. Economic Problem We have unlimited Needs and wants and there are limited resources. This is the basic Economic Problem.

Limited Resources: Resources available on earth to make goods and services to satisfy our needs and want are limited. These resources are also known as factor of production. These can be categorised as Land All natural resources provided by nature such as fields, forests, oil, gas, metals and other mineral resources Labour The people who are used produce goods and services. Capital Finance, machinery and equipments needed to produce goods and services. Enterprise The skill and risk taking ability of the person who brings together all the other factors of production together to produce goods and services.

Usually the owner or founder of a business. Business activity combines the factors of production to produce goods and services to satisfy our needs and wants. 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. When we make a choice we have to give up something. This next best alternative foregone while making a choice is known as Opportunity Cost.

Importance of Specialisation Specialisation results in greater efficiency and productivity. As the workers don’t have to move between jobs. This leads to lower cost of production. Time is saved as the workers become for efficient in performing a particular job. By doing the same job repeatedly, the workers become ‘experts’, they commit less mistakes and hence leads to less wastage. Due to specialisation production level increases which make it possible to carry out mass production.

We've been busy extending and updating our collection of online study notes designed to support core topics for GCSE & IGCSE Business Studies. Apr 1, 2013 - We've been busy extending and updating our collection of online study notes designed to support core topics for GCSE & IGCSE Business. High quality CIE/CAIE IGCSE,AS,A Level, and SAT revision notes made by students, for students. Also offers ZClass high. CIE IGCSE Business Studies 0450.

Specialisation is good for workers too. They master the job and can bargain for better wages. However, In specialisation each worker is assigned a particular piece of work and he or she does that particular task. Repeatedly doing the same job can result in boredom for the workers.

Repetition of work leads to a mundane routine for workers, this kills their motivation. They might become careless. This will lead to more errors and affect the quality of production. BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 3 P a g e Moreover, a job might be broken into small identifiable tasks, which a different set of workers might be doing. Now If a worker cannot complete his or her job on time this may result in a bottleneck for the whole production process. Workers lose flexibility due to over specialisation on a particular job.

If by any reason, that particular skills becomes obsolete, the worker will become redundant and might end up losing her job. The business will have to invest in training their workers in particular skills. This costs money which adds up to the cost of production. Ways of adding value There are different ways through which businesses can add value to their products and services. Creating a brand: Brands represent quality and sometimes status. Consumers are prepared to pay more for products which have a strong brand attached to it. Why does a pair of Nike sell costlier than its counterpart Puma, though the cost of production may not be much different.

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. Providing customised services:Business providing better quality personalised services to their consumers add more value.

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. This is very often seen in different version of a car model. Toyota has 12 versions of its Innova model.

The basic engine and build is the same, but the price increase as additional features are added. By offering convenience: Consumers love convenience.

If you get a product or service without much effort then you might happily pay a premium for it. For example, free home delivery of your weekly grocery. Benefits to a business of adding value There are a number of benefits a business derives through adding value to its products or services. First of all, it can charge more to its customers. This leads to more profitability for the business in the long run. A business can differentiate itself from its competitors.

By adding more value to its goods or services a business can stand out among its competitors as producer providing superior or premium quality. 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. Thus, adding value helps cost cutting in the long run.

BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 4 P a g e 4. Levels of business activity There are millions of businesses around us. Business can be categorised in three broad categories or stages. Primary Sector All those businesses which are related with extraction of raw material from Mother Nature such as mining, fishing, farming, and logging are known as Primary Sector businesses.

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. These include building, construction, compute assembly, shoes factories, textile factories etc. 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. These include transportation, insurance, hospitals, educational institutes, showrooms etc.

Types of economic systems Planned, Market and mixed Market Economy/Free Market Economy Features Features  All the resources in a market economy are privately owned by people and firms.  Every business will aim to make as much profit as possible i.e. Profit is the main motive.  There is consumer sovereignty.  Firms will only produce those goods which consumers want and are willing to pay for.  Price is determined through the price mechanism Advantages  Market economies responds quickly to people’s wants  Factors of production which are profitable will only be employed.

 There is wide variety of goods and services in the market.  New and better methods of production are encouraged thus leading to lower cost of goods and services. Disadvantages  Public goods may not be provided for in Market economy, thus the government will have to interfere to provide these types of goods.  Market economies encourage consumption of harmful goods  Prices are determined by the demand and supply of goods.

BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 5 P a g e  Social cost may not be considered while producing goods and services.It may lead to unemployment because machines will be more productive than men. Planned Economy/ Command Economy Features  Government decides how all scarce resources were to be used.  Government will decide what is to be produced, how much to be produced and how much should be charged for goods and services.

 The economy only has Public Sector. Advantages  There is no competition between firms thus resulting in less wastage.  Government ensures that everybody is employed.  Less gap between poor and rich Disadvantages  No incentives for businesses to produce.

 Production of goods is decided by government thus there is no consumer sovereignty.  Businesses usually are less efficient because of lack of profit motive. Mixed economy Features Mixed economy is a combination of market economy as well as government planning. It has both private sector and public sector.Some businesses are owned by private individuals while some businesses are owned by the government. India, Indonesia is examples of mixed economies. Mixed economy attempts to overcome the disadvantages of a market economic system by using government intervention to control or regulate different markets 6.

Characteristics of successful entrepreneurs Self motivation They are also often very passionate about their ideas that drive toward these ultimate goals and are notoriously difficult to steer off the course. Positive attitude There might be initial hurdles and failures in ventures. A successful entrepreneur learns from his mistakes and does not get dismayed by initial failures. He always sees the light at the end of the tunnel and continues with his journey.

Positive attitude also helps in making a strong team which might be very instrumental in the ultimate success of the venture. BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 6 P a g e Risk taker 'nothing ventured, nothing gained'. Successful entrepreneurs are risk takers who have all gotten over one very significant hurdle: they are not afraid of failure. Excellent leadership qualities A successful entrepreneur must have excellent leadership qualities.

It earns the trust and respect of his team by demonstrating positive work qualities and confidence. They foster a positive environment and then proliferates these values through the team. Innovator Successful entrepreneur are innovators and usually have an ‘out of the box’ approach to solving problems. They usually identify gaps in consumer demands or needs which have been ignored for long.

They welcome change and are consistently innovating with the changing demand patterns. 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. Therefore, a successful entrepreneur should have Strong sense of basic ethics and integrity. In short, he should be dependable.

Resourceful Most new businesses have limited resources such as money, information and time. Successful entrepreneurs figure out how to get the most out of these resources. They are masters at stretching a dollar and making a few resources go a long way. Communicators A successful entrepreneur must be a good communicator. Excellent inter-personal and networking skills go a long way in business success.

Achievement oriented Successful entrepreneurs are achievement oriented. They value accomplishment and the intrinsic rewards that go along with achieving difficult goals.

Business Measurement In the world around us there are some businesses which are small and some are big. But how do we categorize these businesses as big or small. We can consider the following factors: The number of employees: but business which use more machinery and technology i.e. Capital intensive may have few employees but they still might be big.

Example Microsoft has less employees but still it the biggest business on earth. The amount of capital invested: A business which might not use a lot of investment in machinery but and involves less investment may still be big. Take the example of software companies and consultancy firms like McKenzie & Co. BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 7 P a g e The sales turnover: A business may be going through a bad phase and may not have huge sales does it make the business small? Market capitalisation: markets are very volatile and share prices change every day does it alter the size of the business every day?

Market share: a business may not be a market leader but still may be huge whereas if the market is itself very small, a major market share won’t make a business big. So while deciding the size of business as big or small a combination of factors needs to be considered. Why the owners of a business may want to expand the business?

Businesses have different objectives. These objectives are certainly influenced by the owner's vision and goals. 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. Let us explore the reasons: Possibility of higher profits: As businesses expand,sales turnover improves, which means more profit for the business and more returns for the owners.

More stability: Big businesses are more stable and less vulnerable to market adversities. Bigger businesses usually operate across markets and even if one market is not performing well they can rely on other markets to average returns. Attract the best talent: Bigger businesses usually offer better salaries/perks to their staff.

Better salaries attract the best talent in the industry. This leads to better efficiency for the business and thus more profits for owners. Economies of scale: Higher sales results demands higher production levels.

As production increases, it brings in advantages related with economies of scale for the business 9. Why businesses fail Lack of experience Many a report on business failures cites poor management as the number one reason for failure. New business owners frequently lack relevant business and management expertise in areas such as finance, purchasing, selling, production, and hiring and managing employees. Insufficient capital (money) A common fatal mistake for many failed businesses is having insufficient operating funds. Business owners underestimate how much money is needed and they are forced to close before they even have had a fair chance to succeed. They also may have an unrealistic expectation of incoming revenues from sales Poor location. BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 8 P a g e Whereas a good business location may enable a struggling business to ultimately survive and thrive, a bad location could spell disaster to even the best-managed enterprise.

Poor inventory management Poor inventory management might lead to too much of cash being blocked as stock. Excess stock also brings in additional cost burden of maintaining it and the risk of getting obsolete or damaged. 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. Poor credit arrangement management Business might take too much of debt and might find it difficult to service them. Poor credit management, forward planning and cash flow problems might contribute to it. Personal use of business funds Owners of small business usually don’t differentiate between business funds and their own funds. The risk of utilizing business funds for personal use by the owner might lead to cash shortage for the business.

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. It is a form of business where there is only one owner who manages and controls the business. A sole proprietorship, is a type of business entity which legally has no separate existence from its owner. Hence, the limitations of liability enjoyed by a corporation and limited liability partnerships do not apply to sole proprietors. All debts of the business are debts of the owner. It is a 'sole' proprietor in the sense that the owner has no partners.

A sole proprietorship essentially means a person does business in his or her own name and there is only one owner. A sole proprietorship is not a corporation; it does not pay corporate taxes, but rather the person who organized the business pays personal income taxes on the profits made, making accounting much simpler. A sole proprietorship need not worry about double taxation like a corporate entity would have to. A sole proprietor may do business with a trade name other than his or her legal name. 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. This also allows the proprietor to open a business account with banking institutions.

BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 9 P a g e 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. In most cases, there are no legal formalities to forming or dissolving a business.  A sole proprietor is not separate from the individual; what the business makes, so does the individual. At the same time, all of the individual's non-protected assets (e.g homestead or qualified retirement accounts) are at risk. There is not necessarily better control or business administration possible with a sole proprietorship, only increased risks. 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.  Furthermore, in most jurisdictions, a sole proprietorship files simpler tax returns to report its business activity.

Typically a sole proprietorship reports its income and deductions on the individual's personal tax return. In comparison, an identical small business operating as a corporation or partnership would be required to prepare and submit a separate tax return.  A sole proprietorship often has the advantage of the least government regulation. Disadvantages to a Sole Proprietor  A business organized as a sole trader will likely have a hard time raising capital since shares of the business cannot be sold, and there is a smaller sense of legitimacy relative to a business organized as a corporation or limited liability company.  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.  Hiring employees may also be difficult.  This form of business will have unlimited liability, so that if the business is sued, the proprietor is personally liable.

 The life span of the business is also uncertain. As soon as the owner decides not to have the business anymore, or the owner dies, the business ceases to exist.  In countries without universal health care, such as the United States, a sole proprietor is also responsible for his or her own health insurance, and may find difficulty finding any if one of the family members to be covered has a previous health issue.  Another disadvantage of a sole proprietorship is that as a business becomes successful, the risks accompanying the business tend to grow.

To minimize those risks, a sole proprietor has the option of forming a corporation. 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. BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 10 P a g e What is a Partnership? A partnership is a type of business entity in which partners (owners) share with each other the profits or losses of the business undertaking in which all have invested. 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.e.

There is no dividend tax levied). However, depending on the partnership structure and the jurisdiction in which it operates, owners of a partnership may be exposed to greater personal liability than they would as shareholders of a corporation. Advantages of Partnership  Easy to set up  More capital can be brought into the business.  Partners bring new skills and ideas to a business  Decision making can be much easier with more brains to think about a problem.  Partners share responsibilities and duties of the business.  Division of labour is possible as partners may have different skills. 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.

 Disagreement among the partners can lead to problems for the business.  There is a limit to the capital invested. Because of the fact that maximum 20 members are allowed, the business may find it difficult to expand after a certain limit.

 There is no continuity of existence. Partnership is dissolved if one of the partners die or resigns or becomes bankrupt. Partnership Deed Before starting a partnership business, all the partners have to draw up a legal document called a Partnership Deed of Agreement. It usually contains the following information: There are many parts that should be included in any articles of partnership. These are:  Names of included parties - includes all names of people participating in this contract  Commencement of partnership- includes when the partnership should begin. The date of the contract is assumed as this date, if none is given.  Duration of partnership - includes how long the partnership should last.

It is automatically assumed that the death of one of the contracting parties breaks the contract, unless otherwise stated. BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 11 P a g e  Business to be done - includes exactly what will be done in this partnership. This section should be very particular to avoid confusion and loopholes.  Name of firm - includes the name of the business entity.  Initial investments - includes how much each partner will invest immediately or by installments.  Division of profits and losses - includes what percentages of profits and losses each partner will receive.

If it is not a limited partnership, then there is unlimited liability (each partner is responsible for all partners' debts, including their own).  Ending of the business - includes what happens when the business winds down. Usually this includes three parts: 1) All assets are turned into cash and divided among the members in a certain proportion; 2) one partner may purchase the others' shares at their value; 3) all property is divided among the members in their proper proportions.  Date of writing - includes simply the date that the contract was written. Limited companies Also known as Joint stock companies.

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. In a limited company, the debts of the company are separate from those of the shareholders. 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.

Ownership in the limited company can be easily transferred, and many of these companies have been passed down through generations. Difference between Limited companies and partnership  Limited companies can issue shares whereas partnership business cannot.  Shareholders enjoy limited liability in Limited companies. 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. Whereas partnership business does not have limited liability except for limited partnerships.

 Separate Identity: Limited companies are considered as human beings in the eyes of the law. They are born and die in the eyes of law. They can sue and get sued on their own name.  Continuity: There is continuity of existence in limited companies and are their existence is not affected by the death, bankruptcy or sickness of their owner.

This is not the case in Partnership or sole trader businesses. There are two main types of Limited companies.  Public Limited Companies. BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 12 P a g e  Private Limited Companies Private limited Companies These are closely held businesses usually by family, friends and relatives. Private companies may issue stock and have shareholders.

However, their shares do not trade on public exchanges and are not issued through an initial public offering. Shareholders may not be able to sell their shares without the agreement of the other shareholders. 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.  Continuity of existence: business not affected by the status of the owner.

 Minimum number of shareholders need to start the business are only2.  More capital can be raised as the maximum number of shareholders allowed is 50.  Scope of expansion is higher because easy to raise capital from financial institutions and the advantage of limited liability.

Disadvantages  Growth may be limited because maximum shareholders allowed are only 50.  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. These companies usually write PLC after their names. Minimum value of shares to be issued (in UK) is £50,000.

Advantages  There is limited liability for the shareholders.  The business has separate legal entity. There is continuity even if any of the shareholders die.

 These businesses can raise large capital sum as there is no limit to the number of shareholders.  The shares of the business are freely transferable providing more liquidity to its shareholders. Disadvantages. BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 13 P a g e  There are lot of legal formalities required for forming a public limited company.

It is costly and time consuming.  In order to protect the interest of the ordinary investor there are strict controls and regulations to comply. These companies have to publish their accounts.  The original owners may lose control.  Public Limited companies are huge in size and may face management problems such as slow decision making and industrial relations problems. 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. Examples of public sector activity range from delivering social security, administering urban planning and organizing national defenses. 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.  Publicly owned corporations (in some contexts, especially manufacturing, 'state-owned enterprises'); which differ from direct administration in that they have greater commercial freedoms and are expected to operate according to commercial criteria, and production decisions are not generally taken by government (although goals may be set for them by government).

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 jointly- owned and democratically-controlled enterprise. A cooperative may also be defined as a business owned and controlled equally by the people who use its services or who work at it. 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.

Building cooperative. BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 14 P a g e Members of a building cooperative (in Britain known as a self-build housing co-operative) pool resources to build housing, normally using a high proportion of their own labour.

When the building is finished, each member is the sole owner of a homestead, and the cooperative may be dissolved. Retailers' cooperative A retailers' cooperative (known as a secondary or marketing co-operative in some countries) is an organization which employs economies of scale on behalf of its members to get discounts from manufacturers and to pool marketing. It is common for locally-owned grocery stores, hardware stores and pharmacies. In this case the members of the cooperative are businesses rather than individuals. Utility cooperative A utility cooperative is a public utility that is owned by its customers. It is a type of consumers' cooperative. In the US, many such cooperatives were formed to provide rural electrical and telephone service.

Worker cooperative A worker cooperative or producer cooperative is a cooperative that is owned and democratically controlled by its 'worker-owners'. 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. Membership is not compulsory for employees, but generally only employees can become members. However, in India there is a form of workers' cooperative which insists on compulsory membership for all employees and compulsory employment for all members. That is the form of the Indian Coffee Houses. This system was advocated by the Indian communist leader A.

Consumers' cooperative A consumers' cooperative is a business owned by its customers. Employees can also generally become members.

Members vote on major decisions, and elect the board of directors from amongst their own number. A well known example in the United States is the REI (Recreational Equipment Incorporated) co-op, and in Canada: Mountain Equipment Co- op. The world's largest consumers' cooperative is the Co-operative Group in the United Kingdom, which offers a variety of retail and financial services.

The UK also has a number of autonomous consumers' cooperative societies, such as the East of England Co-operative Society and Midcounties Co-operative. Migros is the largest supermarket chain in Switzerland and keeps the cooperative society as its form of organization. Coop is another Swiss cooperative which operates the second largest supermarket chain in Switzerland after Migros. BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 15 P a g e Agricultural cooperative Agricultural cooperatives are widespread in rural areas. In the United States, there are both marketing and supply cooperatives. Agricultural marketing cooperatives, some of which are government-sponsored, promote and may actually distribute specific commodities.

There are also agricultural supply cooperatives, which provide inputs into the agricultural process. In Europe, there are strong agricultural / agribusiness cooperatives, and agricultural cooperative banks. Most emerging countries are developing agricultural cooperatives. What is franchising? The term 'franchising' can describe some very different business arrangements.

Cambridge Business Studies Notes

It is important to understand exactly what you're being offered. Business format franchise This is the most common form of franchising.

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. The franchisee sells the franchisor's product or services, trades under the franchisor's trade mark or trade name and benefits from the franchisor's help and support. In return, the franchisee usually pays an initial fee to the franchisor and then a percentage of the sales revenue. The franchisee owns the outlet they run. But the franchisor keeps control over how products are marketed and sold and how their business idea is used. Well-known businesses that offer franchises of this kind include Prontaprint, Dyno-Rod, McDonald's and Coffee Republic.

Other types of arrangement Different types of sales relationships are also sometimes referred to as franchises. For example:  Distributorship and dealership - you sell the product but don't usually trade under the franchise name. You have more freedom over how you run the business.  Agency - you sell goods or services on behalf of the supplier.  Licensee - you have a license giving you the right to make and sell the licensor's product. There are usually no extra restrictions on how you run your business.

Multi-level marketing. BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 16 P a g e Some businesses offer franchises that are really multi-level marketing. Self-employed distributors sell goods on a manufacturer's behalf.

You get commission on any sales you make, and also on sales made by other distributors you recruit. Advantages and disadvantages of franchising Buying a franchise can be a quick way to set up your own business without starting from scratch. But there are also a number of drawbacks. Advantages  Your business is based on a proven idea.

You can check how successful other franchises are before committing yourself.  You can use a recognised brand name and trade marks. You benefit from any advertising or promotion by the owner of the franchise - the 'franchisor'.  The franchisor gives you support - usually including training, help setting up the business, a manual telling you how to run the business and ongoing advice.  You usually have exclusive rights in your territory. The franchisor won't sell any other franchises in the same region.

 Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.  Risk is reduced and is shared by the franchisor.  If you have an existing customer base you will not have to invest time looking to set one up.  Relationships with suppliers have already been established. Disadvantages  Costs may be higher than you expect. 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.

 The franchise agreement usually includes restrictions on how you run the business. You might not be able to make changes to suit your local marke.  The franchisor might go out of business, or change the way they do things.  Other franchisees could give the brand a bad reputation.

 You may find it difficult to sell your franchise - you can only sell it to someone approved by the franchisor.  Reduced risk means you might not generate large profits. Stakeholders and their objectives Many people are involved in running a business. Some have direct interest while others have indirect interest in the running of the business. These individuals or groups are known as stakeholders. BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 17 P a g e Stakeholders Who are they Objectives Owners They invest capital in the business and get profits from the business Profits, growth of the business Workers Employees of the business who give in their time and effort to make a business successful Job security, job satisfaction and a satisfactory level of payment for their efforts Managers Employees of the business who manage a business.

They lead and control the workers to achieve organisational goals High salaries, Job security, Status and growth of the business Consumers These are the people who buy the goods and services of the business. Safe and reliable products, value for money, proper after sales service Government Government manages the economy. The government charges a tax from the business and also monitors the working of businesses in the country Successful businesses, employments to be created, more taxes, follow laws. The community Community is all the people who are directly or indirectly affected by the actions of the business. They expect more jobs, environmental protection, socially responsible products and actions of the business. BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 18 P a g e 2. People in business Chapters covered in this unit: 2.1 Motivating Workers 2.2 Organisation and management 2.3 Recruitment, selection and training of workers 2.4 Internal and external communication.

BUSINESS STUDIES REVISION BOOKLET INDUS INTERNATIONAL SCHOOL 2014-15 19 P a g e 1. What is Motivation Motivation is the reason behind a specific behavior particularly human behavior. Reasons for motivation may vary such as basic needs, an object, goal, state of being or ideal. Motivation for behaving in a certain way could also be due to morality Importance of motivation in a business environment A positive motivation philosophy and practice should improve productivity, quality, and service. Motivation helps people: ty of products which improves the business image in the long run 2. Motivation Theories F.W.

Taylor 'Scientific Management'  People work for personal gain.  If they are paid more they will work more effectively.  Break down workers job into simple processes and calculate how much output they should produce in one day.

 If they achieve the target they will be given more money. Maslow’s Hierarchy of needs Human beings has five types of needs  Physiological needs or basic needs which relates to food, shelter, warmth and sleep  Security needs or Safety needs i.e.

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