1. What is a Business?

2. What is a business? Any organisation involved in:
Production of a good, or
Provision of a service

3. Why businesses exist People and organisations have needs and wants
A business aims to satisfy these needs and wants
It tries to make a profit for itself
And to earn a return on investment

4. Difference between a need and a want
Needs satisfy our basic requirements for living:
Food
Water
Warmth
Security
Shelter
Wants are things we desire beyond our needs
A better mobile phone
A faster car

5. Nature of business activity
Business activity refers to any part of a three-stage process
INPUTS (e.g. raw materials, labour & machinery) and
TRANSFORMING them into
OUTPUTS (e.g. products & services)
Transforming inputs is known as “adding value”

6. Main categories of inputs
Land and natural resources
E.g. fields to build factories on; energy to power factory
Labour
E.g. employees needed to operate machines, sell to customers
Capital
E.g. plant and machinery, computers, finance
Entrepreneurship
People who are prepared to invest in and manage a business
Give business a sense of direction and energy

7. Products
Product = anything that satisfies customer needs and wants. This can be:
A “good”
Something tangible
E.g. a mobile phone
A “service”
Usually intangible
Something other people do for you
E.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 want
Made for households
Cannot be used to produce more goods
May create a flow of services (e.g. TV repair)
Producer goods
Used in production process
Often to help make consumer goods
Can be used to make more producer goods or consumer goods!

9. Examples of Consumer Goods
Televisions
Baked beans
T-shirts
Computer games
Package holidays

10. Examples of Producer Goods
Printing press
Van
Mechanical digger
Sheet metal cutter
Conveyor 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 outputs
Adding value is way a business makes profit

12. What is Profit?
Profit = difference between total revenues and total costs
If 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 account
In the long-term, businesses need to make profits to survive

13. Costs of Starting a Business
Company formation
Legal bills
Amounts paid to Companies House
Research and development
Creating product or service before it can be sold
Marketing
Designing business logo
Advertising for first customers
Promotional launch discounts
Staff costs
Operational set-up
Equipping and setting up factory
Paying 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 owes
Most businesses will believe they can achieve first option
Some 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 money
Organises elements of production within a business
Driving force behind business
Requires:
Persistence
Skill
Judgement
Luck