Some businesses have a mission statement. A mission statement is defined by about.com as “a brief description of a company’s fundamental purpose”. The website also states that “A mission statement answers the question, “Why do we exist?”” This means that a mission statement tells people what the purpose of the company is and what it aims to do. For example the St Albans Catholic High School Mission Statement says "St. Alban's Catholic High School seeks to be a living Christian Community in which effective learning takes place. By recognising Jesus Christ in each one of us, we aim to develop fully the unique talents of each pupil." This statement tells people what the purpose of the organisation is, and outlines, in brief, what it aims to do.
Ownership
There are many different types of business ownership. These are sole trader, partnership, private limited company, co-operative, franchise, and public limited company.
Both sole traders and partnerships have unlimited liability and are responsible for all debts and may have to sell their own personal possessions to settle these debts.
Sole Trader
A sole trader has only one owner. Sole traders have unlimited liability so the owner of the company is responsible for all of the businesses debts and may have to use his or her own personal wealth to settle these debts. Sole traders are suitable for one person who wants to run a small business with low risk and little investment. Sole traders are easy to set up, give a personal service because they are so small, quick decisions can be made because there are not so many people to confer with and so the owner is independent. There is a minimum of paperwork as there are not so many workers and because the business knows its customers, bad debts can be avoided. However there are also disadvantages such as unlimited liability, which means that the owner is responsible for all debts and may have to sell personal possessions to pay off these debts. There is also long hours, no cover for holidays or sickness, business skills are needed and the business ends on the death of the owner.
Partnerships
Partnerships have two to twenty owners and are suitable for professional groups, husband and wife businesses and small businesses needing different skills such as doctor’s surgeries. In partnerships it’s easier to raise capital as all the partners contribute, problems and ideas can be discussed between partners, there is a greater range of expertise, ideas and skills, because of the different skills, partners can specialise in their own areas and so can offer a greater range of services to customers. There is also cover for holidays and sickness. However there is also unlimited liability, as in sole traders and profits have to be shared out between partners. As there are more people involved in a partnership, disagreements may arise and all partners need to be consulted on decisions this makes decision making harder. It is important that all partners agree on a decision because any actions or decisions made by one partner are binding to all of the other partners. The death of a partner means that the share invested needs to be taken out of the business and repaid into the partners estate.
Private and Public Limited Companies
Private and public limited Companies have limited liability so they can only lose their investment even if the company is in huge debt. These companies each have their own identities in law so legal action will be taken in the name of the company not of the owner. Both private and public limited companies employ the staff and own the assets, not the owners. Corporation tax is paid on the company’s profits. These companies operate and keep working until they are formally wound up or until they go into liquidation. Companies go into liquidation when if you divide their current assets over their current liability, the answer in above 1 then the company is not liquid, however if the answer is below 1, the company is liquid, as the cash flow is negative and losses are being made.
Private Limited Companies
Private limited companies are suitable for family run businesses. The names of these companies end in “Ltd” to show that these are private limited companies. Private limited companies can be small and many are family firms with the shareholders being the family members. The shareholders are under the protection of limited liability, which means that they can only lose the amount of money they have invested regardless of how much money is owed. There is a minimum of one director and one shareholder and because there is no fixed amount, which has to be invested, setting up private limited companies is quite easy. Unlike in public limited companies, the affairs of the business including accounts are kept private. It is easier to raise capital and borrow money from the bank because of the limited liability and the death of a shareholder will have no effect on the company. Shares cannot be sold to the public, which means that there is no risk of the company being taken over. However, there are more regulations to comply with, accounting procedures could be more costly than other ownerships. Share transfers need the agreement of everyone, which can be time consuming and costly.
Public Limited Companies
Public limited companies are suitable for large either national or international operations. The names of these companies end in “plc” to show that these are public limited companies. Public Limited Companies have increased shares because the public can buy shares. They have limited liability; so can only lose the amount of money that they have invested. If the company is successful then the shares can increase in value and there is a minimum of 2 directors and 2 shareholders. Because these companies can be larger, they can make greater savings by buying in bulk and mass-producing goods. However, there are disadvantages to public limited companies. There are many regulations to comply with and the public can access accounts and problems. If dividends are poor then the shareholders can sell their shares. The original owner can lose overall control of the company to the shareholders.
Franchises
Franchises are small businesses trading with the agreement of a large firm. They can often have higher success rates than other small businesses. Franchises can benefit from advice, guidance, expertise and national advertising. In a franchise there are fewer decisions to be made and the owner gets most of the profit. It is easier to raise capital is a franchise than in other small businesses. However, the franchisor must have some of the profit and the owner of the franchise does not have as much freedom in decision-making. The franchisors products or services are the only ones that can be sold. The franchise agreement terms are drawn up by the franchisor and may restrict sales of the franchise and the franchisor could make it so that the agreement can be terminated easily if certain targets are not met. The GCSE Applied Business FOR OCR book tells us “the franchisee is largely dependant on the popularity of the franchisors product or service and the amount of advertising and promotion activities undertaken by the franchisor”. In order for franchises to succeed, the skill of the franchisee and the ‘dependability’ of the franchisor are very important.
Co-operatives
Workers and members collectively own and control co-operatives. In co-operatives the workers and owners have equal shares in the business, have one vote each, and have an equal share of the profits. A co-operative can also be a limited company with the benefits of limited liability. Decisions are made by the owners together, and are made in the interests of everyone. Independent decisions can be made by the workers in order to decide whether or not to be an owner. The GCSE Applied Business FOR OCR book tells us “Jobs can be rotated so people can extend their skills and the least popular jobs can be shared”. However because there is no overall owner, banks can be wary of lending money to co-operatives and the GCSE Applied Business FOR OCR book also tells us “suppliers may be reluctant to provide goods on credit for the same reason”. Because everyone is involved in decision-making, this can take a long time and hard business decisions may upset members, especially if they have strong moral or social beliefs. Because jobs are rotated some people may not be as able to do certain jobs as others and so work may not be as efficient.
Activity
A business activity is the operation that the business carries out. Many businesses carry out more than one activity but their main one is called the core business. The core business activity is the activity that holds the business together. E.g. Burger king’s core activity could be to provide fast food. The main types of business activity include, producing raw goods, manufacturing goods, sales of goods, client services and other services.
Firms are attracted to profitable activities and away from unprofitable activities. Activities are profitable if customer demand for a product/service is increasing. Changes to business activities can happen because of consumer spending either rising or falling, technological developments occurring and the value of goods and services produced changing. These changes can affect the number of people employed in different activities.
It is very common to group business activities by sector. The three main groupings are the primary sector, the secondary sector and the tertiary or services sector.
Location
The location of a business can be very important. Today location matters less because of the development in technology and ICT but in some cases location must be considered very carefully.
Factors that influence a location choice:
- Labour
- Premise costs
- Financial assist and local government charges
- Transport links
- Near Customers
- History and tradition
- Sales techniques
- Business activity
- Number and location of competitors
- Reliance on personal visits by customers
- Reliance on local supplies
- Reliance on specialised labour skills
- Methods used to contact customers
Passing trade, which is the public and potential customers, and rates, which tend to be higher in towns as opposed to outskirts, also affect the location choice.
Positive effects of a good business location:
- Additional sales opportunities, through passing trade and faster responses.
- Increased income
- Lower costs of running the business (e.g. rates) so reduced costs and higher profits.
Relocating may be necessary if:
- Competitors relocate (e.g. a new shopping centre opens/relocates)
- Trades are diverted
- Methods of making contact with customers change
- Methods of production change, reliance on suppliers changes
- Costs increase on premises and alternatives would save money.
It is important to identify future changes that could affect future location choices.