Unit 1
Bussiness and it’s environment
Chapter 1 Enterprise 1.1
Chapter 2 Business Structure 1.2
Chapter 3 Size Of Business 1.3
Chapter 4 Business Objectives 1.4
Chapter 5 1.5
Stakeholders
, 1.1
Chapter 1
Enterprise
1.1 The Nature of Business Activity
The primary purpose of business activity is to add value to resources (like raw
materials) to meet the needs and wants of customers.
What do businesses do?
• Identify the needs of customers.
• Purchase necessary resources to allow production to take place.
• Produce goods and services which satisfy customers' needs,
usually with the aim of making a profit.
The Factors of Production Key Terms
To produce any good or service, a
business needs resources. These are
Entrepreneur: An individual who has
grouped into four categories:
the idea for a new business, starts it
Land: All natural resources (e.g., coal, up and carries most of the risks but
crude oil, timber). benefits from the rewards.
Labour: Manual and skilled labour Customer: An individual consumer or
making up the workforce. organisation that purchases goods or
Capital: Finance needed to set up and services from a business.
run the business, and all capital Consumer: An individual who
goods(machinery, offices, vehicles). purchases goods and services for
Enterprise: The initiative and risk- personal use.
taking provided by entrepreneurs Consumer Goods: The physical and
who combine the other three factors. tangible goods sold to consumers that
LABOUR
are not intended for resale. These
include durable consumer goods, such
as cars and washing machines, and
non-durable consumer goods, such as
food, drinks and sweets, that can be
used only once.
Consumer Services: The non-tangible
products sold to consumers that are
not intended for resale. These include
hotel accommodation, insurance
services and train journeys.
,The Concept of Adding Value
All businesses aim to create value by Key Terms
producing goods and services and
selling them for a higher price than Factors of Production: The resources
the cost of bought-in materials; this needed by business to produce goods
is called adding value. or services.
If a customer is prepared to pay a Capital Goods: The physical goods
price that is greater than the cost of used by industry to aid in the
materials used to produce a good or production of other goods and
service, then the business has been services, such as machines and
successful in adding value. commercial vehicles.
Without adding value, a business will Enterprise: The action of showing
not be able to survive as other costs initiative to take the risk to set up a
have to be paid and the people business.
investing in the business also expect a adding value: increasing the
financial return. difference between the cost of
bought-in inputs (materials) and the
How to Add Value (Examples): selling price of the finished goods.
1. Branding: Creating a unique added value: the difference between
identity so customers pay more for the cost of purchasing bought-in
the "name" (e.g., designer clothes or inputs (materials) and the selling price
branded sweets). of the finished goods.
2. Service/Presentation: Better shop the economic problem: There are
fittings, well-dressed staff, or insufficient goods to satisfy all of our
attractive packaging (e.g., a jewelry needs and wants at any one time.
shop). opportunity cost: the next most
3. Definition — Branding: The process desired option given up.
of differentiating a product by
developing a symbol, name, image or
trademark for it.
The Economic Problem: Scarcity and Choice
We live in a world of great wealth and great scarcity. People have many unsatisfied
needs and wants, but there are insufficient goods to satisfy all of our needs and
wants at any one time. This is known as the economic problem.
The purpose of economic activity is to provide for as many of our wants as
possible, yet the shortage of products and the limited supply of resources force us
to make choices.
, Opportunity Cost Key Concept
This need to choose leads to the
important principle of opportunity The dynamic business environment
cost. Individuals must give up on is a major cause of change within
some goods as they cannot all be business. Decision-making by
afforded. The next most desired entrepreneurs is often focused on
product which is given up becomes responding to change
the opportunity or opportunity cost.
The Dynamic Environment Why Businesses Fail
Setting up a new business is risky
Poor record-keeping
because the business environment is
The lack of accurate records is a common
dynamic (constantly changing).
reason for business failure. Many small
Businesses must adapt to:
companies fail to pay sufficient attention to
• New competitors entering the market.
record-keeping, believing it is less
• Legal changes (e.g., new safety laws).
important than meeting customer needs
• Economic changes (e.g., customers
Solution: Use computers for records
having less money to spend).
but always keep hold of paper records
• Technological changes (e.g., old
(like receipts from suppliers) as a check
products becoming outdated).
or back-up system if the computer fails,
and for evidence to the tax authorities.
Why Businesses Succeed
There are five main reasons why some Lack of cash
businesses thrive and achieve success Running short of cash so that day-to-day
in meeting their objectives: business operations become difficult is the
Good understanding of customer most significant reason for the failure of
needs – leads to sales targets being businesses (especially within the first year
achieved. of operation).
Efficient management of Finance is needed for:
operations – keeps costs under Day-to-day cash (working capital)
control. Holding inventories (stock)
Flexible decision-making to adapt Giving trade credit to customers (who
to new situations – allows then become debtors)
investment in new business Without working capital, a business cannot
opportunities. buy more supplies, pay suppliers, or offer
Appropriate and sufficient sources credit, which could lead to closing down.
of finance – prevents cash
shortages and allows for
expansion.
Bussiness and it’s environment
Chapter 1 Enterprise 1.1
Chapter 2 Business Structure 1.2
Chapter 3 Size Of Business 1.3
Chapter 4 Business Objectives 1.4
Chapter 5 1.5
Stakeholders
, 1.1
Chapter 1
Enterprise
1.1 The Nature of Business Activity
The primary purpose of business activity is to add value to resources (like raw
materials) to meet the needs and wants of customers.
What do businesses do?
• Identify the needs of customers.
• Purchase necessary resources to allow production to take place.
• Produce goods and services which satisfy customers' needs,
usually with the aim of making a profit.
The Factors of Production Key Terms
To produce any good or service, a
business needs resources. These are
Entrepreneur: An individual who has
grouped into four categories:
the idea for a new business, starts it
Land: All natural resources (e.g., coal, up and carries most of the risks but
crude oil, timber). benefits from the rewards.
Labour: Manual and skilled labour Customer: An individual consumer or
making up the workforce. organisation that purchases goods or
Capital: Finance needed to set up and services from a business.
run the business, and all capital Consumer: An individual who
goods(machinery, offices, vehicles). purchases goods and services for
Enterprise: The initiative and risk- personal use.
taking provided by entrepreneurs Consumer Goods: The physical and
who combine the other three factors. tangible goods sold to consumers that
LABOUR
are not intended for resale. These
include durable consumer goods, such
as cars and washing machines, and
non-durable consumer goods, such as
food, drinks and sweets, that can be
used only once.
Consumer Services: The non-tangible
products sold to consumers that are
not intended for resale. These include
hotel accommodation, insurance
services and train journeys.
,The Concept of Adding Value
All businesses aim to create value by Key Terms
producing goods and services and
selling them for a higher price than Factors of Production: The resources
the cost of bought-in materials; this needed by business to produce goods
is called adding value. or services.
If a customer is prepared to pay a Capital Goods: The physical goods
price that is greater than the cost of used by industry to aid in the
materials used to produce a good or production of other goods and
service, then the business has been services, such as machines and
successful in adding value. commercial vehicles.
Without adding value, a business will Enterprise: The action of showing
not be able to survive as other costs initiative to take the risk to set up a
have to be paid and the people business.
investing in the business also expect a adding value: increasing the
financial return. difference between the cost of
bought-in inputs (materials) and the
How to Add Value (Examples): selling price of the finished goods.
1. Branding: Creating a unique added value: the difference between
identity so customers pay more for the cost of purchasing bought-in
the "name" (e.g., designer clothes or inputs (materials) and the selling price
branded sweets). of the finished goods.
2. Service/Presentation: Better shop the economic problem: There are
fittings, well-dressed staff, or insufficient goods to satisfy all of our
attractive packaging (e.g., a jewelry needs and wants at any one time.
shop). opportunity cost: the next most
3. Definition — Branding: The process desired option given up.
of differentiating a product by
developing a symbol, name, image or
trademark for it.
The Economic Problem: Scarcity and Choice
We live in a world of great wealth and great scarcity. People have many unsatisfied
needs and wants, but there are insufficient goods to satisfy all of our needs and
wants at any one time. This is known as the economic problem.
The purpose of economic activity is to provide for as many of our wants as
possible, yet the shortage of products and the limited supply of resources force us
to make choices.
, Opportunity Cost Key Concept
This need to choose leads to the
important principle of opportunity The dynamic business environment
cost. Individuals must give up on is a major cause of change within
some goods as they cannot all be business. Decision-making by
afforded. The next most desired entrepreneurs is often focused on
product which is given up becomes responding to change
the opportunity or opportunity cost.
The Dynamic Environment Why Businesses Fail
Setting up a new business is risky
Poor record-keeping
because the business environment is
The lack of accurate records is a common
dynamic (constantly changing).
reason for business failure. Many small
Businesses must adapt to:
companies fail to pay sufficient attention to
• New competitors entering the market.
record-keeping, believing it is less
• Legal changes (e.g., new safety laws).
important than meeting customer needs
• Economic changes (e.g., customers
Solution: Use computers for records
having less money to spend).
but always keep hold of paper records
• Technological changes (e.g., old
(like receipts from suppliers) as a check
products becoming outdated).
or back-up system if the computer fails,
and for evidence to the tax authorities.
Why Businesses Succeed
There are five main reasons why some Lack of cash
businesses thrive and achieve success Running short of cash so that day-to-day
in meeting their objectives: business operations become difficult is the
Good understanding of customer most significant reason for the failure of
needs – leads to sales targets being businesses (especially within the first year
achieved. of operation).
Efficient management of Finance is needed for:
operations – keeps costs under Day-to-day cash (working capital)
control. Holding inventories (stock)
Flexible decision-making to adapt Giving trade credit to customers (who
to new situations – allows then become debtors)
investment in new business Without working capital, a business cannot
opportunities. buy more supplies, pay suppliers, or offer
Appropriate and sufficient sources credit, which could lead to closing down.
of finance – prevents cash
shortages and allows for
expansion.
