Nature of business

Role of Business

• Producing Goods and Services – Businesses create and sell products to meet consumer needs and wants.

• Profit – Financial gain, calculated as revenue minus expenses.

• Employment – Providing paid work for individuals.

• Income – Money earned from work or investments.

  • Wage – Payment based on hours worked (casual employees).

  • Salary – Fixed regular payment for permanent employees.

  • Shareholder – A person who owns shares in a company.

  • Dividend – A share of company profits paid to shareholders.

• Choice – More businesses lead to a greater variety of products and lower prices.

• Innovation – Improving products or processes to remain competitive.

• Entrepreneurship and Risk – Entrepreneurs start businesses and take financial risks.

• Wealth Creation – Businesses generate economic value, increasing national wealth (GDP).

• Quality of Life – Businesses impact well-being through wages, services, and ethical practices.

Types of Businesses

• Size:

  • Micro Business – Fewer than 5 employees.

  • Small Business – 5–20 employees.

  • Medium Business – 21–199 employees.

  • Large Business – 200+ employees.

  • Multinational Corporation – A company with branches in multiple countries.

• Geographical Reach:

  • Local Business – Operates in one small area (e.g., a corner store).

  • National Business – Operates across an entire country.

  • Global Business – Operates in multiple countries.

• Industry:

  • Primary Industry – Extracts natural resources (farming, mining).

  • Secondary Industry – Manufactures goods (factories, construction).

  • Tertiary Industry – Provides services (retail, healthcare).

  • Quaternary Industry – Information-based services (IT, research).

  • Quinary Industry – High-level decision-making & domestic services (CEOs, hospitality).

• Legal Structure:

  • Sole Trader – One owner, full control, unlimited liability.

  • Partnership – 2–20 owners, shared profits and liability.

  • Private Company (Pty Ltd) – 1–50 shareholders, limited liability.

  • Public Company (Ltd) – Unlimited shareholders, listed on stock exchange.

  • Government Enterprise – Owned by the government (e.g., Australia Post).

• Factors Influencing Legal Structure:

  • Size – Larger businesses need complex structures.

  • Ownership – Sole traders control everything; companies have shareholders.

  • Finance – Companies can raise money through shares; sole traders rely on personal funds.

Influences in the Business Environment

• External Influences:

  • Economic – Interest rates, inflation, and consumer spending affect business.

  • Financial – Access to capital and market conditions impact growth.

  • Geographic – Location affects customers and supply chains.

  • Social – Consumer trends and demographics influence demand.

  • Legal – Laws and regulations shape business operations.

  • Political – Government policies, trade laws, and stability affect businesses.

  • Institutional – Industry groups and government agencies influence operations.

  • Technological – Innovations improve efficiency and competitiveness.

  • Competitive Situation – The level of market competition affects pricing and strategy.

  • Markets – Local, national, and global market demand shapes business decisions.

• Internal Influences:

  • Products – The type of goods/services offered.

  • Location – Physical placement affects customers and costs.

  • Resources – Staff, materials, and equipment needed for operations.

  • Management – Leadership and decision-making impact success.

  • Business Culture – Workplace values and attitudes shape operations.

• Stakeholders:

  • Internal: Employees, managers, owners, shareholders.

  • External: Customers, suppliers, government, creditors, community.

Business Growth and Decline

• Business Life Cycle:

  • Establishment – Business starts, faces high costs and low profits.

  • Growth – Sales increase, business expands, faces competition.

  • Maturity – Business stabilizes with steady profits.

  • Post-Maturity:

    • Renewal – Adopting new strategies for growth.

    • Steady State – Maintaining current success.

    • Decline – Sales drop, business risks closure.

• Responding to Challenges:

  • Establishment: Focus on customer base, managing costs.

  • Growth: Expand marketing, improve operations.

  • Maturity: Innovate, diversify products.

  • Decline: Restructure, enter new markets.

• Causes of Business Decline:

  • Poor Financial Management – Cash flow issues, excessive debt.

  • Lack of Innovation – Failing to adapt to market changes.

  • Decreased Customer Demand – Consumer preferences shift.

  • Increased Competition – Rival businesses take market share.

  • Ineffective Marketing – Poor advertising and outreach.

  • Operational Inefficiencies – High costs, low productivity.

  • Poor Leadership – Weak decision-making and management.

  • Economic Factors – Recessions, inflation, policy changes.

  • Legal Issues – Fines, lawsuits, compliance failures.

  • Customer Dissatisfaction – Poor service, bad reputation.

• Voluntary & Involuntary Cessation:

  • Voluntary Liquidation – Business owners choose to close and sell assets.

  • Involuntary Liquidation – Business is forced to close due to unpaid debts.

• Key Definitions:

  • Bankruptcy – A person or business is legally unable to repay debts.

  • Liquidation – Selling business assets to pay debts before closing.

  • Creditors – People or organizations owed money by a business.