What business activity is for

Business activity is the process of turning inputs (land, labour, capital, enterprise) into outputs that satisfy customers' needs and wants. The point of the process is added value — the difference between what the customer pays and what the bought-in inputs cost.

• Needs are essentials (food, shelter); wants are everything else. Businesses satisfy both, and marketing works on wants.
• Value is added by branding, design, convenience, speed, quality and after-sales service — not just by physical processing.
• Enterprise is the factor of production that organises the other three and bears the risk. Entrepreneurial characteristics: risk-taking, initiative, resilience, opportunity-spotting.

Exam edge: added value is not profit. Profit only appears after all other costs (wages, rent, overheads) have been taken out of added value.

Your turn — added value

Mission, aims and objectives

A mission statement says why the business exists. Corporate aims turn that into long-term direction, and objectives make it measurable.

• SMART objectives are Specific, Measurable, Achievable, Realistic, Time-bound.
• Common objectives: survival (especially in a start-up or recession), profit maximisation, sales/revenue growth, market share, cost efficiency, employee welfare, social and ethical objectives.
• Objectives change with the business: a new firm chases survival and cash flow; a mature plc is judged on profit and shareholder returns.

Evaluation: objectives conflict. Cutting costs to raise profit may damage quality and employee welfare; chasing growth can drain cash. Good answers weigh the trade-off, not just list objectives.

Revenue, costs and profit

Profit is the reward for risk and the main internal source of finance (retained profit). Profit margin shows how much of every pound of sales is kept as profit:

Your turn — profit

Your turn — profit margin

Stakeholders vs shareholders

A stakeholder is any individual or group with an interest in, or affected by, the activities of the business. A shareholder is one type of stakeholder — an owner holding shares in a company.

Shareholder concept vs stakeholder concept: the shareholder concept says managers should maximise returns to owners. The stakeholder concept says a business should balance all interests. Conflict is inevitable — e.g. relocating production overseas raises shareholder returns but costs employees their jobs and damages the local community.

Quick check

Whose interest is it?

Tap a concern, then tap the stakeholder group most likely to raise it.

Forms of business — unincorporated

Unincorporated businesses have no separate legal identity from their owners, so the owners have unlimited liability — personal assets (house, car, savings) can be seized to pay business debts.

• Sole trader — one owner. Cheap and fast to set up, total control, privacy of accounts. But unlimited liability, hard to raise finance, no continuity if the owner dies.
• Partnership — 2–20 partners under a deed of partnership. More capital and shared expertise, but profits are shared and each partner is liable for the others' business debts.

Forms of business — incorporated

Incorporated businesses have a separate legal identity: the company can sue, be sued and own assets. Owners get limited liability — they can only lose the money they invested.

• Private limited company (Ltd) — shares sold privately, usually to family/friends; cannot advertise shares to the public. Ownership is easier to keep control of.
• Public limited company (plc) — shares traded on a stock exchange; minimum £50,000 share capital. Can raise huge sums, but faces a divorce of ownership and control, takeover risk, full public disclosure of accounts and short-term pressure from institutional investors.
• Other forms: franchise (buy the right to trade under a proven brand), social enterprise and co-operative (surplus reinvested or shared among members), not-for-profit / charity.

Ordinary share capital is permanent capital: shareholders get a vote and a dividend when profits allow, but the company never has to repay it — unlike a bank loan.

Quick check

Quick check

Public sector, private sector and privatisation

• Private sector — owned by individuals and shareholders; run mainly for profit (e.g. Tesco, a local plumber).
• Public sector — owned and funded by the state; run to provide a service and meet social objectives (e.g. NHS, state schools, the police).
• Privatisation transfers a state-owned organisation to private ownership. Arguments for: competition drives efficiency and innovation, raises money for government. Arguments against: private monopolies can raise prices, cut unprofitable services and prioritise shareholders over users.

Businesses are also classed by sector of activity: primary (extraction: farming, mining), secondary (manufacturing/construction), tertiary (services). The UK has seen long-run de-industrialisation: a shrinking secondary sector and a growing tertiary sector.

Match the term to its meaning

Tap a card on the left, then its partner on the right.

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Risk, reward and opportunity cost

Every business decision has an opportunity cost — the value of the next best alternative given up. Investing £200,000 in a new van fleet means that £200,000 cannot be spent on a marketing campaign.

• Risk and reward move together: the entrepreneur takes the risk of losing their capital in exchange for the residual profit.
• Objectives change over time: survival and cash flow at start-up; growth and market share once established; profit and shareholder value at maturity; possibly ethical and environmental objectives as the brand matures.
• Trade-offs: a business that maximises short-run profit may under-invest and lose long-run competitiveness.

Exam technique: OCR rewards application (use the numbers and the context you are given), analysis (a chain of consequences: "this means... which leads to... so...") and evaluation (a supported judgement with a condition — "it depends on...").

Quick check

Quick check