Business Management Unit 1 - Revision Notes
Vittoria Mereghetti - iBDP 2022-2024
Topic 1: Introduction to Business Management
Chapter 1 - Unit 1.1 What is a Business?
Business: a decision-making organisation involved in the process of using inputs to produce
goods and/or to provide services.
Product: goods and services
Entrepreneur: the individual who plans, organises and manages a business and its
operations
The nature or purpose of business activity is to generate added value, this occurs when
there is a positive difference between the selling price of a product and the cost of producing
the good or service.
The role of a business is to combine human, physical and financial resources to create
goods and services in order to satisfy the needs and wants of people, organisations and
governments.
i) Primary sector → these businesses are involved with the extraction, harvesting and
conservation of natural resources. (ex. Agriculture, fishing, mining, forestry, and oil
extraction)
ii) Secondary sector → these businesses are involved in manufacturing or construction (ex.
Clothes manufacturers, publishing firms, breweries, construction firms, energy production
companies)
iii) Tertiary sector → these businesses specialise in providing services to the general
population and other organisations.
,iv) Quaternary sector → this is a sub-category of the tertiary sector, these businesses are
involved in intellectual and knowledge-based activities that generate and share information
CHAIN OF PRODUCTION:
Primary production→ manufacturing → services (tertiary and quaternary output) →
consumers
Entrepreneurship
Entrepreneurship: describes the trait of business leaders who tend to be distinctive in their
temperament, attitude and outlook who drive the business.
Challenges and opportunities for starting a business:
Challenges → lack of finance, unestablished customer base, cash flow problems, marketing
problems, people management problems, production problems, legalities, high production
costs, poor location, external influences
Opportunities → growth, earnings, transference and inheritance, challenge, autonomy,
security, hobbies
________________________________________________________________________
Chapter 2 - Unit 1.2 Types of business entities
- Organisations that operate in the private sector are owned and controlled by private
individuals and businesses, rather than by the government. The aim of most,
although not all, private sector organisations is to earn profit for its owners, i.e. the
positive difference between a firm’s sales revenues and its costs.
- Organisations that operate in the public sector are under the ownership and
control of the government. They typically provide essential goods and services
that would be underprovided or inefficiently provided by the private sector, e.g.
, health care, education, social housing and emergency services. Organisations that
are partially or wholly owned by the government are public sector companies.
Reasons for public sector business activity:
Ensure everyone has access to basic services, avoid wasteful competition, protect
citizens and businesses, create employment opportunities, stabilise the economy.
Types of organisations:
i) Sole Traders
They are individuals who own his/hers personal business. The owner runs and controls the
business and is the only person held responsible for its success or failure.
An important legal point about sole traders is that the business is unincorporated (owner
is same legal entity as the business)
Advantages:
- Few legal formalities
- Profit taking
- Being your own boss
- Personalised service
- Privacy
- Quicker decision-making
Disadvantages:
- Unlimited liability (unincorporated)
- Limited sources of finance
- High risks
- Workload and stress
- Limited economies of scale → cannot exploit benefits of large-scale production
- Lack of continuity
ii) Partnerships
A for-profit private sector business owned by two or more persons. Investors are called
silent partners. Often there is a legal contract drawn up called a “deed of partnership”.
, Advantages:
- Financial strength
- Specialisation and division of labour
- Financial privacy
- Cost-effectiveness
Disadvantages:
- Unlimited liability
- A lack of continuity
- Prolonged decision-making
- Lack of harmony
iii) Privately Held Companies
Businesses owned by their shareholders. Companies are incorporated businesses (the
owners and businesses are two different legal entities = limited liability)
A privately held company is a limited liability company that cannot raise share capital from
the general public via a Stock Exchange.
{of limited liability companies}
Advantages:
- Raising finance
- Limited liability
- Continuity
- Economies of scale
- Productivity
- Tax benefits
{of limited liability companies}
Disadvantages:
- Communication problems
- Added complexities
- Compliance costs
- Disclosure of information
- Bureaucracy
- Loss of control
Vittoria Mereghetti - iBDP 2022-2024
Topic 1: Introduction to Business Management
Chapter 1 - Unit 1.1 What is a Business?
Business: a decision-making organisation involved in the process of using inputs to produce
goods and/or to provide services.
Product: goods and services
Entrepreneur: the individual who plans, organises and manages a business and its
operations
The nature or purpose of business activity is to generate added value, this occurs when
there is a positive difference between the selling price of a product and the cost of producing
the good or service.
The role of a business is to combine human, physical and financial resources to create
goods and services in order to satisfy the needs and wants of people, organisations and
governments.
i) Primary sector → these businesses are involved with the extraction, harvesting and
conservation of natural resources. (ex. Agriculture, fishing, mining, forestry, and oil
extraction)
ii) Secondary sector → these businesses are involved in manufacturing or construction (ex.
Clothes manufacturers, publishing firms, breweries, construction firms, energy production
companies)
iii) Tertiary sector → these businesses specialise in providing services to the general
population and other organisations.
,iv) Quaternary sector → this is a sub-category of the tertiary sector, these businesses are
involved in intellectual and knowledge-based activities that generate and share information
CHAIN OF PRODUCTION:
Primary production→ manufacturing → services (tertiary and quaternary output) →
consumers
Entrepreneurship
Entrepreneurship: describes the trait of business leaders who tend to be distinctive in their
temperament, attitude and outlook who drive the business.
Challenges and opportunities for starting a business:
Challenges → lack of finance, unestablished customer base, cash flow problems, marketing
problems, people management problems, production problems, legalities, high production
costs, poor location, external influences
Opportunities → growth, earnings, transference and inheritance, challenge, autonomy,
security, hobbies
________________________________________________________________________
Chapter 2 - Unit 1.2 Types of business entities
- Organisations that operate in the private sector are owned and controlled by private
individuals and businesses, rather than by the government. The aim of most,
although not all, private sector organisations is to earn profit for its owners, i.e. the
positive difference between a firm’s sales revenues and its costs.
- Organisations that operate in the public sector are under the ownership and
control of the government. They typically provide essential goods and services
that would be underprovided or inefficiently provided by the private sector, e.g.
, health care, education, social housing and emergency services. Organisations that
are partially or wholly owned by the government are public sector companies.
Reasons for public sector business activity:
Ensure everyone has access to basic services, avoid wasteful competition, protect
citizens and businesses, create employment opportunities, stabilise the economy.
Types of organisations:
i) Sole Traders
They are individuals who own his/hers personal business. The owner runs and controls the
business and is the only person held responsible for its success or failure.
An important legal point about sole traders is that the business is unincorporated (owner
is same legal entity as the business)
Advantages:
- Few legal formalities
- Profit taking
- Being your own boss
- Personalised service
- Privacy
- Quicker decision-making
Disadvantages:
- Unlimited liability (unincorporated)
- Limited sources of finance
- High risks
- Workload and stress
- Limited economies of scale → cannot exploit benefits of large-scale production
- Lack of continuity
ii) Partnerships
A for-profit private sector business owned by two or more persons. Investors are called
silent partners. Often there is a legal contract drawn up called a “deed of partnership”.
, Advantages:
- Financial strength
- Specialisation and division of labour
- Financial privacy
- Cost-effectiveness
Disadvantages:
- Unlimited liability
- A lack of continuity
- Prolonged decision-making
- Lack of harmony
iii) Privately Held Companies
Businesses owned by their shareholders. Companies are incorporated businesses (the
owners and businesses are two different legal entities = limited liability)
A privately held company is a limited liability company that cannot raise share capital from
the general public via a Stock Exchange.
{of limited liability companies}
Advantages:
- Raising finance
- Limited liability
- Continuity
- Economies of scale
- Productivity
- Tax benefits
{of limited liability companies}
Disadvantages:
- Communication problems
- Added complexities
- Compliance costs
- Disclosure of information
- Bureaucracy
- Loss of control
