Can you think of a local Twickenham business? Click on the picture:
Can you think of a business that operates on a national scale. Clue: it will visit every household in the country.
Can you think of a business that operates on an international scale? Click on the picture:
Do you know the difference between the public sector and the private sector? Public sector organisations are those that have been set up or taken over by the government. Examples of public sector organisations include:
HMRC powers:
According to its website, the HMRC can:
Apply for orders requiring information to be produced – production orders.
Apply for search warrants.
Make arrests.
Search suspects and premises following arrest.
Example 2:
Network Rail is the owner and infrastructure manager of most of the rail network in England, Scotland and Wales.
Network Rail is responsible to the Department for Transportwith no shareholders, which reinvests its income in the railways.
In the UK there are very few public sector organisations left. They have become private sector organisations through a process called privatisation. Private businesses are owned by private individuals. Private owners risk their own money, so are determined for their business to succeed. Examples of private sector businesses:
Not-for-profit/voluntary businesses:
In pairs, how many of these organisations can you think of?
Some examples:
https://www.msf.org.uk/about-us
A charity must meet strict requirements set out by law. It must register with the Charity Commission and present a set of accounts each year. Charities have to be set up for a specific purpose.
Sole traders, partnerships, private limited companies and public limited companies.
You need to learn definitions, advantages and disadvantages of each type of legal structure. You could start here.
Or you could click on the picture:
There are some good notes on this topic from this website.
Franchising:
The owner of a (hopefully) successful business idea allows someone to trade using the business format and trademark.
The owner of the business idea is called the franchisor and the person who wants to run the franchise is called the franchisee.
Advantages and disadvantages of franchising and more from the Ashbourne College blog here.
Texas chicken - the next big thing?
Social enterprises:
Social enterprises trade to tackle social problems, improve communities, people's life chances, or the environment.
They make their money from selling goods and services in the open market, but they reinvest their profits back into the business or the local community.
And so when they profit, society profits.
Click on the picture:
Lifestyle businesses:
A lifestyle business is a business set up and run by its founders primarily with the aim of sustaining a particular level of income and no more; or to provide a foundation from which to enjoy a particular lifestyle.
Online businesses:
An online business is any business on the Internet that sells products, services, or advertising, online.
Advantages and disadvantages of this type of business here.
Growth to Public Limited Company (PLC) and stock market flotation.
Many successful private limited companies (ltd)decide to 'go public' and become public limited companies.
The process is technically called a 'flotation' as in the UK the shares are 'floated' on the London Stock exchange.
Why?
The process can raise vast amounts of money to help the business reach its objectives.
What we have learned so far: The public sector is the part of an economy that is controlled by the government.
The private sector consists of organisations owned by individuals usually with the aim of making a profit. Unlimited liability private sector organisations: 1. Sole traders
2. Partnerships
1. Limited liability organisations: Private limited companies (ltd) Owned by shareholders. Only agreed family members or business associates can own shares. Think Levi Roots on Dragons' Den.
2. Public limited companies (plc)
The largest types of limited company.
Shares are traded on the London Stock Exchange.
When shares are first sold the company can raise vast sums of money.
Public limited companies are NOT in the public sector.
Why would the government want to own Next?
Don't get confused because of the word 'public'
There are also 'not for profit' organisations in the UK.
The cost of borrowing money or the return to savers.
The use of interest rates to help control the economy is known as monetary policy.
The Bank of England 'base rate' influences all interest rate decisions by UK financial institutions. The Bank of England changes interest rates in order to meet a government inflation target of 2% (minus or plus 1% either side) August 2016 the Bank of England cuts interest rates to 0.25%. Details here.
What are they worried about?
The rate of interest is a cost to a business.
Changing interest rates has an impact on investment decisions. If interest rates rise investment is very likely to fall. - the costs of loans will rise. Click on the picture:
- firms may wish to pay down existing loans because they have become more expensive. - lower consumer demand in the economy makes investment less attractive.
Fiscal policy involves changing tax rates and government spending to control the economy.
Main types of tax in the UK:
Income tax – This a tax on people’s income.
The basic rate of income tax is 20%, paid on income over the income tax threshold of £11,000.
National insurance contributions. Another type of income tax is national insurance contributions, which are based on a similar principle of taking a certain percentage of income.
Consumption tax – VAT – 20%.
Excise duties on alcohol, tobacco.
Corporation tax – tax on company profits.
Stamp duty – tax on buying houses / shares.
Capital gains tax.
Inheritance tax.
Council tax.
Business rates.
Government spending:
There is intense pressure in the UK to turn the current budget deficit into a budget surplus. This would mean the government not spending all of its income and paying back some historic debt. Cuts in government expenditure has put a great strain on the provision of public services and the pay of public sector workers. The effect on businesses of changes in taxation: Consumer spending may rise or fall. Changes in VAT will alter prices. Corporation tax is a cost on business profits. Changes in customs duties can affect business costs. Changes in employment taxes might influence hiring decisions. Increasing tax avoidance (legal) and tax evasion (illegal)
The UK Finance Minister (The Chancellor of the Exchequer) announces changes to fiscal policy in the annual budget speech.
In the UK many working people, particularly commuters, see coffee as a daily necessity.
Something to buy on the way to work. Coffee in China is still a trend more than a habit, people drink it to feel good, but not out of need. Coffee culture is beginning to be accepted and appeals to the adventurous, open-minded, young, affluent, urban consumers in cities like Shanghai, Beijing, and Guangzhou. In China, coffee culture represents a young, emerging middle class and their growing purchasing power.
Costa have been faced with inflationary pressures in both the UK and China. What is likely to happen to Costa Coffee sales if they decide to increase prices? Much will depend on the price elasticity of demand for barista style coffee in both the UK and China. For some products a price change will result in a large change in demand and for others a smaller change. The responsiveness of demand to changes in price is measured by price elasticity of demand (ped).
Calculating price elasticity of demand:
Percentage change in quantity demanded
Percentage change in price
Price inelastic demand:
When the result of the calculation is less than one. (We will ignore the minus sign from the calculation).
The percentage change in demand is less than the percentage change in price.
Price elastic demand:
When the result of the calculation is more than one.
The percentage change in demand is more than the percentage change in price.
Unitary price elasticity:
When the result of the calculation is exactly one.
The percentage change in demand is exactly the same as the percentage change in price.
Price elasticity and Costa Coffee
Ped =% change in quantity demanded
% change in price
UK: Because of cost increases (wages, business rates and the cost of imported coffee) Costa Coffee is considering increasing prices by 10% in commuter locations such as railway stations.
Costa has estimated that the price elasticity of demand in such locations is -0.2.
Assume the average cost of a Costa Coffee is £2.50
Sales in a typical month at these locations are 60,000 units
Calculate the probable impact on the revenue for Costa Coffee of this decision to raise prices.
Revenue before the price rise:
___________ x __________ =
After the price rise:
% change in quantity demanded (Unknown) = 0.2
% change in price (10%)
By what % has demand fallen?
What is the new quantity demanded?
Revenue after the price rise:
___________ x __________ =
Was this a good business decision?
China: Costa Coffee has been faced with similar cost pressures, particularly a recent government decision to increase the minimum wage to 2300 CNY/Month.
Costa operates mainly in shopping and leisure locations in China and faces intense competition from other brands such as Starbucks.
Costa is considering increasing prices by 20%.
Sales in a typical month in China are 200,000 units
Costa has estimated that the price elasticity of demand in China is -3.
Assume the average cost of a Costa Coffee is 200 CNY.
Calculate the probable impact on the revenue for Costa Coffee China of this decision to raise prices.
