2. 1.1 U NDERSTANDING THE NATURE AND PURPOSE OF BUSINESS AQA Business 1 W HAT IS BUSINESS ? Name 3 businesses in your local area: 1 small 1 medium 1 large Do they all have the same motives? What does each one do e.g. sell goods, provide a service, manufacture? How would you define a business? Write your definition on a sticky note. Compare class definitions.

3. 1.1 U NDERSTANDING THE NATURE AND PURPOSE OF BUSINESS  In this topic you will learn about  Why businesses exist  The relationship between mission and objectives  Common business objectives  Why businesses set objectives  The measurement and importance of profit

4. W HY BUSINESSES EXIST Complete a spider diagram to show reasons why businesses exist. Try to think of a range of reasons not just the most obvious ones. A business is any organisation that is involved in any organised form of trade, industrial or professional activities. Why businesses exist

5. W HY BUSINESSES EXIST  Businesses exist in order to achieve business objectives. These include:  Profit  Growth  Survival  Cash flow  Social  Ethical Objectives are quantifiable targets or goals to be achieved within a given time frame. Do we think of bands as businesses? What are the objectives of Gene Simmons from Kiss?

6. W HY BUSINESSES EXIST  Business objectives include:  Profit To achieve sales revenue that is higher than total costs Profit = SR - TC  Growth To increase in size either by value of sales or volume of sales (or both!) This may be organically i.e. opening new stores, launching new products or externally i.e. by joining with other businesses or taking them over  Survival To continue to exist as a business This may be the primary objective of a start-up business or one experiencing difficult trading conditions What are the objectives of Kraft and Heinz?

7. W HY BUSINESSES EXIST  Business objectives include:  Cash flow To ensure sufficient cash is available to meet day to day expenses Cash flow is the flow of cash into and out of a business over a period of time  Social To behave in a way which benefits society This could include to create employment, support the local community or improve educational standards  Ethical To behave in a way which is considered to be morally correct This could include treating key stakeholders including suppliers and employees in a fair manner or reducing negative impacts on the environment

8. T EST YOUR UNDERSTANDING 1. Why might the objectives of growth and profit be complementary objectives? 2. Why might the objectives of survival and cash flow be complementary objectives? 3. Why might social and ethical objectives be complementary? 4. Identify any two objectives and explain how they might conflict.

9. SMART OBJECTIVES  Objectives should be ‘SMART’  S _ _ _ _ _ _ _  M _ _ _ _ _ _ _ _ _  A _ _ _ _ _ _ _ _ _  R _ _ _ _ _ _ _ _  T _ _ _ _ What are SMART objectives?

10. I N PAIRS  Read the article “Nintendo makes first operating profit in four years”  What were the factors helping Nintendo improve their performance and make a profit?  Write a set of 3 SMART objectives for Nintendo in the future

11. M ISSION S TATEMENTS AND OBJECTIVES “ A mission statement is a brief written statement of the purpose of a company or organisation. Ideally, a mission statement guides the actions of the organisation, spells out its overall goal, provides a sense of direction, and guides decision making for all levels of management.” Source: Wikipedia Why is it important to share a company’s mission statement with employees? Does your school, college or work place have a mission statement? How does it influence the actions of managers? How does it influence your actions? View Nintendo’s Mission Statement.

12. T HE RELATIONSHIP BETWEEN MISSION AND OBJECTIVES Corporate Aims The long term targets and plans to fulfil the mission statement. Corporate Objectives The medium to long term quantifiable targets to fulfil the mission statement. Corporate Strategy The actions to be taken by the business to achieve the objectives. Mission Statement The overall reason for the business’ existence In year 1 you are looking more at tactical decisions rather than strategic decisions. Business tactics Actions taken on a day to day basis to support the strategy.

13. W HY BUSINESSES SET OBJECTIVES  Common sense of purpose  Motivate employees  Create reward systems  Measure and review performance  Inform decisions to improve performance Do you set objectives at school/college? What are the benefits of this? Set yourself 3 objectives that you want to achieve in studying A Level Business. Try to set objectives for 3 different time scales.

14. T HE MEASUREMENT AND IMPORTANCE OF PROFIT  Profit is revenue minus total costs  Revenue is the money coming in from the sale of goods and services  Total costs is the money going out to provide for and generate those sales  The relationship between costs and revenue will determine if the business makes a profit or a loss Example 2 Example 1 Revenue £1000 TC £800 Profit £200 Revenue £1200 TC £1300 Loss £100 There is a surplus (a profit) of £200 There is a shortage (a loss) of £100

15. T HE MEASUREMENT AND IMPORTANCE OF PROFIT No of items  Revenue is the money coming in from the sale of goods and services  Revenue = Selling price x quantity sold  If a business sold 20 000 units at a selling price of £15  Revenue = £15 x 20 000 units = £300 000  Revenue increases with the amount of units sold and therefore starts at 0 and slopes upwards when shown on a graph £ Revenue can also be referred to as: Turnover Sales Sales revenue Total revenue

16. T HE MEASUREMENT AND IMPORTANCE OF PROFIT  Fixed costs stay the same regardless of output e.g. rent and manager’s salaries  Fixed costs are shown as a straight horizontal line when shown on a graph  Variable costs change in relation to the number of items produced  Variable costs start at zero and slope upwards when shown on a graph £ No of items £

17. T HE MEASUREMENT AND IMPORTANCE OF PROFIT  Total costs are fixed costs plus variable costs  Total costs start at the fixed cost point on the y axis and slope upwards parallel to the variable cost line No of items £ Draw one diagram to show all 4 of the following lines: Revenue Fixed costs Variable costs Total costs Can you identify where the business is making a profit and where it is making a loss?

18. T HE MEASUREMENT AND IMPORTANCE OF PROFIT  A business with an objective of profit may also aim to:  Increase sales revenue  Reduce costs “Toyota posts 19% rise in full year net profits” “Ford profit disappoints as sales slide” Why is profit so important to business?

19. 2 M INUTE T EST  State 6 common business objectives  What does SMART stand for?  Give 1 reason for setting objectives End

20. 1.1 U NDERSTANDING THE NATURE AND PURPOSE OF BUSINESS  In this topic you have learnt about  Why businesses exist  The relationship between mission and objectives  Common business objectives  Why businesses set objectives  The measurement and importance of profit