Business and Enterprise Notes

The Nature of Business Activity

  • Business activity aims to satisfy people’s needs.
  • Businesses operate in a changing world, but the aim is to add value to resources while meeting needs.

Purpose of Business Activity

  • A business uses resources to meet customer needs by providing a product or service.
  • Business activity involves adding value to resources, making them more desirable to the purchaser.
  • Businesses use resources to produce goods and services, leading to a higher standard of living.
What Businesses Do
  • Identify customer needs.
  • Purchase necessary resources for production.
  • Produce goods and services to satisfy needs, usually for profit.
Factors of Production
  • Land: Includes land and renewable/non-renewable resources like coal, oil, and timber.
  • Labour: Manual and skilled labor make up the workforce.
  • Capital: Finance and manufactured resources used in production, like computers, machines, factories, offices, and vehicles.
  • Enterprise: Initiative and coordination by entrepreneurs, combining other factors of production.

The Concept of Adding Value

  • Businesses create value by selling goods/services at a higher price than the cost of materials.
  • Added value is the difference between the selling price and the cost of materials.
  • Without adding value, a business cannot survive due to other costs and the need for a financial return for investors.
  • Value added is not profit, as other costs like labor and rent must be paid.
  • Adding value without increasing costs will increase profit.
Examples of Adding Value
  • Sweet manufacturer: advertising to create brand identity, attractive packaging, selling through established shops.

Economic Activity and the Problem of Choice

  • There is great wealth and great scarcity in the world.
  • Some people cannot obtain basic necessities. Even rich people may not be able to satisfy all wants for luxury goods/services.
  • There are insufficient goods to satisfy all needs and wants, known as the economic problem.
  • Economic activity aims to provide for as many wants as possible, but shortages force choices.
  • Choices involve selecting those things that give the greatest benefit and giving up others.
  • All economic decision-makers (governments, businesses, workers, charities) have to make choices.

Opportunity Cost

  • Choosing one item means giving up others due to limited resources.
  • The next most desired product given up is the opportunity cost.
  • The concept exists for consumers, businesses, and governments.

The Dynamic Business Environment

  • Setting up a new business is risky because the business environment is constantly changing.
  • The risk of change can make a business idea less successful.
  • Business plans should be flexible to deal with changes.
  • Changes include new competitors, legal changes, economic changes, and technological changes.
  • The changing environment is a major reason why some businesses succeed and others fail.
Reasons for Business Success
  • Good understanding of customer needs.
  • Efficient management of operations.
  • Flexible decision-making to adapt to new situations.
  • Appropriate and sufficient sources of finance.
Reasons for Business Failure
  • Poor record-keeping.
  • Lack of cash.
  • Poor management skills.

Local, National, and International Businesses

  • Local businesses operate in small, well-defined areas.
  • National businesses operate across a country.
  • International businesses sell products in more than one country.
  • Multinational businesses have operations in more than one country.

The Role of Entrepreneurs and Intrapreneurs

  • Entrepreneurs/intrapreneurs provide enthusiasm and creativity.
  • Ventures can be based on innovative product ideas or new ways of offering a service.
  • Intrapreneurs contribute to the ongoing success of a business.
Role of the Entrepreneur
  • Have a new business idea.
  • Create a business plan.
  • Invest savings and capital.
  • Manage the business.
  • Accept risks of failure.
Qualities of Successful Entrepreneurs and Intrapreneurs
  • Innovation: Identify and fill a gap in the market, attract customers in innovative ways.
  • Commitment and self-motivation: Work hard, be ambitious.
  • Multi-skilled: Able to make the product/provide the service, promote it, sell it, and keep accounts.
  • Leadership skills: Motivate and encourage workers.
  • Self-confidence and resilience: Bounce back from setbacks.
  • Risk-taking: Willing to take risks.

Barriers to Entrepreneurship

  • Lack of a business opportunity.
  • Obtaining sufficient capital (finance).
  • Cost of good locations.
  • Competition.
  • Lack of a customer base.
Overcoming Barriers
  • Identify business opportunities through skills, hobbies, experience, franchising, or market research.
  • Address lack of finance by seeking financial support and grants.
  • Consider operating from home to reduce location costs, but be mindful of drawbacks.
  • Offer unusual products or better customer service to overcome competition.
  • Provide good customer service to build a customer base.

Business Risk and Uncertainty

  • Business risk is the chance of failure, which can be reduced through business planning.
  • Business uncertainty is unforeseen and impossible to predict, like the COVID-19 epidemic.

Role of Enterprise in a Country’s Economic Development

  • Governments encourage entrepreneurship.
Benefits to an Economy
  • Employment creation.
  • Economic growth (increase in GDP).
  • Business survival and growth.
  • Innovation and technological change.
  • Exports.
  • Personal development.
  • Increased social cohesion.

The Role of Intrapreneurship

  • Encouraging risk-taking and enterprise within an existing business.
  • Intrapreneurs have the same qualities as entrepreneurs.
Benefits of Intrapreneurship
  • Injecting creativity and innovation.
  • Developing new ways of doing business.
  • Driving innovation and change.
  • Creating a competitive advantage.
  • Encouraging original thinkers to stay in the business.

Purpose and Key Elements of Business Plans

  • Business plans are essential for obtaining finance.
Main Elements
  • Executive summary.
  • Description of the business opportunity.
  • Marketing and sales strategy.
  • Management team and personnel.
  • Operations.
  • Financial forecasts.

Benefits of Business Plans

  • Obtain finance for the start-up.
  • Forces the owner to think seriously about the proposal.
  • Gives the owner and managers a clear plan of action.

Limitations of Business Plans

  • Does not guarantee success.
  • Can create a false sense of certainty.
  • Can lead to inflexibility.