Unit 1 - What is business?

• Businesses


  Sell goods or services to customers who are willing to pay for them
• Goods


  • Physical items like books or furniture
• Services


  • Actions performed by other people to aid the customer, e.g. hairdressers and plumbers
• Types of products


  • Necessities (goods or services that you need, like gas and electricity)
  • Luxury goods or services (things you want but don't need, like holidays and jewellery)
• Profit


  When a business makes more money than it spends
• Reasons for starting a business

  • To make more money than working as an employee
  • To be your own boss and make your own decisions
  • To do a job you're really interested in
  • people set up businesses mainly to make a profit
• Entrepreneur


  A person who starts their own business and has to find resources and organise activities needed to start the business
• Businesses have to make a profit or break even to survive, especially in the private sector
• Public sector organisations


  Aren't there to make money - they provide a service to the community
• Non-profit businesses


  Have social or ethical aims, rather than financial ones
• Other business aims


  • Offer the highest quality goods and services possible
  • Give excellent customer service
  • Have a great image and reputation
  • Develop new products ahead of competitors
  • Offer a diverse range of goods or services
  • Become fully sustainable or minimise environmental impact
  • Invest in the local community or social projects
• Mission Statement


  A written description of a business's overall purpose or main corporate aims
• Mission Statements


  • Tell you about a Business's Intentions
  • Make stakeholders aware of what the business does and why
  • Encourage employees to work towards its aims
• Stakeholders


  People who have an interest in a business
• Mission Statements


  • Tell the purpose of the business
  • Include information on values, standards, strategy, customers, and what makes the business unique
  • Give clues about the company's beliefs
  • Give staff a sense of shared purpose and encourage them to work towards common goals
• Companies don't have to prove that what they say in their mission statement is accurate, so they can say what they think consumers want to hear, without having to do anything about it
• If a business's actions don't reflect its stated values, its reputation will be damaged
• Objectives


  Specific goals that must be met to enable a business to achieve its mission
• Hierarchy of objectives


  1. Mission Statement and Corporate Aims

  2. Corporate Objectives

  3. Functional Objectives
• Corporate Objectives


  The goals of the business as a whole
• Functional Objectives


  The objectives of each department, more detailed than corporate objectives and specific to each department
• Reasons for setting objectives

  • Ensure everyone is working towards a goal
  • Improve coordination between departments
  • Motivate employees
  • Aid decision-making
  • Measure business success and review decisions
• Employees may have their own Personal Objectives
• Functional Objectives and Personal Objectives

  • Sales department objective: Increase sales by 10% over 12 months
  • Telesales team objective: Increase sales from 500 to 550 a week
  • Telesales operative objective: Increase sales from 20 to 25 a day
• SMART objective


  Specific, Measurable, Agreed, Realistic, Timely
• Specific objective


  • Tells staff what they're supposed to be aiming for, e.g. "to reduce the number of items produced that have defects"
• Measurable objective


  • The business will know if it's achieved it or not, e.g. "to increase profit by 5%"
• Agreed objective


  • Everyone involved in achieving the objective needs to know about it and agree to it
• Realistic objective


  • Not too ambitious, e.g. tripling sales within 12 months, or achieving a 95% market share
• Timely objective


  • Has a specific timeframe that the objective has to be achieved in, e.g. increase revenue by 5% within 12 months
• Buying a magical thinking cap won't make you SMART
• Common business objectives


  • Profit objectives
  • Growth objectives
  • Survival objectives
  • Cash flow objectives
  • Social and ethical objectives
• Profit objectives


  Businesses that are currently making a loss might aim to become profitable, or established businesses that are already profitable might want to increase their profits
• Growth objectives


  Businesses aim to grow, as the larger a business grows, the more it is able to use its position in the market to earn higher profits
• Survival objectives


  Survival just means that a business can continue to trade, rather than running out of money or being forced to exit the market
• Cash flow objectives


  Businesses set cash flow objectives in order to improve their cash flow - to make sure they always have enough money to make the payments that are due
• Social and ethical objectives

  Social objectives relate to benefiting society or people in need, ethical objectives are based on moral principles about how businesses treat people and the environment
• Non-profit organisations, like charities or social enterprises, are set up to achieve social or ethical objectives
• For-profit businesses usually focus on making a profit, but social and ethical objectives are becoming increasingly important
• Marks & Spencer successfully made their UK business carbon neutral by setting a number of ethical objectives