Ch. 1 - What Is a Business?

What is an Organization?

An organization is a group of people who work together to meet a need or pursue common goals.

What is a business?

A business is a specific kind of organization. It is an organized effort to provide the things people need and want, and are willing to pay for, with the core motivation of making a profit.

What are the six characteristics common to all businesses?

• It is an organized effort.

• It provides things people need and want.

• It must try to satisfy customer needs.

• It generates revenue.

• It incurs expenses.

• It tries to make a profit.

True or False: Businesses can just happen by accident.

False. Businesses never just happen. They are always created as a result of the deliberate energy, time, thought, and effort put in by the people who start them.

What is revenue?

Revenue is the money that flows into a business every time it sells a product or service to a customer. It can come via cash, check, electronic transfer, or direct debit.

What are expenses?

Expenses are the costs a business must incur to provide its products or services to customers (e.g., buying raw materials, paying employee wages, buying delivery trucks, maintaining websites). Without expenses, a business cannot operate.

What is the formula for Profit? What motivates people to risk their time and money to start a business?

$$\text{Profit} = \text{Revenue} - \text{Expenses (Positive Result)}$$

profit motive

the idea that people will give up their time, energy, and money only if they can realize some financial benefit from doing so.

What is a Loss and when does it happen?

A loss happens when the revenue generated is less than the expenses involved in running the business.

$$\text{Loss} = \text{Revenue} - \text{Expenses (Negative Result)}$$

What is the primary feature that distinguishes a business from a Not-for-Profit organization?

The profit motive. While both are organized efforts that provide services and may collect money, a business's core motivation is to make a profit, whereas a not-for-profit is established to provide a public service.

Why are Canadian universities, hospitals, and charities considered not-for-profit organizations even if they collect money?

Because they are established as public services, not to make a profit. For example, no university in Canada collects more tuition revenue than it pays in expenses; they rely on governments or donors to make up the shortfall.

If a Not-for-Profit organization has a year where its revenues are higher than its expenses, is that considered a profit? What happens to the money?

No, it is called a surplus. These surplus funds are not kept as personal wealth; instead, they are rolled over to cover the organization's expenses for the next year or are donated.

Who was Karl Marx, and what was his view on the profit motive?

Karl Marx was a German philosopher and economist who viewed the profit motive as a bad thing (greed/exploitation). He believed profit was just a way for business owners to exploit workers.

How did Karl Marx define Capitalists vs. Labourers?

• Capitalists: The people who start and own the business.

• Labourers: The people who work for the business.

What is "surplus value" in Marxism, and what economic system did his followers propose?

Surplus value is Marx's term for profit. Because workers have no claim to the means of production, only the capitalist enjoys this value. His followers proposed communism—where the government owns and controls all business activity so no citizen can enrich themselves by exploiting another's labor.

Who was Adam Smith, and what was his view on self-interest and profit?

Adam Smith was a Scottish philosophy professor who argued that the profit motive is a natural extension of human nature. He believed people are rational and will only risk time and money if there is a payback ("no profit = no investment").

What is Adam Smith’s theory of Liberalism?

The belief that society benefits most and people are most productive when individuals are left alone to pursue their own self-interest with minimum government intervention. Even without intending to, a person's desire to earn a living drives them to do something productive for society.

According to modern economic views, how are satisfying customers and pursuing profits mutually dependent?

To survive and make a profit, a business must satisfy its customers. If customers are happy, they return; if they aren't, the business fails. Therefore, a businessman’s own self-interest forces them to care about customer satisfaction.

Why is running a business considered highly risky? (Include the stat from the notes).

Because business owners must anticipate what people will want 3 to 4 years into the future (size, shape, color, price). It is a guessing game with human behaviour.

What famous example proves that huge businesses can fail despite massive resources, and why did it happen?

General Motors (GM). They were the world's largest carmaker until 2008, but ran out of money and failed in 2009 (losing $38.7 billion in 2007 alone). They failed because running a business requires making assumptions about future consumer desires, proving that "willing to undertake risks" is a core characteristic of running a business.