1.1 Intro to Business
What is a Business?
A business is any organization that uses resources to meet the needs of customers by providing a product or service that they demand.
Both for-profit and non-profit organizations are classified as businesses.
Profit-making businesses aim to make a profit by selling goods or services.
Non-profit making businesses aim to please the customer and a human’s well-being rather than make a profit.
Stages in the Production of Finished Goods
INPUTS = Raw materials, components, machinery, equipment, & labor |
---|
PROCESSES = Turning inputs into the provision of services or the manufacturing of goods. |
OUTPUTS = The output or provision of final goods and services |
The Economic Problem
Needs & Wants
A need is something we have to live.
Ex: food, water, clothing
A want is something we desire but don’t necessarily have to have
Ex: holidays abroad, laptop, accessories
Wants are unlimited, however resources are limited. Thus, creating scarcity.
When making a choice the next best alternative is called opportunity cost
Opportunity Cost
It is defined as the best alternative that is foregone when making a decision.
Differs from Accounting Cost - in that accounting costs do not look at the cost/value of forgone choices
Example:
Transportation Choices
Using public transportation to travel to a particular destination by foregoing the option of traveling in one’s own vehicle
The Main Functions of Business
Human Resources [HR]
Responsible for managing the personnel of the organization
Deal with issues such as:
workforce planning
recruitment
planning
training
Finance & Accounts
In charge of managing the organization’s money
The director must ensure that accurate recordings and reporting of financial documentation takes place.
Marketing
Responsible for identifying and satisfying the needs and wants of customers
In charge of ensuring that the firm’s products sold
Functions of a product:
Price
Promotion
Place
Operations/Production
Responsible for the process of converting raw materials and components into finished goods
Applies to the process of providing services to customers
Sectors of Industry
Primary Sector
Businesses involved in the cultivation or extraction of natural resources
Examples: fishing & agriculture
Secondary Sector
The construction and manufacturing of physical products
Examples: clothing manufacturers & factories
Tertiary Sector
Providing services to the general population
Examples: transportation & restaurants
Quarternary Sector
Involved in intellectual, knowledge-based activities that generate and share information
Examples: consultancy services & scientific research
Factors of Production
In the production of any good or service, the following resources are needed:
Land - all natural resources provided by natural [forests, fisheries]
Labor - efforts and skills of people
skilled laborers = mental ability
unskilled laborers = physical ability
Capital - the finances, machinery, and equipment
Enterprise (Entrepreneurship) - the management, organization, and planning of the three factors of production
Entrepreneurship & Intrapreneurship
An entrepreneur is an individual who plans, organizes, and managed a business, taking on financial risks in doing so. They combine the 3 factors of production to produce a good and/or service.
Intrapreneurship is the act of being an entrepreneur but as an employee within a large organization. An intrapreneur is described as an employee who thinks and acts as an entrepreneur within a section of the organization.
Reasons for Starting Up a Business
Earnings
Potential returns from setting up your own business can easily outweigh the costs, even if the risks are high.
Growth
Capital Growth - assets such as property and land tend to increase in value over time
Transference & Inheritance
Many self-employed people view their business as something they can pass on to their children. This helps maintain a sense of security that might not be possible if they chose to work for an employer.
Challenge
Setting up and running a business may be viewed as a challenge. However, it is this challenge that drives people to perform and get that personal satisfaction.
Autonomy
Being self-employed means that there is independence, freedom of choice, and flexibility in how things are done within the organization.
Security
More job security when someone is their own boss
Risks are great, but being self-employed makes it potentially easier to accumulate personal wealth (financial security) to provide higher funds for retirement.
Hobbies
successful entrepreneurs have a passion for what they do and this is made easier if the nature of the work is directly related to their interests.
Steps in the Process of Starting Up a Business
1. Write a Business Plan
This includes the goals and objectives for the new business with an outline plan of how these targets are to be accomplished.
2. Obtain Start-Up Capital
Small business owners will use their own savings and/or obtain loans to finance their start-ups. The loan process can take several months to complete, with the lender usually requesting a completed business plan before any funds are approved.
3. Obtain Business Registration
Before a business can trade or hire workers, it must satisfy registration and licensing requirements. The owner must also register the legal status of the business.
4. Open a Business Bank Account
Setting up a business bank account allows the business to pay for its costs of operation and to receive payments from customers.
5. Marketing
Potential customers need to know about the business and its products. This includes market research, advertising, and social media.
Problems that a New Business May Face
Lack of Finance
Owners of new or small businesses might not have the credentials or experience to secure funding.
Some business owners might have to remortgage their own homes to raise the funds needed
Cash Flow Problems
Problem with working capital [money available for the daily running of a business]
Lots of raw materials that can’t be easily turned into cash
Customers might demand a lengthy credit period [buy now - pay later]
Ongoing costs = wages, rent, utility bills
Produce cash flow forecast - a safety net to cover any shortfalls
Marketing Problems
Arise when businesses fail to meet customer needs which results in poor sales
The key to success is to market research - identify a gap in the market and fill it
Unestablished Customer Base
Attracting customers is an issue new businesses face
Customer loyalty is built over a long period of time and may require marketing and large amounts of money
People Management Problems
New businesses lack experience in hiring appropriate staff, with all the necessary skills
leaders to poor levels of customers service
the need to retain staff or rehire people
Legalities
paperwork and legal requirements of setting up a business can be confusing, time-consuming, and expensive
any oversight may lead to paying compensation or penalty fees
Production Problems
difficult to forecast the level of demand
Overproduction: stockpiling, wastage, increased costs
Underproduction: dissatisfied customers, loss of potential sales
High Production Costs
huge amounts of money needed for purchasing assets required for production
need to pay start-up costs such as rent, advertising, and insurance
Poor Location
Busy areas offer the highest potential numbers of customers, but rent will cost the most
try to keep fixed costs [rents & mortgage] low
External Influences
all businesses are prone to shocks that create a difficult trading environment
new businesses are more vulnerable, so potential for business failure is greater
1.1 Intro to Business
What is a Business?
A business is any organization that uses resources to meet the needs of customers by providing a product or service that they demand.
Both for-profit and non-profit organizations are classified as businesses.
Profit-making businesses aim to make a profit by selling goods or services.
Non-profit making businesses aim to please the customer and a human’s well-being rather than make a profit.
Stages in the Production of Finished Goods
INPUTS = Raw materials, components, machinery, equipment, & labor |
---|
PROCESSES = Turning inputs into the provision of services or the manufacturing of goods. |
OUTPUTS = The output or provision of final goods and services |
The Economic Problem
Needs & Wants
A need is something we have to live.
Ex: food, water, clothing
A want is something we desire but don’t necessarily have to have
Ex: holidays abroad, laptop, accessories
Wants are unlimited, however resources are limited. Thus, creating scarcity.
When making a choice the next best alternative is called opportunity cost
Opportunity Cost
It is defined as the best alternative that is foregone when making a decision.
Differs from Accounting Cost - in that accounting costs do not look at the cost/value of forgone choices
Example:
Transportation Choices
Using public transportation to travel to a particular destination by foregoing the option of traveling in one’s own vehicle
The Main Functions of Business
Human Resources [HR]
Responsible for managing the personnel of the organization
Deal with issues such as:
workforce planning
recruitment
planning
training
Finance & Accounts
In charge of managing the organization’s money
The director must ensure that accurate recordings and reporting of financial documentation takes place.
Marketing
Responsible for identifying and satisfying the needs and wants of customers
In charge of ensuring that the firm’s products sold
Functions of a product:
Price
Promotion
Place
Operations/Production
Responsible for the process of converting raw materials and components into finished goods
Applies to the process of providing services to customers
Sectors of Industry
Primary Sector
Businesses involved in the cultivation or extraction of natural resources
Examples: fishing & agriculture
Secondary Sector
The construction and manufacturing of physical products
Examples: clothing manufacturers & factories
Tertiary Sector
Providing services to the general population
Examples: transportation & restaurants
Quarternary Sector
Involved in intellectual, knowledge-based activities that generate and share information
Examples: consultancy services & scientific research
Factors of Production
In the production of any good or service, the following resources are needed:
Land - all natural resources provided by natural [forests, fisheries]
Labor - efforts and skills of people
skilled laborers = mental ability
unskilled laborers = physical ability
Capital - the finances, machinery, and equipment
Enterprise (Entrepreneurship) - the management, organization, and planning of the three factors of production
Entrepreneurship & Intrapreneurship
An entrepreneur is an individual who plans, organizes, and managed a business, taking on financial risks in doing so. They combine the 3 factors of production to produce a good and/or service.
Intrapreneurship is the act of being an entrepreneur but as an employee within a large organization. An intrapreneur is described as an employee who thinks and acts as an entrepreneur within a section of the organization.
Reasons for Starting Up a Business
Earnings
Potential returns from setting up your own business can easily outweigh the costs, even if the risks are high.
Growth
Capital Growth - assets such as property and land tend to increase in value over time
Transference & Inheritance
Many self-employed people view their business as something they can pass on to their children. This helps maintain a sense of security that might not be possible if they chose to work for an employer.
Challenge
Setting up and running a business may be viewed as a challenge. However, it is this challenge that drives people to perform and get that personal satisfaction.
Autonomy
Being self-employed means that there is independence, freedom of choice, and flexibility in how things are done within the organization.
Security
More job security when someone is their own boss
Risks are great, but being self-employed makes it potentially easier to accumulate personal wealth (financial security) to provide higher funds for retirement.
Hobbies
successful entrepreneurs have a passion for what they do and this is made easier if the nature of the work is directly related to their interests.
Steps in the Process of Starting Up a Business
1. Write a Business Plan
This includes the goals and objectives for the new business with an outline plan of how these targets are to be accomplished.
2. Obtain Start-Up Capital
Small business owners will use their own savings and/or obtain loans to finance their start-ups. The loan process can take several months to complete, with the lender usually requesting a completed business plan before any funds are approved.
3. Obtain Business Registration
Before a business can trade or hire workers, it must satisfy registration and licensing requirements. The owner must also register the legal status of the business.
4. Open a Business Bank Account
Setting up a business bank account allows the business to pay for its costs of operation and to receive payments from customers.
5. Marketing
Potential customers need to know about the business and its products. This includes market research, advertising, and social media.
Problems that a New Business May Face
Lack of Finance
Owners of new or small businesses might not have the credentials or experience to secure funding.
Some business owners might have to remortgage their own homes to raise the funds needed
Cash Flow Problems
Problem with working capital [money available for the daily running of a business]
Lots of raw materials that can’t be easily turned into cash
Customers might demand a lengthy credit period [buy now - pay later]
Ongoing costs = wages, rent, utility bills
Produce cash flow forecast - a safety net to cover any shortfalls
Marketing Problems
Arise when businesses fail to meet customer needs which results in poor sales
The key to success is to market research - identify a gap in the market and fill it
Unestablished Customer Base
Attracting customers is an issue new businesses face
Customer loyalty is built over a long period of time and may require marketing and large amounts of money
People Management Problems
New businesses lack experience in hiring appropriate staff, with all the necessary skills
leaders to poor levels of customers service
the need to retain staff or rehire people
Legalities
paperwork and legal requirements of setting up a business can be confusing, time-consuming, and expensive
any oversight may lead to paying compensation or penalty fees
Production Problems
difficult to forecast the level of demand
Overproduction: stockpiling, wastage, increased costs
Underproduction: dissatisfied customers, loss of potential sales
High Production Costs
huge amounts of money needed for purchasing assets required for production
need to pay start-up costs such as rent, advertising, and insurance
Poor Location
Busy areas offer the highest potential numbers of customers, but rent will cost the most
try to keep fixed costs [rents & mortgage] low
External Influences
all businesses are prone to shocks that create a difficult trading environment
new businesses are more vulnerable, so potential for business failure is greater