What is a business?

• A business is an organisation that uses resources to produce goods and services for customers who want or need them. This is done in order to make a profit.

What does a business do?

• Businesses convert resources into products that customers want. Businesses spend less on the resources then add value in order to obtain profits

Factors of Production

• These are inputs that the business uses to produce goods

  • Capital

  • Land

  • Labour

  • Enterprise

Goods

• Goods are tangible (can be seen or touched) objects that can be used or consumed. These include: vehicles, smartphones, and food

TYPES OF PRODUCTS

• Consumer goods - products sold to the general public

• Capital goods (producer goods) - physical products bought by businesses to produce other goods and/or services

Services

• Services are intangible. These include: haircuts, nail salons, and teaching.

What are the main functions of a business?

• Most businesses have four functional departments

  • These are staffed by specific personnel with the necessary skills

• Small businesses usually outsource these to other businesses

Marketing

• The commercial processes involved in creating and designing, promoting and selling and distributing a product or service. The management task that links the business to the customer by identifying and meeting the needs of customers profitably. It does this by getting the right product at the right price at the right place with the right promotion.Finance and Accounts

Finance and Accounts

• Finance is the management of money and credit and banking and investments. The accounts and finance section also provides the business with an array of tools for keeping track of cash flows, judging the viability of an investment and being able to prepare and analyse a financial records to both report on and evaluate the health of a business.Operations

Human Resources

• The process of determining human resource needs and then recruiting, selecting, developing, motivating, evaluating, compensating, and scheduling employees to achieve organisational objectives.

Operations

• Sometimes referred to as production. Operations management is concerned with supervising, designing and controlling the procedures of the production process. It is the management of processes used to design, supply, produce, and deliver goods and services to customers.

Other optional departments for specific businesses include:

• Customer Service

• Procurement or Purchasing

• Research & Development

Business Sectors

Primary Sector

• Extracts raw materials

• Activities include: mining, fishing, farming, extracting oil

Secondary Sector

• Manufactures goods for customers

• Activities include: metalworking, automobile manufacturing, construction and shipbuilding

Tertiary Sector

• The service industry. Provides services to the general population and businesses.

• Activities include: restaurants, retail stores, education

Quaternary Sector

• Provides information services

• Known as the knowledge-based sector of the economy.

• Sometimes included with the tertiary sector, as they are both service sectors.

• Activities include: computing, ICT, and research and development (R&D)

Measurement and Growth

• The 4 sectors can be measured in: GDP and Percentage Employed

Differences in LIC and HICs

• LIC

  • Primary or Secondary are the major sectors in the economy

  • Tertiary is growing, but is still small

  • Quaternary is non-existent

• HIC

  • Tertiary is the major sector in the economy

  • Primary and Secondary are sometimes non-existent, often 1-20% each

  • Quaternary is growing, but is small

Entrepreneurship

• An individual who plans, organizes and manages a business, taking on financial risks in doing so.

• Entrepreneurship in terms of risk-taking. The entrepreneur is willing to put his or her career and financial security on the line and take risks in the name of an idea, spending time as well as capital on an uncertain venture.

Intrapreneurship

• The act of behaving like an entrepreneur while working within a large organisation

• An intrapreneur is someone within a company that takes risks in an effort to solve a given problem.

• Google uses the 80/20 theory. 80% to do work and 20% brainstorm ideas in order to develop products or services

Why would entrepreneurs set up businesses?

• Growth

  • There is potential appreciation in value of property and land, which tend to increase over time

• Earnings

  • Potential earnings can outweigh the cost of starting-up, therefore earning profits

• Transference and Inheritance

  • Sense of security for their next of kin to inherit the business in the event that the kin does not have a job, etc.

• Challenge

  • Drives and motivates people. Sense of personal satisfaction

• Autonomy

  • Self-employed means there is independence, freedom of choice and flexibility whereas working for someone is the opposite

• Security

  • More job security. A worker can be made redundant or fired.

• Hobbies

  • Pursuing passion or turning their hobby into a business.

The common steps in the process of starting up a business

1. Choose a legal structure

2. Pick a business name and register it

3. Check domain name

4. Protect your idea (patents)

5. Write a business plan

6. Shareholders Agreement, Memorandum, and Articles of Association*

7. Deed of Partnership*

8. Register with relevant tax authority

9. Raise finance

Problems that a new business might face

• Lack of finance

• Cash flow problems

• Unestablished customer base

• People management problems

• Legalities

• Production Problems

• Marketing Problems

• High Production Costs

• Poor location

• External influences

Forward Vertical Integration/Backwards Vertical Integration:

Forward integration is a operational strategy implemented by a company that wants to increase control over its suppliers, manufacturers or distributors, so it can increase its market power.

• A good example of forward integration is when a farmer sells his crops at a local grocery store rather than to a distribution center that controls grocery store placement.