2 What is a business? Any organisation involved in: Production of a good, orProvision of a service
3 Why businesses exist People and organisations have needs and wants A business aims to satisfy these needs and wantsIt tries to make a profit for itselfAnd to earn a return on investment
4 Difference between a need and a want Needs satisfy our basic requirements for living:FoodWaterWarmthSecurityShelterWants are things we desire beyond our needsA better mobile phoneA faster car
5 Nature of business activity Business activity refers to any part of a three-stage processINPUTS (e.g. raw materials, labour & machinery) andTRANSFORMING them intoOUTPUTS (e.g. products & services)Transforming inputs is known as “adding value”
6 Main categories of inputs Land and natural resourcesE.g. fields to build factories on; energy to power factoryLabourE.g. employees needed to operate machines, sell to customersCapitalE.g. plant and machinery, computers, financeEntrepreneurshipPeople who are prepared to invest in and manage a businessGive business a sense of direction and energy
7 ProductsProduct = anything that satisfies customer needs and wants. This can be:A “good”Something tangibleE.g. a mobile phoneA “service”Usually intangibleSomething other people do for youE.g. service you receive when you stay in a hotel
8 Consumer goods v Producer goods Consumed by consumers to satisfy a need or a wantMade for householdsCannot be used to produce more goodsMay create a flow of services (e.g. TV repair)Producer goodsUsed in production processOften to help make consumer goodsCan be used to make more producer goods or consumer goods!
9 Examples of Consumer Goods TelevisionsBaked beansT-shirtsComputer gamesPackage holidays
10 Examples of Producer Goods Printing pressVanMechanical diggerSheet metal cutterConveyor belt
11 Value Added Occurs when a business transforms inputs into outputs Value added is difference between:(1) Cost of inputs and(2) Price of outputsAdding value is way a business makes profit
12 What is Profit?Profit = difference between total revenues and total costsIf total costs are higher than total revenues - business makes a “loss”Profit or loss of usually measured over a period of time (e.g. a year, six months)Described in an accounting statement called profit and loss accountIn the long-term, businesses need to make profits to survive
13 Costs of Starting a Business Company formationLegal billsAmounts paid to Companies HouseResearch and developmentCreating product or service before it can be soldMarketingDesigning business logoAdvertising for first customersPromotional launch discountsStaff costsOperational set-upEquipping and setting up factoryPaying first rent and rates due
14 Loss-making Business Has a choice (1) Continue trading and see if it can survive using existing finance(2) Raise new finance – could be difficult(3) Sell business – may be of value to a competitor(4) Close down and pay off all money it owesMost businesses will believe they can achieve first optionSome businesses take many years to make their first profit (e.g. Amazon)In long-run businesses need to make a profit in order to satisfy investors
15 Entrepreneur A person who is willing to take a risk on a business Usually invests own moneyOrganises elements of production within a businessDriving force behind businessRequires:PersistenceSkillJudgementLuck
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