Chapter 1: Motives and Functions of a Business
1. The goal of a business:
* Businesses are established to serve the need of customers. A business can provide products or services. * The goal of a business is to make profits.
a. Where the profits come from?
* Revenue is generated when selling products or services. * Expenses are incurred when paying employees and purchasing machinery or facilities. * The difference between the revenue and expenses is the profit: Revenue – expenses = profit. * The profits earned depend on three conditions: Demand, customer attraction, and low expenses. b. Profit as a motive to understand business:
Developing strong business skills helps you:
* Obtain a better job.
* Find your job more enjoyable.
* Perform better, resulting in a satisfying career path.
* Identify business performing well to invest and enjoy higher return. c. How profit motive is influenced by the Government:
* In US, people are free to start their own business: free-market economy. * In some countries, the government owned the businesses, and businesses are not profit-oriented customers do not enjoy better product and services and it’s hard to start a new business. d. Nonprofit business:
* Nonprofit organization: an organization that serves a specific cause and is not intended to make profit. * The profits generated are reinvested in the business. It is not taxed, but still run like a business.
2. Resources used to produce products or services:
a. Natural resources: Any resource that can be used in their natural form. The most commonly used is land. b. Human resources: People who are able to perform work for a business, physically or mentally. c. Capital: Machinery, equipment, tools and physical facilities used by a business. * Technology: knowledge or tools used to produce products and services. It helps businesses produce products and services more quickly and at a higher quality. * Information technology: technology that enables information to be used to produce products and services. * E-business/e-commerce: use of electric communication to produce and sell products and services. d. Entrepreneurship: the creation of business ideas and the willingness to take risk, the act of creating, organizing and managing a business. * Entrepreneur: people who organize, manage and assume the risk of starting a business.
3. Key stakeholders in a business:
Stakeholders: people who have an interest in a business
* The ownership of a business is certificated by stocks. Stockholders are investors who become partial owners of a firm by purchasing the firm’s stock. * A firm has a responsibility to the stockholders who have invested funds. The company must invest funds in a way that increase performance and value to provide stockholders with decent returns (dividends).
* Financial institutions or individuals that provide loans * Creditors will only lend money if they believe the firm will perform well enough to pay the interest on the loans. * The firm must convince the creditor that it will be sufficiently profitable. c. Employees:
* Managers: employees who are responsible for managing job assignments of other employees and making key business decisions. * The goals of a firm’s managers are to maximize the firm’s value and its stock’s value. d. Suppliers:
* People who provide the materials for production of the firms. e. Customers:
* To attract customers, a firm must provide products or services with high quality and reasonable price. * Summary of stakeholders:
* Entrepreneurs (owners): create business ideas (and financial support) * Owners and creditors: provide additional financial support * Employees: Produce and sell products
* Customers: purchase product
* Suppliers: provide materials for production
4. The business environment:...
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