1.1 What is a business?

What is a Business

any organization that uses resources to meet the needs of customers by providing a product or service that they demand.

Nature of business

Businesses identify the needs of consumers or other firms

business activity exists to produce goods/services which can be classified in several ways:

• consumer goods

• consumer services

• capital goods

Consumer goods

The physical-tangible goods sold to final users

ex: cars, food, clothes

Consumer services

Non-tangible products that are sold to final user

ex: hotel accomodation, insurance services, train journeys

Capital goods

Physical goods that are used by industry to aid in production of other goods/services

ex: machines, commercial vehicles, kitchen appliences

Business Inputs

Human, physical, and financial resources needed by a business to produce goods/services

• Land

• Labour

• Capital

• Enterprise

Land (business Input)

all renewable & non-renewable resources of nature

ex: crude oil, coal

Labour (business input)

Manual labour and skilled workers make up the workforce of the business

Capital (business input)

Finance needed to set up a business and pay for its continuing operations - including human made resources and machines, factories, and vehicles.

Enterprise (business input)

The driving force of business, provided by risk-taking individuals, who combine other factors of production into a unit that is capable of prducing goods&services. (Managing and decision making)

(individuals who run the business or contol other factors)

Business functions

• Human resource management

• finance and accounts

• marketing

• operations management

HR managements (business function)

identifies workforce needs and responsible for effective management of employees (recruits and trains individuals and encourages them to work productively), aim to help business achieve its overall objectives.

functions involved with employee hiring, retention and development

Finance and accounts (business function)

Manages and records payments going in and out of business, complies cash flow statements for the organization.

responsible for monitoring flow of finance in/out business, keeping and analysing accounts & providing financial info.

basically money department

Marketing (business function)

Responsible for developing brand recognition and improving brand value of a business’s goods/services in the market

responsible for market research and analysing the results so consumer wants can be correctly identified.

Operations management (business function)

Enhances and processes the finished product, ensures each product made meets the agreed quality standards

responsible for ensuring adequate resources are available for production, maintaining production and quality levels, achieving high levels of production efficiency as possible.

Economic sectors

• Primary sector

• Secondary sector

• tertiary sector

• quaternary sector

primary sector

industries that extract natural resources to be used and processed by other firms

ex: farming, fishing, oil, etc

Secondary sector

businesses that manufacture and process products from natural resources

ex: furniture, brewing, baking, clothing, construction

Tertiary sector

Businesses that provide services to consumers and other businesses

ex: retailing, transport, insurance, banking, hotels, tourism and telecommunications.

Quaternary sector

focuses on Information technology (IT) and information service providers

ex: research development, business consulting, info gathering

Gross domestic product (GDP)

key economic indicator that measures the total monetary value of all goods and services produced within a country's borders over a specific period, typically annually or quarterly.

It provides a snapshot of a country's economic performance.

Entrerpreneur

a person who takes a financial risk of starting and managing a new venture

skills needed: innovation, commitment/self motivation, leadership skills, self belief, risk taking

Challenges when starting business

• do you have appropriate qualities?

• is there market for product?

• do you have sufficient capital?

• Location of business?

• how to build customer base?

• how to compete effectively?

• how to keep accurate business records?

• do have necessary management skills?

• how deal with change?

Business Plan

a written document that describes a business, its objectives and strategies, the market its in, and its financial forecasts

content: executive summary- overview of new business & strategies, description of business opp-details of who what when blabla

Importance: for new business-to obtain finance for startup. Helps entrepreneurs to stay on track

share

a certificate confirming part ownership of a company.

shareholders

individuals or institutions that buy/own shares in a limited company

Privately held company

a business that is owned by shareholders who are often members of the same family — cannot sell shares to general public

publicly held company

a limited company with a legal right to sell shares to financial institutions and general public - share price quoted on general stock exchange

Initial public offering (IPO)

the process of offering for sale the shares of a privately held company to financial institutions and the general public

Private sector

comprises businesses owned and controlled by individuals - groups of individuals

(not govt)

Public sector

comprises organizations accountable to and controlled by central or local government (state)

(yes govt)

Mixed economy

Economic resources are owned and controlled by both private and public sectors

Free-market economy

economic resources are owned largely by Private sector, little state intervention

Command economy

economic resources are owned, planned, and controlled by the state _(only)

Privatisation

the scale of the public sector organizations to the private sector

Sole trader

business that is exclusively owned by one person who has full control of it and is entitled to all the profit

Partnership

business formed by 2 or more ppl to carry on a business together, with shared capital investment and usually shared responsibilities.

Limited companies (private and publicly held)

• shareholders have limited liability (sole traders/partnerships dont)

• companies have a legal personality (sole traders/partnerships dont)

• companies can continue after death of an owner (sole traders/partnerships cant)

Limited liability

only liability (loss) is what the shareholder invested

social enterprise

a business with a social/environmental objective that reinvests most of its profits into benefiting society rather than maximising returns to owners

social entrepreneur

a person who establishes an enterprise with the aim of solving social problems or achieving social change

Charity

an organization set up to raise money to help people in need or support causes that require funding

Triple bottom line

the 3 objectives of social enterprises

public corporations

business enterprise owned and controlled by the state Not in private sector

cooperative

a group of ppl acting together to meet the common needs-aspirations of the members, sharing ownership and making decisions democtatically

Non-profit organization

Any organization that has aims other than making and distributing profit and which is usually governed by a voluntary board

(aim isnt profit)

non governmental organization

Functions independently of any government and that has a specific social aim/purpose

ex: red cross

vision vs mission statement

vision = someday

mission = everyday

business objectives

short term goals-targets -specific - must be achieved for an organization to attain its corporate aim

• Tactical objectives - easier to change- specific targets with definitive timelines.

• Strategic objectives- targets that the whole organization is striving to achieve. -greater investment in human/financial resources than tactical & operational objective.

corporate aim

long-term goals which a business hopes to achieve

Profit objective

Profit Maximisation: producing at the level of output where the greatest positive difference between total revenue and total costs is achieved (make big profit)

Growth Objective

to grow company…

benefits: higher profit/revenue, economies of scale, reduced risks

protecting shareholder value (objective)

investors buy shares to benefit from shareholder value: the financial gains recieved by owners of company’s shares.

ethical objective

-company’s philosophy, set to meet regulations, build reputation & trust, consumer expectations, long term profit

benefits: enhanced brand image, customer loyalty, operational efficiency, regulatory compliance

Corporate-social responsibility (CSR)

concept applies to businesses that consider the interests of society by taking responsibility for impact of their decisions on customers/employees/communities/environment

csr report—explains company’s ethics and how they effect society and what they’ve done

when business fully accepts its legal+moral objectives, its accepting corporate social responsibility

SWOT analysis

ANSOFF matrix

Stakeholders

poeople/groups who can be effected by, therefore have interest in, any action taken by an organization

stakeholder concept: view that business&managers have responsibilities to a wide range of groups not just shareholders:

Internal: employees, managers, shareholders

External: customers, suppliers, government, banks, special interest groups, competitors