POB GRADE 10: Fourth Form Topic: The Nature of Business
Direct production Direct production production means that human beings provide what they needed for themselves and their families. This was the way in which early human beings satised their wants and needs.
Susistence econom! A subsistence economy, is an economy in which the people barely meet their everyday needs. It is often seen as a major factor for poverty in developing nations. This is because because the people people of the society society do not trade with with other groups, groups, this may may be for a vary of reasons but a major one being their isolation. If the people of the society do not produce enough food, or not a variety the people will become sick and contract disease. The people also also do not have everyday everyday items that we take for for granted, such such as ipods, T!s, computers, fashionable clothes and shopping malls. This is because the people do not produce enough surplus to trade with, sometimes not even producing a surplus at all. "owever with the creation of tools human learnt how to master their environment by introducing simple speciali#ationThis increased people$s ability to produce resulting in the production of surplus is poverty.
Barter Trade Trade in the earliest times times was conducted by means of barter, barter, i.e. simple the e%change e%change of goods and services for other goods and services. services. &or e%ample e%ample if house hold A had a cow and household ' had a goat then trade could take ta ke
place if house hold A wanted what "ousehold ' had to trade and country ' wanted what house A had to trade. This was not very convenient convenient for the following reasons. reasons. (. The other other party might might not have anything anything that you wanted wanted in e%change e%change for what they wanted to trade. ). There There was the problem problem of une*ual une*ual value where where one party$s party$s goods goods might not be available in convenient units or of the right value. &or e%ample it might not be good o+ering a cow in e%change for a chicken. relative value of the goods being . It was very di-cult to establish the relative e%changed e%changed since there was no common measure of value.
Barter and contemporar! contemporar! societ! 'arter has now virtually died out, but barter still takes place between friends or countries e.g. Trinidad trading petroleum for amaica$s sugar.
Advantages (. /urplus /urplus production production could could be disposed of through through the barter barter system ). 'arter 'arter enabled enabled a person to get what what he0she he0she did not have have or could not not produced themselves. . It set the stage for the the system of trade that e%iststaday. e%iststaday. 1. 2ountries with foreign curr currency ency problems problems can barter barter and so save well needed foreign currency currency for use on vital items such as drugs for the sick.
The De"e#opment of $one! (. 3arly civili civili#atio #ations ns 4 Direct product production ion 4 no e%change e%change needed needed 4 production only to satisfy the need of self and family ). 5roduct 5roduction ion of tools tools 4 surplus surplus 4 barter barter . Durable Durable items items such as beads beads and shells shells were were used in e%change e%change 1. Developm Development ent of precious precious metals6 metals6 copper, copper, gold and silver silver coins used used as currency, 7. 5aper developed as currency currency because metal was too e%pensive, e%pensive, too risky to deal with 8. 2he*ues and che*ue deposits were were used ne%t ne%t to reduce reduce the the risks risks 4 still used today
9. 5lastic money in the form form of credit credit and debit cards and electronic electronic money through electronic transfers marks a trend towards a cashless society.
:oney as we know it today was invented by the ;reeks about 87< '.2. 'ecause barter was so inconvenient, the use of money spread rapidly. =e usually think of money as coins and notes, but in fact other things have been used as money including cattle, shells, beads etc. The rst money consisted of gold or silver coins, and their value was that of the weight of gold or silver that they contained. The growth of money in in trading opened the door for economic economic growth and development of societies.
%ndirect Production Direct production production is the productio production n of goods for one!s personal use for e%ample6 a person farming mai&e 1 his family.Indirect production is whereby one produces his goods for sale e.g a cash crop farmer. farmer.
Specia#i&ation Specia#i& ation and Di"ision of 'aour Division of labour is a process whereby the production process process is broken broken down into a se*uence of stages and workers are assigned to particular stages. /peciali#ation e%ist where a community community,, group group,, or organi#ation organi#ation under under which the members members most most suited >by virtue of their natural aptitude aptitude,, location location,, skill skill,, or other *ualication *ualication?? for a specic activity activity or or task taskassume assume greater greater responsibility for responsibility for its e%ecution e%ecution or or performance performance.. Division and speciali#ation of labour allowed each person to do the job for which he or she is best suited. Advantages of Division of labour are@ (. It leads to speciali#a speciali#ation tion and increase increase of skills. skills. Doing the same job job over and over makes people better at it. ). 5rodu 5roducti ction on is speed speeded ed up. up.
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5ore use can be made of machines There is an increase in output There is usually an increase in *uality sually cost less per unit of output There will often be less use of manuallabour. There is a greater opportunity to use machines and automated methods of production. C. ess time is neededfor training the worker@ this is a benet of both employer and employee. (<. 'ecause of savings in time and cost, the working week can be made shorter and everyone enjoys a higher standard of living. ((. :anagement too can become more speciali#ed. Disad"anta(es (. =ork can become monotonous and boring ). =orkers can lose pride in their work. Eo longer can a worker say Fthat I made all myself. . It can lead to bad relations between the employer and the employee. 1. Gther skills possessed by the workers are not utili#ed, thus limiting the creativity of the workers. 7. If a key worker is absent then the assembly line could be greatly interrupted thus reducing production targets. 8. /ome rms are either too small and cannot a+ord the capital to put in place the kind of e*uipment and machinery that would enhance production
Bi##s of E)chan(e This is another instrument that can be used to settle debts. A bill of e%change is an unconditional order in writing addressed by one person to another, signed by the person giving it, re*uiring the person to whom it is addressed to pay on demand or at a %ed or determined future time a certain sum of money to a specic person or to a bearer.
Acceptance ;ood "ope
Tenor The bill
illage Trinidad, =.I. (< th /eptember, )<() Three months after date, pay to me or my order the sum of fty thousand dollars, value received.
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H7<,<<< /igned To6 'olt Jingston amaica
of date
Amount words
debtor >buyer Acceptor drawer or endorser?
amount in words
creditor >payee seller,
Gr drawee?
A bill could be used where the seller sends the buyer a bill of e%change for the amount due. The buyer accepts this by signing his name across its face,thereby establishing a legally binding obligation to pay the amount of the bill on the date specied > a period of 4 8 months?. The bill, then, is a negotiable instrument.
*redit cards A credit card is a plastic credit card with a magnetic strip. Holders of a valid card have the authorization to purchase goods and services up to a predetermined amount, called a credit limit. The vendor receives essential information from the cardholder, the b ank issuing the card actually reimburses the vendor, and eventually the cardholder repays the bank through regular monthly payments. If the entire balance is not paid in full, the issuer can legally charge interest fees on the unpaid portion.
3lectronic &unds Transfer >3&T? is a system of transferring money from one bank account directly to another without any paper money changing hands. Gne of the most widelyKused 3&T programs is Direct Deposit, in which payroll is deposited straight into an employee!s bank account, although 3&T refers to any transfer of funds initiated through an electronic terminal, including credit card, AT:, &edwire and pointKofKsale >5G/? transactions. It is used for both credit transfers, such as payroll payments, and for debit transfers, such as mortgage payments.
Telephone banking is a service provided by a financial institution, which allows its customers to perform some banking transactions over the telephone.
Most telephone banking services use an automated phone answering system with phone keypad response or voice recognition capability. To ensure security, the customer must first authenticate through a numeric or verbal password or through security questions asked by a live representative (see below). With the obvious eception of cash withdrawals and deposits, it offers virtually all the features of an automated teller machine! account balance information and list of latest transactions, electronic bill payments, funds transfers between a customer"s accounts #n e-commerce payment system facilitates the acceptance of electronic payment for online transactions. #lso known as a sample of $lectronic %ata &nterchange ($%&), e'commerce payment systems have become increasingly popular due to the widespread use of the internet' based shopping and banking. ver the years, credit cards have become one of the most common forms of payment for e' commerce transactions
=hat is a 'usinessL A business is an organi#ation that provides goods or services, or both, with the aim of making a prot. It could be a commercial or industrial organi#ation. Eotwithstanding the fact that there are also nonKprot organi#ations such as government owned schools, service clubs and churches the objective of a business is to reali#e a prot.
Measons for establishing a business (. To ). To . To 1. To 7. To 8. To 9. To B. To C. To (<.
achieve nancial independence work for oneself and to be one$s own boss make a prot obtain power lay the foundation for a family legacy gain personal freedom respond to changes in personal situation put a creative idea into operation respond to the desire for selfKactuali#ation To achieve nancial independence.
&unctions of a business (. To provide goods and services ). To make a prot6 the term prot means the e%cess of sales >revenue? over the cost of doing business. . To provide income to government 1. To create employment
&actors of production &actors of 5roduction consist of and, abour, 2apital and 3ntrepreneurship
'and +Natura# resources,: These include coal, oil, minerals, stone, fertile soil, timber, sh in the seas and water which we drink. 'aour +-uman resources,: 'aour describes all forms of work of hand or brain needed to transform natural resources into a form useful to man.This consists of skill, semiKskilled, and unskilled labour. *apita# +Financia# resources,: This consist of the money needed to buy land, machinery and e*uipment and to pay the worker who provide the labour. Entrepreneur6 Is the person who is courageous, creative and one who is prepared to take the risks of starting his own business. /uch a person is usually innovative and may create new products and services, introduce new technology or a new method of production.
Pro.ts Profit is defined as the excess of income over expenditure, especially in business
5rot is calculated using the following formula@
Total prot N Total revenue 4 Total cost
'oss Businessloss is a state that occurs when a company fails to generate enough revenue to cover all epenses associated with the operation of the business. That is oss occurs where e%penses e%ceeding sales or revenues.
oss is calculated using the following formula@
Total loss N Total revenue 4 Total cost and a loss would e%ist where Total cost is greater than total revenue.
Trade
Business or(ani&ation A business organi#ation involves individuals, companies or corporations who engage in industrial or commercial activity with a view of making a prot. Althoough there are nonKprot organi#ations such as government owned schools, service clubs and churches, the objective of a business is to make prots.
Econom!:
Definitions (. 3conomic activitiesrelated to the production and distribution of goods and services in a particular geographic region or country. It also relates to the correct and e+ective use of a country$s availableresources.
$ar/et In economics, a market is a group of buyers and sellers of a specic good or service. A market usually does not refer to a physical location for the buying and selling of products. 3conomists use the word OmarketO to describe a mechanism of e%change between buyers and sellers of a good or service. De.nition: A market is any place where the sellers of a particular good or
service can meet with the buyers of that goods and service where there is a potential for a transaction to take place. The buyers must have something they can o+er in e%change for there to be a potential transaction. A market consist of 1 important elements6 • • • •
'uyers /ellers ;oods and services price
Econom! The economy encompasses everything related to the production and consumption of goods and services in a country.It consists of the economic systems of a country6 the
labor, capital, and landresources6 and the manufacturing, production, trade, distribution, and consumption of goods and services of that country. A market based economy may be described as a spatially limited social network where goods and services are freely produced and e%changed according to demand and supply between participants >economic agents? by barter or a medium of e%change with a credit or debitvalue accepted within the network. 2apital and labor can move freely across places, industries and rms in search of higher prots, dividends, interest, compensations and benets. Ment on land allocates this generally %ed resource among competing users.
Producer A producer is a person who creates economic value, or produces goods and services for sale.5roducers play a huge role in any economic system. This is because producers are the entities who are involved in making goods and services. 5roducers include privately businesses as well as publicly own enterprises. generated within a social system. # consumer may be a person or group, such as a household. The consumer is the one who pays to use the goods and services produced. #s such, consumers play a vital role in the economic system of a nation. &n the absence of their effective demand, the producers would lack a key motivation to produce, which is to sell to consumers.
Enterprise A company >business? organi#ed for commercial purposes6 business rm, directed towards prot. 5rivate enterprise is based on capitalism.
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*apita# All buildings, e*uipment and human skills used to produce goods and services. It refers to the assets such as e*uipment, buildings and any improvement to e%isting structures or plant and machinery to be used to improve production as well as the money used to ac*uire natural and human resources.
E)chan(e Trading goods and services with others for other goods and services or for money >also called trade?. =hen people e%change voluntarily, they e%pect to be better o+ as a result.
*ommodit!: •
# commodity is the term used to describe any marketable item product to satisfy wants and needs, &n economics commodities comprised an article of trade or commerce, especially a product distinguished from a service
2N%T 3 %nterna# Or(ani&ationa# Structure of Business Business 2nits
(. /ole Trader0/ole 5roprietorship ). 5artnerships . 2ompanies 5rivate oint /tock 2ompanies 5ublic oint /tock 2ompanies 1. 2ooperative /ocieties 7. &ranchises 8. oint entures 9. /yndicates • •
So#e Trader4So#e Proprietorship In a sole proprietorship one person owns the business. This type of business may be operated by the proprietor >owner? alone or may employ several persons. In a sole trader enterprise the owner and the business are one and the same in the sense that the business is not a separate entity from the owner. This form of business is the most common form of business unit because@ • • •
They are most often small businesses They are easy to establish and operate. ery little capital s needed for starting up a /ole proprietorship.
Ad"anta(es (. ). . 1.
3asy to establish 2ustomers receive special attention 5rots are not shared There may be a personal incentive to succeed
Disad"anta(es (. /ole proprietorship has unlimited liability in the sense that all losses and debts incurred by the business must be borne by the owner. In other words if the business does not generate prots then the owner may have to sell even his personal possessions in order to pay o+ his0her debts.
). The sole 5roprietor may have problems in raising capital6 because of the lack of collateral needed to obtain a loan. . The /5 may have limited management skills in managing a business. 1. There may be a lack of competitiveness because of the small scale of operation 4 lack of economies of scale. 7. ack of continuity if the owner dies 8. ong working hours and the proprietor may be unable to take vacations.
Partnership A partnership is a business that is jointly owned by the parties involved. According to the partnership act of (BC<, ) to )< persons can come together to form a partnership.
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All partners contribute to the nancial capital of the business /hare the prots and the losses All the partners are fully responsible for the business$s debts and if one partner cannot pay his or her share then the loss will fall on the other partner or partners. Eeed to register the business with the Megistrar of 2ompanies@K Eame, Type and address of the business, the partners names, and date of the partnership agreement >deed? if one e%ist.
Partnership A(reement or Deed As with a /ole 5roprietorship, a 5artnership re*uires few formalities to start. The partners can make whatever arrangements they like between themselves, on the running of the business and sharing of prots. It is always advisable to have a written partnership agreement or deed. This saves a lot of arguments and disputes arising between partners. A partnership deed sets out the rights of each partner as to6 • • • •
The The The The
contribution of capital to the business of each of the partners. division of prots. responsibility of each partner in the business procedure for the admission of new partners into the business.
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=hat happens when a partner dies or leaves the partnership6 or retires.
Partnership Act of 1560 If no partnershipdeed e%ist or if it does not cover the particular point at issue, and the matter comes up before the 2ourts, then the law assumes that the rules laid down in the 'ritish 5artnership Act of (BC< apply6 there are@ (. 5rots and losses must be shared e*ually among all the partners. ). All partners can bind the business in contract e.g. place orders for goods which will then have to be paid from out of partnership funds. . Eo interest will be paid on partners$ capitals or charged on drawings >money they have withdrawn from the business?. 1. Eo partner will be entitled to a salary. 7. All books associated with the 5artnership must be kept at the place of business. 8. All decisions must have a majority vote. 9. In practice these rules are often altered in the partnership deed. As some partners may contribute a larger capital than others, it is *uite common to allocate prots in proportion to capital and to allocate interest on capitals. /ome partners known as sleeping partners may only contribute capital but take no active part in the running of the business to compensate partners that do take part in the running of the business, they may be paid a salary in addition to their share of prots.
T!pes of Partnerships There are two types of 5artnership arrangements@ • •
;eneral or Grdinary 5artnership imited 5artnership
Genera# Partnership In this arrangement all the partners have responsibility for the general running of the business and have unlimited liability. If the business fails the partners like the sole trader may have to use their personal resources to cover the rm$s debts.
'imited Partnership The provisions of a 5artnership Act allow for the formation of a limited partnership, where a minimum of one partner must have unlimited liability. This means that if the business fails then the partner with unlimited liability is responsible for the debts of the business. In a limited partnership@ •
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Gne partner may not be re*uired to be actively involved in the running of the business, even though that partner has contributed capital to the business. The inactive partner is called a sleeping partner but shares in the prots of the business. If the business should become bankrupt then the inactive partner is liable for the debt incurred by the business only to the tune of the sum invested in the business. The other partners have to bear the debts involved.
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3asy to form and manage The enterprise might be much larger than a sole trader as more capital can be contributed by partners. arger rms benet from economies of scale. The partnership increases the ability of the partners to obtain nancing for the business. iability does not rest solely with one person as in the case of the sole trader. A better distribution of the workload as partners can be employed to areas for which they are best suited and e%perienced, Eo corporate ta%es are levied on the business.
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3ach partner has to take responsibility for the acts of other partners, as each partner can legally bind the business in contract. Decision making is slower and even di-cult because partners may not agree on a particular approach to solve a business problem.
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5artners have unlimited liability e%cept for the limited partner.
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'imited *ompan! +7oint Stoc/ *ompanies, There are two types of limited companies@ • •
5rivate oint /tock 2ompanies 5ublic oint /tock 2ompanies
The limited companies are so called because the shareholders who are the owners of the company have limited liability for the company$s debts. Oimited by sharesO means that the company has shareholders, and that the liability of the shareholders to creditors of the company is limited to the capital originally invested.
imited iability companies re*uire a number of legal documents have to be drawn up an deposited with the Megistrar of 2ompanies, before they can commence business6
18 $emorandum of Association The memorandum of association of a company is the document that governs the relationship between the company and the outside world.
This states@ a. b. c. d. e.
The name of the company >with imited as the last word?. =here the registered o-ce of the company will be situated. The objects of the company, i.e. what it is being formed to do. That the liability of the members is limited The amount of capital with which the company proposes to be registered and the type of shares with which it will be made up.
At the end come the PAssociation 2lause$ which is a declaration signed by at least two of the prospective shareholders >seven in the case of a public company? stating that they desire to be formed into a company and the number of shares they will each take.
38 Artic#es of Association The articles of association , defines the responsibilities of the directors, the kind of business to be undertaken, and the means by which the shareholders eert control over
the board of directors. This consists of the rules and regulations governing the conduct of the companys business and the internal management of the company. The #rticles of #ssociation is a document that contains the p urpose of the company as well as the duties and responsibilities of its members defined and recorded clearly. The #rticle of #ssociation contains the following details! *. The powers of directors, officers and the shareholders as to voting etc., +. The mode and form in which the business of the company is to be carried out. . The mode and form in which the changes in the internal regulations can be made. -. The rights, duties and powers of the company as well as the members who are included in the #rticles of #ssociation. 3. Prospectus
# prospectus is only required by ublic companies, that generally wish to transact business by raising capital from the general public./or this purpose of raising capital from the public, the company needs to prepare and issue a 0prospectus. ublic companies that are confident of raising capital on their own need to prepare a document known as0statement in lieu of prospectus. This indicates how the company will operate, its business plans, its stock offerings and an application form. 4. Certificate of Incorporation
When the 1egistrar has approved the documents and the necessary fees paid, a 2ertificate of &ncorporation is issued. This is like a companys 3irth 2ertificate as the 2ompany is now a legal entity and may now enter into contracts. 4.3. # rivate 2ompany can now commence trading but a ublic 2ompany will also require! 5.
Certificate of trading !lso kno"n as a certificate to commence business#
This is issued by the 1egistrar when he receives a declaration from the directors that the formalities concerned with the issuing of shares have been complied with. Pri$ate Company # company whose shareholders may not eceed 56 in number and whose shares may not be offered for public subscription, .i.e. a company in which a small group of shareholders control all of the shares. These shareholders tend to hold onto the company"s stock and, in any case, no shares are publicly traded. rivately held companies are, by their nature, impervious to hostile takeovers and proy wars. They tend to be more stable than other companies because their share
prices are not determined by (sometimes irrational) investment decisions, but by the value of the company itself. 7owever, privately held companies do not have access to as much working capital as corporations with more shareholders have. Types of shares A company may have many different types of shares that come with different conditions and rights. There are Three main types of shares: •
Ordinary shares are standard shares with no special rights or restrictions. They have the potential to give the highest financial gains, but also have the highest risk. Ordinary shareholders are the last to be paid if the company is wound up.
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Preference shares typically carry a right that gives the holder preferential treatment when annual dividends are distributed to shareholders. Shares in this category receive a fied dividend, which means that a shareholder would not benefit from an increase i n the business! profits. "owever, usually they have rights to their dividend ahead of ordinary shareholders if the business is in trouble. Also, where a business is wound up, they are likely to be repaid the par or nominal value of shares ahead of ordinary shareholders.
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Cumulative preference shares give holders the right that, if a dividend cannot be paid one year, it will be carried forward to successive years. #ividends on cumulative preference shares must be paid, despite the earning levels of the business, provided the company has distributable profits.
Preference shares
reference shares (prefs) are legally shares, but they are very different from ordinary shares.! • •
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%ividends on preference shares have to be paid before dividends on ordinary shares. %ividends on ordinary shares may not be paid unless the fied dividends on preference shares is paid first. %ividends are fied like bond coupons, although there are usually provisions to not pay, or delay payments. reference shareholders have a higher priority if a company is liquidated than ordinary shareholders, although a lower priority than debt holders. &n the case of cumulative prefs, if the dividend is not paid in full, the unpaid amount is added to the net dividend due. reference dividends are fied, so they do not participate in increases (or decreases) in profits as ordinary shareholders do.
Definition of %Debenture%
A type of debt instrument that is not secured by physical asset or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. 'oth corporations and governments fre*uently issue this type of bond in order to secure capital. ike other types of bonds, debentures are documented in an indenture.
*ooperati"es K are jointly owned commercial enterprises >usually organi#ed by farmers or consumers? that produce and distribute goods and services and are run for the benet of its owners. The four principles of 2ooperatives are@ (. Gpen :embership@ All member of the public can join a cooperative. ). Democratic control@ All major decisions are taken collectively by members, each of whom only has one vote irrespective of the amount of capital subscribed. . imited interest on capital invested. 1. 5rot sharing@ All prots are given back to the cooperative!s members. These refunds, also called Opatronage dividends,O are paid to each member annually according to the proportion of business each does with the cooperative for that year. T!pes of *ooperati"es
9or/er *ooperati"es 'usinesses owned by people who work in them. 2ontrol is democratic@ one person, one vote.
-ousin( cooperati"es "ousing controlled by the people who live there. 5eople living in the premises jointly own and control the coKop, this in turn controls and manages the premises. :embers are at one and the same time landlord, manager and tenant.
$ar/etin( *ooperati"es :embers can be individuals or businesses getting together for mutual benet to do contract delivery, joint marketing, bulk buying or to share premises. 3.g. farmers and shermen$s cooperatives.
*redit unions &inancial coKoperatives which bring people together to save, borrow at low cost rates, and manage their nances.
Franchise A franchise is a right granted to an individual or group to market a company!s goods or services within a certain territory or location. The &ranchising /ervice /ector in 2AMI2G: is dominated by petrol stations, fast food0*uick service restaurants, lodging0accommodation, and 'usiness /ervices. Eames such as /hell6 Te%aco6 J&26 "ilton6 :arriot6 T;I&6 Ace "ardware6 2ocaK2ola and 5epsi are virtually household names in most of the :ember /tates. An individual who purchases and runs a franchise is called a Ofranchisee.O The franchisee purchases a franchise from the Ofranchisor.O The franchisee must follow certain rules and guidelines already established by the franchisor, and in most cases the franchisee must pay an ongoing franchise royalty fee, as well as an upKfront, oneKtime franchise fee to the franchisor Ad"anta(es Qour business is based on a pro"en idea. Qou can check how successful other franchises are before committing yourself. Qour franchised business will benet from established business systems and procedures that have been tested and proven in the marketplace •
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Qou can use a recogni#ed rand name and trademar/s . Qou benet from any advertising or promotion by the owner of the franchise K the !franchisor!. The franchisor gives you support K usually including training, help setting up the business, a manual telling you how to run the business and ongoing advice. Qou usually have e)c#usi"e ri(hts in your territory. The franchisor won!t sell any other franchises in the same territory.
Financin( the business may be easier. 'anks are sometimes more likely to lend money to buy a franchise with a good reputation.
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Qou can benet from communicating and sharing ideas with, and receiving support from, other franchisees in the network. Melationships with supp#iers have already been established.
Disad"anta(es *osts may be higher than you e%pect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor. The franchise agreement usually includes restrictions on how you can run the business. Qou might not be able to make changes to suit your local market. •
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The franchisor might go out of usiness. Gther franchisees could give the brand a ad reputation , so the recruitment process needs to be thorough
Qou may nd it di-cult to se## your franchise K you can only sell it to someone approved by the franchisor. All prots >a percentage of sales? are usually shared with the franchisor.
Bene.ts *ou#d Pro"e %##usor! K If you choose the wrong franchisor, the typical ObenetsO associated with buying a franchise may prove to be an illusion. That is there are good franchisors and franchise systems and there are bad franchisors and franchise systems. If you choose the wrong franchisor and fail to thoroughly evaluate the franchise agreement, training, onKgoing support and brand recognition may be nonKe%istent6 Potentia# for Reduced $ar(ins K As a franchisee you will be re*uired to pay onKgoing royalties. These royalties, typically, are based on your gross sales and not your prots. /o, royalties will impact your prot margin. /o, make sure that the franchise opportunity and the value of the franchise system outweighs your additional cost.
$er(ers4Acuisitions4Ta/eo"ers :ergers, ac*uisitions and takeovers are actions taken by a corporate organi#ation to purchase most or all of the shares of another corporate organi#ation. :ergers occur as part of a corporate organi#ation$s strategy for e%pansion as a means of enhancing its growth and development. An organi#ation that wishes to e%pand its operation may nd it more benecial to
merge0ac*uire or take over an e%isting organi#ation than to e%pand its own operation.
*on(#omerates A conglomerate is a corporation that is made up of a number of di+erent, seemingly unrelated businesses. In a conglomerate, one company owns a controlling stake in a number of smaller companies, which conduct business separately. 3ach of a conglomerate!s subsidiary businesses runs independently of the other business divisions, but the subsidiaries! management reports to senior management at the parent company. 3%amples of conglomerate in amaica are ;MA23 Jennedy and A/2G. Reasons for $er(ers (. Diversify their interest 4 widen their portfolio of products ). To achieve economies of scale . To bring about stability 1. To achieve leadership in the market -o#din( *ompanies A holding company is a company which owns controlling shares in another company or companies. This control usually comes through owning a controlling interest >more than 7< percent? of the stock of the other companies, which are considered subsidiary companies. S!ndicates An association of people or rms formed to engage in an enterprise or promote a specic business transaction
7oint ;entures +Specia# t!pe of partnership, A joint venture is a contractualagreement joining together two or more parties for the purpose of e%ecuting a particular business undertaking. All parties agree to share in the prots and losses of the enterprise. The joint venture comes to an end when the activity has been completed. $u#tinationa# corporations are business entities that operate in more than one country. The typical multinationalcorporation, normally functions with a head*uarters that is based in one country, while other facilities are based in locations in other countries. Gne common model is for the multinationalcorporation is the positioning of the e%ecutive head*uarters in one nation, while production facilities are located in one or more other countries. This model often allows the company to take advantage of benets of incorporating in a given locality, while also being able to produce goods and services in areas where the cost of production is lower.
Another model for a multinational organi#ationis to base the parent company in one nation and operate subsidiaries in other countries around the world. =ith this model, just about all the functions of the parent are based in the country of origin. The subsidiaries more or less function independently, outside of a few basic ties to the parent. 3%ample of multinational corporations in the 2aribbean are found in the bau%ite and oil industries6
Pu#ic sector usiness The public refers to that part of the economic and administrative life of a country which certain goods and services are delivered by the government or state for the benet for of its citi#enry. The public sector includes all central and local government activities which are funded by the state. The public sector does not embrace the prot motive, but concentrates more on the provision of services for the benet of the country as a whole. ;overnment funding is mainly through ta%es. Mesponsibilities of the public sector include6 3ducation "ealth 5ublic utilities e.g. water, electricity 5ostal services Moad construction and maintenance Transportation Mecreational facilities 5rotection and defence of the people • • • • • • • •
Stateo
3lectricity and water supply 5orts, harbours and airports. The aims of nationali#ation are@ (. To transfer the prots from private shareholders to the community at large. ). To revitali#e a declining industry with fresh investment. . To protect a vital but loss making industry from closure. 1. To start up new industries when private enterprise is unable or unwilling to do so. Students -ome
'oca# Go"ernment and $unicipa# Authorities ocal government is the area of government that focuses on issues at the community level. It refers to the governance of towns, cities or regions at the local level. A municipality is part of the local government system and is typically govern by an elected mayor and city council. A municipality undertake activities that are important for the development of the community, including6 Moad maintenance &ire service 5ublic health ;arbage collection 5oor relief Approval of building plans Advantages of :unicipal Authorities (. :embers of the community have a say in the decisionKmaking process. ). :embers of the community can contribute to policy decisions. . ;overnment policies are not just imposed on the community. 1. ocal needs are addressed at the local level. Disadvantages (. Mesources are limited therefore much of what needs to be done to improve s community cannot be carried out. ). 2entral government is the main provider of funds to municipal authorities, they may decide on projects that are not community priorities. . :any projects are aborted when government changes. • • • • • •
Economic S!stems There are three types of economic systems@ the &ree 3nterprise >market? economy, The :i%ed 3conomy and the 5lanned 3conomic /ystem
Free Enterprise S!stem In a free market economy there is little or no government interference in the economy. It is based on private ownership of the factors of production and the means of distribution of goods and services. :arket forces of demand and supply are allowed to determine how resources are allocated /ometimes such economies are referred to as market economies, unplanned economies, free enterprise, laisse#Kfaire or capitalist systems. 3%ample /A
Ad"anta(es (. &ree enterprise stimulates innovation and keep prices down. ). Individuals are completely free to use their income and labour to their best advantage. . 2onsumers decide what will be produced by inRuencing market forces. Disadvantages (. It encourages ine*ualities of wealth between rich and poor. ). Advertising can be used to create an articially high demand for products. . The more powerful businesses may buy out the smaller ones, thus reducing competition. 1. =ealthy people are more able to purchase and inRuence the market than poor people. 7. 2ompanies may be tempted to restrict supplies sto keep prices articially high.
Business Or(ani&ations A business is a rm or entity that is usually legally constituted to provide goods and 0or services to consumers. Reasons for esta#ishin( a usiness (. STo achieve nancial independence ). To obtain power >inRuence and status? . To make a prot 1. To gain personal freedom >Re%ibility? 7. To lay the foundation for a family legacy 8. To respond to changes in personal situation. 9. To put creative ideas into operation
B. To respond to a desire for selfKactuali#ation
The functions of a usiness (. To provide goods and services ). To make prot . To create employment Socia# responsii#ities of a Business *ommunit! (. To provide employment ). /upport community projects . 5rovide scholarships for community persons 1. Develop community parks 7. 3ncourage cultural and recreational outlets for residents. To *ustomers (. &air prices ). ;ood *uality goods and service >merchantable goods and services? . Eot to provide misleading advertisements 1. Ade*uate information on labels on product content, storage and safety concerns. To Supp#iers (. To make timely payments ). 5rovision of timely information . To relay information of consumers concerns of products to suppliers To the Go"ernment (. To pay ta%es over to the government ). To operate with government regulations . To assist with employment 1. To assist with economic growth and developmentt
PR%N*%P'ES OF B2S%NESS G'EANER *=* ST2D> G2%DE SER%ES F2N*T%ONS OF $ANAGE$ENT
$ana(ement The term management describes all activities involved in the ac*uisition and organisation of resources >people, nance, e*uipments and materials?, that are needed by any group within society, in order to achieve its objectives. All organisations K commercial enterprises, schools, hospitals, the armed forces, civic service, and charities, need to ac*uire and manage resources in order to achieve their objectives. It is often the *uality of its management that determines whether or not an organisation will be successful and reali#e the objectives it has set for itself.
The purpose of mana(ement :anagement is important to an organisation because6 >a?Gbjectives have to be set for the organisation. >b?These objectives have to be met, and somebody has to ensure that this happens.
>c? The organisation has to have a collective way in dealings with its employees, its shareholders, its customers, the public and other organisations.
$ana(ement e?ecti"eness :anagement e+ectiveness relates to the rm!s ability to serve the needs of its various stakeholders. it involves doing the right things at the right time. >a?/hareholders e%pect a reasonable return on their investment. >b?=orkers e%pect to be employed and to receive fair wages. >c? 2ustomers e%pect suitable products and services at appropriate prices. >d?/uppliers e%pect to be paid.
Functions of $ana(ement The major functions of management include the following.
+a,
P#annin(
This involves selecting objectives and the strategies, policies, programmes, and procedures for achieving the objectives. This is concerned with identifying trends, anticipating what is likely to happen and deciding on the best course of action to enable the organisation to reach its objectives.
+,
Or(ani&in(
This involves the establishment of a structure of tasks which need to be performed to achieve the goals of the organisation. It includes grouping these tasks into jobs for an individual, creating groups of jobs within sections and departments, delegating authority to carry out the jobs, provides systems of information and communication within the organisation. Grgani#ing therefore are the activities which bring people together, materials and e*uipment, in such a way that the stated objectives are achieved. This involves6 >(?Deciding what has to be done. >)?5utting the task in a logical order. >?;iving specic tasks for people to do.
+c,
*oordinatin(
This is the task of harmoni#ing the activities of individuals and groups within the organisation. It involves ensuring that people, nance and physical resources are in the right place at the right time and in the right *uantities.
+d,
Directin(
This involves giving directions to subordinates to carry out tasks over which the manager has authority for decisions, and responsibility for performance. The activity of issuing directions, e%plaining and motivating people to work to achieve the objectives of the business are important elements in this management function.
+e,
*ontro#
This is the task of measuring the activities of individual and groups to ensure that their performance is in accordance with plans. Deviations from plans are
identied and corrected as soon as they become apparent. The information gathered from the control function of management can be used as a foundation for future planning and organisation.
'eadership and mana(ement e?ecti"eness A manager!s style is the way in which the manager handles his0her relationship with subordinates. This is the process of inRuencing others to work willingly towards the organisation!s goals, and to the best of there capabilities.
St!#es of #eadership There are four di+erent styles of leadership
+a,
Autocratic
The autocratic leader makes decisions and announces them. "e sets his own objectives, allocates tasks and insists on obedience. As a result in an organisation, subordinates become very dependent upon their manager. They do not have the necessary information to make their own decisions. 'eing so dependent, there is little cohesion in the train the manager controls, and output, although it can be high under supervision may not be of good *uality. This type of management can fre*uently lead to dissatisfaction. Gn the other hand autocratic leadership can be essential in certain situations. The discipline imposed on armed forces is just one such e%ample.
+,
Democratic
The democratic leader encourages participation in the decision making process, consults with group members and sells the nal decision to them. The democratic leader works on the assumption that people will work better if they know and believe in their objectives and in the goals they are working towards. This style demands good communication skills on the part of the leader. The end result is satisfaction from the people being managed, *uality of output tends to be above average and members of the group make a large number of suggestions to help to improve performance and achieve identied targets.
+c,
'aisse&Faire
:anagement presents a problem to his group of subordinates and asks them to solve it. "ere subordinates are allowed to act as they wish within specied limits.
+d,
*harismatic
A charismatic leader is one who inRuences and motivates others because he0she has an outstanding personality or character.
Trade 2nions /ome industries have a history of labour disputes involving skills and goK slows. &re*uent causes of labour unrests include@ ow =ages 'ad05oor =orking 2onditions 'ad employer0employee relationships 'ad :anagement :onotonous =ork nsettled 3mployment 5rospects Delay in getting paid
