Nature of Business

• Enterprise


  The taking of risks in establishing a business
• Entrepreneurship


  The act of combining all the other factors of production (land, labour and capital) with the aim of establishing a profitable venture for the production of goods and services
• Barter


  The exchange of one good/service for another
• Profit


  The surplus funds which remain after all expenses have been covered
• Loss


  The situation which exist when total sales are not enough to cover all expenses
• Trade


  The buying and selling of goods and services
• Organisation


  A social arrangement which pursues collective goals such as the production of goods and services
• Economy


  The system within a country which determines the production, exchange and consumption of goods and services
• Producer


  Any individual or organisation which makes goods and services
• Consumer


  Any individual or organisation which uses goods and services
• Exchange


  The voluntary trade of goods and services
• Types of Goods


  • Free goods
  • Public goods
  • Merit goods
• Free goods


  Available to all without charge, gifts of nature (e.g. air, sea, sunshine)
• Public goods


  Goods which can be consumed by all and are usually paid for by taxation, consumption by one person does not exclude consumption by others (e.g. national defence)
• Merit goods


  Goods that can provide benefits to the consumer as well as to the rest of society (e.g. health services and education)
• Goods


  Tangible products which have been produced (e.g. car, rice, clothing)
• Service


  Intangible products which have been produced (e.g. banking, transportation, insurance)
• Market


  Any place where buyers and sellers meet to engage in trade, also referred to as the demand for a product
• Commodity


  Any final good used for some purpose
• Capital


  Money which is used in the organisation to acquire assets, also refers to items (factories, equipment, machinery etc.) used to create final products
• Labour


  The physical and mental contribution of individuals to the creation of goods and services
• Specialisation


  The division of labour into specific tasks, a whole process is divided into several tasks to speed up the process and may result in an increase in productivity and a decrease in unit cost
• Over the centuries, as commerce has developed, so have the various instruments of exchange
• In early times, people cultivated the land and reared animals to provide for their needs, this production was the earliest form of man as an 'economic animal' and is known as direct production or subsistence economy
• As production increased, there was a surplus of goods, but no individual could produce all their needs and the system of barter resulted
• Problems with barter system

  • Double coincidence of wants
  • Exchange rate
  • Divisibility of goods
  • Storage of wealth
• To solve many of these problems, a system of 'money' was developed where things such as shells, beads, arrowheads, fishhooks, gold and animal teeth were used
• Forms of modern money

  • Credit cards
  • Debit cards
  • Cheques
  • Electronic transfer
  • Tele-banking
  • E-commerce
• Reasons to start a business

  • Financial independence
  • Wanting to be your own boss
  • Self-fulfilment
  • There is a need for a product/service, which is not being met
  • Redundancy
  • Poor job prospects
• Functions of a business

  • The provision of goods and services
  • The provision of jobs
  • Assistance with social activities through sponsorship
  • To make a profit
  • Contribute to economic growth
• Sole trader


  A person who owns their own business
• Characteristics of a sole trader

  • Easy to set up
  • Financed by the owner
  • Bears all risks and keeps all profits
  • Provides a personal service
  • Has no one to account to
• Advantages of a sole trader

  • Easily and quickly formed and dissolved
  • Close relationship with customers
  • Decisions can be made quicker
  • Takes all profits
  • Pays lower personal tax not company tax
• Disadvantages of a sole trader

  • Limited capital and it is not easy to get loans
  • Long working hours
  • Business usually dissolves if owner dies
  • Lack of specialized staff
• Partnership


  An association between 2-20 people operating a business with the common goal of making a profit
• Types of partnership


  • Ordinary Partnership
  • Limited Partnership
• Characteristics of a partnership

  • Minimum of 2 and maximum of 20 for formation
  • Capital is provided by the partners
  • A limited partner cannot take part in the management of the partnership
  • Profits share equally unless stated in agreement
• Advantages of a partnership

  • Relatively easy to set up
  • More capital can be obtained than sole trader
  • Business will not end if one partner dies (continuity)
  • Specialization can occur thus leading to greater efficiency
  • Shared work load
  • Pays lower personal tax not company tax
• Disadvantages of a partnership

  • Unlimited liability
  • Personalities of partners may cause difficulties in decision making
  • Some difficulty in raising capital
  • In the absence of an agreement all profits must be shared equally regardless of individual effort
• Co-operative


  Businesses that are formed, owned and operated by its members