Introduction to Business Ownership - CCEA

In this article you will read about how:

• businesses adapt to dynamic markets by innovating and meeting customer needs
• in 2024, 99.9% of UK businesses were SMEs, with micro-enterprises making up 95.2%
• business structures include sole traders, partnerships, franchises, and limited companies
• entrepreneurs face risks like financial loss but can achieve rewards like profit and independence

Many businesses exist in order to meet a specific need or fill a certain gap in the market. To do this, they sell goods, services or both. An entrepreneur might start a business enterprise because there is a demand for the goods or services they can provide.

A dynamic market is one that is in a rapidly changing business environment. In order to understand what makes a business dynamic, it is necessary to understand the market in which the business or business enterprise operates.

A new business has to understand how dynamic the market is that it is entering. This can be very different depending on the type of business.

Businesses have to adapt and develop new ideas, products and services to keep up with technology and new trends. Business ideas can come about through:

• changes in technology
• changes in what consumers want
• products and services becoming obsolete
• new and original ideas
• adapting existing products, services and ideas

In 2024, the UK had approximately 5.55 million small to medium-sized enterprises (SMEs), representing 99.9% of all private sector businesses. These SMEs can be categorised as follows:

• Micro-enterprises (0-9 employees): 5,287,480 businesses (95.2% of all businesses)

• Small enterprises (10-49 employees): 222,785 businesses (4.0%)

• Medium enterprises (50-249 employees): 36,905 businesses (0.7%)

• Large enterprises (250+ employees): 7,960 businesses (0.1%)

Detailed Breakdown:

• Micro-enterprises (0-9 employees):

  • Employment: 4,288,000
  • Sales Revenue: £592.1 billion

• Small enterprises (10-49 employees):

  • Employment: 4,346,000
  • Sales Revenue: £669.6 billion

• Medium enterprises (50-249 employees):

  • Employment: 3,596,000
  • Sales Revenue: £762.9 billion

These statistics highlight the critical role that SMEs play in the UK economy, both in terms of employment and economic output. For more detailed insights and ongoing trends, please refer to the sources from GOV.UK and Merchant Savvy.

What is a sole trader?

A sole trader is an individual who owns and runs their own business. The sole trader has full control and responsibility for its operations and keeps all the profits but is also personally liable for any debts. Many hairdressers and small local shops operate as sole traders.

What is a partnership?

A partnership is a business owned by 2 - 20 people who share profits, responsibilities (including responsibilities for debts) equally, or as per a written agreement (partnership agreement). Commonly found in professional services like law firms and medical practices.

What is a franchise?

A franchise is a business model where a person (the franchisee) buys the rights to operate under an established brand and system from the franchisor, benefiting from brand recognition and support while sharing profits. Fast food chains like McDonald's often operate as franchises.

What is a private limited company?

A private limited company is a business managed by directors and owned by shareholders (investors). In a private limited company, these shareholders (investors) have limited liability, meaning that should the business run into debt, their personal belongings are protected. The company can raise finance by the sale of shares to friends and family, but not to the general public. Many small to medium-sized tech startups operate as private limited companies.

What is a public limited company?

A public limited company is very similar to a private limited company, in that it is a business managed by directors and owned by shareholders (investors). In a private limited company, these shareholders (investors) have limited liability, meaning that should the business run into debt, their personal belongings are protected. However, unlike a private limited company, a public limited company can raise finance by the sale of shares to the public on the stock exchange, allowing for far more capital (funding) to be raised. However, a public limited company is under far more pressure from government regulators and the media. Large corporations like Tesco and BP are examples of public limited companies.

Final check:

Alex and the bakery

Alex, a budding entrepreneur, is passionate about baking and wants to open a small bakery in their local community. They are considering different business ownership options, such as

• operating as a sole trader

• forming a partnership with a friend who is also a baker, or

• setting up a private limited company to limit personal liability

Alex needs to decide which business structure will best suit their goals and provide the right balance of control, liability, and growth potential.