The Business Environment Coursework. Describe the type of business, purpose and ownership of 2 contrasting types of businesses.

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BTEC Extended Diploma in Business Unit 1 The Business Environment Gemma Parnell

Task 1 Describe the type of business, purpose and ownership of 2 contrasting types of businesses.

Sole Trader

  • A sole trader is a business owned by 1 person. It does not have limited liability meaning that if it fails and creates debts the owner is personally responsible for this.
  • Sole trader’s usually have to work long hours and learn about all the aspects of business as many start up businesses cannot afford to hire people to take on other tasks.
  • The owner is responsible for everything that goes on in the business and has to do a lot of work. The owner also receives all the profit and is able to make decisions on their own.
  • The owner has full control over the business.
  • Hair dressers, small independent shops and book keepers are usually sole traders.

Partnership

  • A partnership is a lot like a sole trader only there are more than 1 owner.
  • This usually means the work and responsibility is shared and so are the profits.
  • Good examples of partnerships are dentists, accountants and lawyers.
  • There is usually more money and ideas that can be put into the business.
  • There may be disagreements between partners and this can affect the way they run their business.
  • Depending on what contracts were drawn up, one of the owners may decide to leave and leave debts to the other owner or owners. Each partner has to take the risk of full responsibility for the business.

Private Limited Company

  • A limited company is separate from its owner. This means if the company is sued or creates debts, they cannot take money from the owner. This means that an owner can only lose what they have put into the business and nothing more.
  • A limited company is usually a fairly small business and has up to 50 shareholders. The amount of profit received depends on the amount of shares held. Decisions usually need to be agreed with by all shareholders. It can be hard to keep all shareholders happy.
  • Shares are usually held by other people running the business and friends or family, it is usually easier to keep shareholders in a smaller private limited company then a public limited company.

Public Limited Company

  • A public limited company is owned by the shareholders and run by a board of directors and they nominate a managing director who over see’s the business.
  • Decisions can take a long time to made and put into place.
  • A public limited company is different to a private limited company because the shares are sold on the stock market meaning anyone can buy shares.
  • A PLC is usually a big company like Tesco’s, Asda and McDonalds.  
  • The board of directors have to make decisions based on what is best for the company but they need to work hard to keep their shareholders happy.
  • If a company like this fails then a lot of people who own shares would be very unhappy as they would have lost their money.

CIC (Community Interest Company)

  • Forming Community Interest Companies (CIC) is the new and popular solution for small and medium sized Social Enterprise ventures. With less red tape than a full Charity registration, CIC is specifically intended for social and community enterprises
  • They have limited liability the same as a private limited company and they run the same.
  • Although their objectives are to make profit they also dedicate themselves to the local community and putting some of their profits back into the community.
  • A CIC company can be limited by shares or limited by guarantee.  

Franchises

  • A franchise is when you buy the business model and branding of a well known business. For example McDonalds and Subway. Usually you have to pay a fee to start up the franchise as well as continuous fees depending on your profits.
  • Franchisers do not have much control over the way the business is run, and what products they can sell.
  • If the company fail’s then many franchisees would also go out of business, they would not be liable for the company's debts though.
  • The only way you may limit your liability for any debts run up by the company, and establishing it as a separate legal entity from yourself, is to form an LLC. This is a Limited Liability Company and under this more flexible entity, the owners of the business or franchise have some protection from what the company, as a separate legal entity, does. What attracts most people to an LLC is the limited liability for the actions and debts of the franchise. 

Co-operatives

  • A cooperative is owned by the people who work for it. Employee’s buy a share in the organisation and have a vote in making decisions.
  • Members receive a share of the profits in the form of a dividend, when they leave they can take their funds back.
  • They believe that those who do the work should get the rewards.
  • A co-operative has limited liability.
  • Examples of co-operatives are The Co-operative and Best western hotels.
  • If the business fails that all the members lose the money they used to buy their share but nothing else

Government Departments and Agencies

  • Owned by the government and funded by taxes
  • A government department is led by a government minister, usually a cabinet member.
  • Has a considerable amount of freedom in the running of the business, but is owned and accountable to the government.
  • A customs and Revenue office are a government department, but has agencies that run under them with a smaller degree of control. For examples the Tax credits agency.
  • The business purpose is to provide the service in a cost effect efficient way and not to make profit.
  • Owners need to be concerned that they are run efficiently, as if there are problems with how they work and deal with customers it may make the public unhappy, and feel that the service is not good value for money. As customers are also voters they want to keep them happy.
  • The consequences if the business fails are that a lot of money funded by tax payers would have been wasted, and there may be anger in the general public. As government departments are usually services that are needed in society if it fails this can cause problems for people who were relying on the service.
  • Ultimately run by government departments but are able to make day to day decisions on their own and have more control over their management
  • Government agencies include the national policing improvement agency who works under the Home Office.
  • Government agencies are often shut down because they are not viable or when there is a change in government or policy. Government agencies are usually set up to be a permanent agency or semi-permanent

Charities

  • A charity is a business that is set up to raise money for a cause and not for profit.
  • Charities create a surplus, instead of profit and this is used for their cause.
  • The management of a charity is overseen by a group of trustees, who are volunteers with reputations as responsible citizens.
  • Charities have to be registered and must produce accounts to be viewed.
  • Charities employ paid and managers and staff as well as volunteers.
  • A charity can gain full charity registration and have limited liability by becoming a charity limited by guarantee

I have chosen Culture Café CIC and Tesco’s as my chosen businesses.

Culture Cafe started as a sole trader and then became a private limited company. They are now a community interest company. This means they work with the community in mind and use profits to help the community, but they still hope to make profit and their structure is very similar to the way a private limited company works. Culture café is a catering company that run’s café’s in existing places like college’s schools and libraries. They currently have 4 sites, a local authority golf club, a library, a college refectory and a tourist steam train station. The cafés have become a community cultural hub liaising with theatre, artistic and cultural groups in the area creating menus and promotion tide in with cultural events and schemes. They employ around 20 people and are hoping to start training employees to give them skills and qualifications. Last year there turnover was around £80,000 and this year they estimate their turnover will be £200,000. There is only one shareholder who also works as the managing director. The business started in 2005 as a company called Vendesent that sold and maintained vending machines, when a catering contract was offered 2 years ago it changed the direction of the business and has organically grown into a catering company. It was then the owner decided to change the name of the company. Culture cafés aim to have 8 sites by 2012, and 40 sites across the south east by 2020.

Tesco is a massive public limited company that is owned by shareholders. They are the 3rd largest retailer in the world measured by revenue and they have stores in 14 different countries. As this is a public limited company the shares are sold on the stock exchange meaning anyone can buy shares. The company is run by a board of directors who appoint a managing director to help oversee the running of the company. Shareholders receive money from the profits twice a year depending on how well the company is doing and how many shares they hold. Tesco have to keep their profits up to keep their shareholders happy. Therefore their purpose is to make a lot of profit. Tesco are primarily known for being a supermarket but they have ventured out into convenience stores, banking, insurance, clothing and household items including furniture. They have also expanded into 14 other countries. Tesco started as a sole trader on a market stall in 1919, there first store opened in 1929 and they have come a long way since then. Tesco’s aim is to increase their market share and keep expanding into other markets and other countries. They rely a lot on the UK for their profits so I expect they are looking to do better abroad.

Task 2 Describe the different stakeholders two influence the purpose of two contrasting businesses.

Stakeholders are people who have an interest in the company. Decisions that the company may make can affect the stakeholders in different ways. The main types of stakeholders are customers, employees, suppliers, owners, trade unions, employer associations, local and national communities and government. When a company has to make a decision or make changes within the business they need to look at how it will affect their stakeholders.

Customers are the people who are buying products and services, when a business decides to make changes to the products sold, the way you buy them or the prices this can affect them. Supplier’s sell the products to the company and relies on them for orders. Changes in the stock sold or if they find a cheaper supplier this could mean that a supplier loses out on them as a customer. Employees rely on the business for employment and there are many changes that could affect them, for example if the business decides to relocate they may not be able to travel there, if the business fails they would be made redundant, changes in the products or services may mean they need to learn new skills, and if a company is going through financial difficulties they need to cut the amount of hours employees do in order to save money. The owners, banks who lent them money and investors are all stakeholders and business decisions can affect profit which may affect the money they receive, either through loan repayments being unable to be made or profits they receive. Sponsors can be affected when business does badly as they may lose out on money they receive from a company who sponsors them, when a business does well they may even increase the sponsorship money they give them. If a company decided to open new stores or expand it can affect the community, it could bring needed services to the area, give employment to local people and help bring money into the community. Pressure groups do a lot of work to encourage companies to act in a more ethical way, is a business makes decisions it may affect the work they are carrying out, although it is their choice to respond to what the business does. If a company does well it means more taxes are paid which affects government as they receive more money.

Tesco’s need to think carefully about the products they sell. Customers expect the products to be accessible and of good quality. Tesco also need to make sure they are selling popular brands of things that consumers want. Customers are the people that are bringing money into the business so it is important that customers are kept happy to ensure success. Supplier’s sell all the stock that Tesco’s use in their stores. When working with a big company like Tesco’s suppliers have to make sure that they are selling it at the right price and that it is delivered on time. If stock is delivered late then during that time the product won’t be able to be sold in store and this would lose those sales. Tesco do not need to worry that much about how their decisions may affect suppliers as they are a very big company and most supplier’s would be worried losing them as a customer as having Tesco as a customer would generate a huge turnover for them. Tesco employ a lot of people, not just in store and deliveries but in the head office as buyers, accountants, marketing staff and all the other roles that this big company need to fulfil. When they are doing well this is good for employers as they may gain more hours, or receive bonuses and pay rises. New stores opening can also create new jobs. If Tesco’s were doing badly they may need to cut back on the amount of staff they require. The way an employee acts can also affect Tesco’s, if a member of staff is rude to a customer or not doing their job properly it may affect how people see the business and are less likely to want to shop there. It costs a company a lot of money to advertise, interview, hire and train new staff, Tesco need to make sure they treat their staff well and pay them a good rate so that they are encouraged to stay with the company. The owners are mainly concerned with the profit the company makes as they take a percentage of the profit to keep. How well a business is doing can affect the rated of interest when they take out a loan, the banks are concerned about the money being repaid on time. Trade unions and employer associations are there to make sure Tesco are treating their staff fairly and within the law. This may affect how Tesco when making decisions as they need to keep in mind how they treat their staff. When Tesco decide to open a new store it can provide lots of benefits to the local community such as a convenient place to shop and create new jobs. They will need to get planning permission from the local council and there may be issues with pressure groups they need to face. Local rules within the council may affect the likelihood of them being able to open new stores. Local business owners may worry about how it will affect their business and customers may spend less in their shops if there is a new Tesco store. There will also be concerns over how it will affect the environment. The taxation laws may affect how Tesco operate; they may make decisions based on how tax efficient it is. For example they may choose to rent land to build stores as opposed to buying as this is more tax efficient.

Culture café need to think carefully about its customers and what products they want. The sites they run are fairly different in terms of customers and type of food they sell they need to make sure they cater for the different needs. Customers expect good quality and low prices. If they decided to change the menu this may be a good thing for customers but it might not be, it could also affect their suppliers as they may decide to change. A small company like Culture café may find it difficult to find good suppliers as they are a small company and most suppliers do not mind that much if they decide to switch. This means they need to stick the terms set out by the supplier, this can mean paying extra for delivery, or having a minimum order they need to put it. This can affect the products they sell, as they may need to increase their order to meet the minimum order but are unlikely to sell the fresh produce quickly enough, this may mean they stock more things that have longer shelf lives. Employers are affected by how well the business does as this may mean a pay rise or more hours, in bad times their hours may be cut to save money. The owner’s hope that the business makes enough money for them to be able to take some of the profits. There is only one shareholder in this business which makes it easier to make decisions as they do not need to consider the wants of other shareholders. The banks will be affected is business is slow as the owner may struggle to repay any loans and overdrafts they owe. Trade unions and employer associations can affect the decisions the owner makes with staff as they need to make sure staff are treated well, paid enough and given adequate amount of breaks. There are also laws that make sure staff have access to toilets, drinking water and an area to make hot drinks, this can affect them as when they are applying to new sites they need to make sure the site is up to scratch in these areas. If a site is not up to scratch it may affect their profits if they need to put more money into it. Culture café need to think about how they affect the local community. They work hard to bring good into the area, such as employment, staff training and helping the local council with their events. Anything the local council does in the community can affect them, for example if the council decided to make cut backs in library’s, this may mean that the site at the library is not looked after or closed and this would affect profits.

Task 3 For each organisation outline; a) their strategic aim and objectives b) how they are decided c) describe their organisational structure using an organisation chart d) describe how work is divided into functional areas and how these areas are dependent upon each other.

  1. Strategic aim and objectives of Tesco and Culture Café

Tesco

Tesco’s main aim is to make profit and increase their market share.  They plan to maximise sales, and provide goods at competitive prices to their customers. They also aim to cut their carbon footprint and be seen as a more ethical and environmentally friendly company, although

The objectives of the strategy are:

  • To be a successful international retailer
  • To grow the core UK business
  • To be as strong in non-food as in food.
  • To develop retailing services - such as Tesco Personal Finance, Telecoms and Tesco.com
  • To put community at the heart of what we do.

Tesco also have an international strategy for their over sea’s stores

  1. Be flexible - each market is unique and requires a different approach.
    In Japan, customers like to shop for small amounts of extremely fresh food, every day. Existing hypermarket formats don't meet the needs of local customers, so Tesco's entry into the Japanese market was through the acquisition of a discount supermarket operator.
  2. Act local - local customers, local cultures, local supply chains and local regulations require a tailored offer delivered by local staff.
    In Thailand, customers are used to shopping at traditional wet markets, interacting with vendors and rummaging through piles of produce to choose what they want. Rather than adopting the Western approach of neatly packaged, convenient portions, the Rama IV store in Bangkok tries to meet local customers' expectations.
  3. Maintain focus - Tesco understand that customers want great service, great choice and great value. To become established as the leading local brand is a long term effort and is not about planting flags in map.
  4. Use multi-formats - no single format can reach the whole of the market. A whole spectrum from convenience to hypermarkets is essential and you need to take a discounter approach throughout.
    Their experience of trading a mix of stores means they can now move to multi-format quicker and they have recently opened Express stores in Hungary and the Czech Republic.
  5. Develop capability - it's not about scale, it's about skill - so Tesco make sure they have capability through people, processes and systems.
    Tesco believe that investing in people is the right way to live their values and brings sound business benefits, too. Developing individuals at every level means that they have home-grown managers who understand our culture and can effectively develop our business.

  1. Build brands - brands enable the building of important lasting relationships with customers.

Culture Café

Culture café’s main aim is to make profit and increase sales. They hope that whilst they make profit, they also help the local community. They provide catering solutions in areas in the local community, for example the library café. They host cultural and charitable events at their sites and aim to help local groups wherever they can. They offer good value food at reasonable costs and are flexible to offer a range of services depending on what is needed from each site.

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Objectives of the strategy

  1. Increase turnover
  2. Increase profit
  3. Increase the level of support they offer, more successful charity events for example
  4. Increase the flexibility of what they can offer
  5. Become more well known in the local area
  6. Open up new Culture Café’s.

Culture Café is a relatively new business that has built itself up over the past 2 years. They already have 4 sites and hope to increase this to 8 sites by 2012. They tender for new contracts regularly and hope to prove themselves as an efficient and effective way of running catering establishments.

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