3.1.1

• Why businesses exist?

  a business is an organisation that exists to provide goods and services on a commercial basis to customers
• Business Objectives

  • Profit
  • growth
  • survival
  • cash flow
  • social
  • ethical
• business objectives should be

  S - specific

  m - mesurable

  a - achieveable

  r - relevant

  t - time bound
• What is a mission statement?

  • A business needs a mission. This is its ultimate purpose
  • qualitative statement of an organisation's aims that uses language intended to motivate employees and convince customers, suppliers and those outside of the firm of its sincerity and commitment
• A good mission statement

  • excites, inspires, motivates and guides
  • relevant to all major share-holders
  • differentiates the business from competitors
  • formulation of objectives
• Relationship between mission and objectives

  • mission statements is at the top of the hierarchy
  • objectives are derived from the mission statement of the business
• Profit...

  • reward that the business owners want to achieve from taking risk and making investments
  • without the possibility of making profit, there is no inventive to set up a business
• Profit: Equation

  total revenue - total costs
• Revenue

  • can also be known as turnover and sales
  • measured over a period of time and for an individual product
• Revenue: Equation

  number of units sold x selling price per unit
• Variable Costs

  • costs which change in relation to output
• Variable Costs: Examples

  • raw materials
  • packaging
  • wages based on hours worked or amount produced
• Variable Costs: Equation

  variable cost per unit x number of units sold
• Fixed Costs

  • costs which do not change in relation to output
• Fixed Cost: Examples

  • rent and rates
  • salaries
  • advertising
  • insurance, banking and legal fees
  • consultant and advisor costs
• Gross Profit: Equations

  • sales revenue - cost of sales
  • revenue - variable costs
• Net Profit: Equations

  • gross profit - operating expenses
  • gross profit - fixed costs