Chapter – 1
What is business activity?
Definitions
1. Premises – buildings and land used by a shop or business
2. Business – organization that produces goods and services
3. Organization – group that has formed for a particular purpose
4. Goods – physical products, such as a mobile phone
5. Services – non-physical products such as banking
6. Output – amount of goods or work produced by a person, machine or factory
7. Human resources – in some business, the department that deals with employing,
training and helping people.
8. Consumer goods – goods and services sold to ordinary people (consumers) rather than
businesses
9. Producer goods – goods and services produced by one business for another
10. Needs – basic requirements for human survival
11. Wants – people’s desires for goods and services
12. Infinite – without limits in space or time
13. Finite – having an end or a limit
14. Scarce – resources with limited availability
15. Private sector – business organizations owned by individuals or groups of individuals
16. Public sector – business organisations owned by central or local government
17. Stakeholder – an individual or group with an interest in the operation of a business
18. Entrepreneur – person who takes risks and sets up businesses. Individuals who organizes
the other factors of production and risks their own money in a business venture.
BUSINESS ACTIVITY
A business is an organization that provides goods and services.
1. Business activity produces an output – a good or service.
2. Goods and services are consumed
3. Resources are used
4. A number of business functions may be carried out. Production, marketing, human
resources and financial control are examples of these functions
5. External factors affect businesses. Things that they cannot control have an impact on
businesses, changes in consumer tastes and the actions of competitors.
6. Businesses aim to make a profit. Most people setting up a business do so as they wish to
make money for themselves.
GOODS AND SERVICES
Businesses provide a wide range of goods and services. Some are produced for consumers –
ordinary people. These are called consumer goods. Products sold by one business to another
are called producer goods.
SATISFYING NEEDS AND WANTS
Businesses have to satisfy people’s needs and wants. Needs are the requirements for human
survival. Some are physical such as water, food, warmth, shelter and clothing. If these needs
cannot be satisfied humans will die.
Humans also have other desires. These are called wants and include holidays, a better house, a
bigger car, a better education and a cleaner environment. These wants are infinite. Most people
want more than they already have. It is human nature. Unfortunately, the resources available to
businesses are finite. This means there is a limited amount. Economists say such resources are
scarce.
THE PURPOSE OF BUSINESS ACTIVITY
Businesses exist to provide goods and services. However, different types of organisation provide
goods and services for different reasons. Each type of organisation has a different purpose.
Private enterprise: Most businesses are owned privately by individuals or groups of individuals.
They are private sector businesses. The objective of a private enterprise is often to make money
- a profit for the owners.
Social enterprise: Some organisations in the private sector are non-profit making. Organisations,
such as charities, pressure groups, clubs and societies exist for reasons other than profit.
Public enterprise: Some goods and services are provided by organisations owned by central or
local government. These are public sector organisations. In many countries public sector
organisations often provide health care, education, mail delivery, policing, the fire service and
environmental services. The main purpose of a public enterprise is to provide the goods and
services that private enterprise fails to provide adequately.
BUSINESS STAKEHOLDERS
Any individual or group that has an interest in the operation of a business is called a
stakeholder. Owners have a financial 'stake' in the business. This is because they have invested
some of their own money and usually a lot of their time. Some stakeholders, such as
employees, rely on the success of a business for the income to meet their needs and wants.
OWNERS
A business belongs to its owners. Many small businesses are owned by individuals, families or
small groups of people. These people are often called entrepreneurs. They are responsible for
setting up and running the business. Larger businesses, such as limited companies are owned by
shareholders. Shareholders invest money in a business and get a share of the profit called a
dividend.
CUSTOMERS
Customers buy the goods and services that businesses sell. Most customers are consumers who
use or 'consume' goods and services. However, some may be other businesses. Customers want
good quality products at a fair price. If they do not get them; they will spend their money
elsewhere.
EMPLOYEES
Employees work for businesses. They depend on businesses for their salary. However, they have
other needs. They will require training so that they can do their jobs properly. They want good
working conditions, fair pay and benefits, job security and opportunities for promotion.
MANAGERS
Managers help to run most businesses. They are often employed to run the different
departments in businesses, such as marketing, production, finance and human resources.
Managers have to lead teams, solve problems, make decisions, settle disputes and motivate
workers. Managers are likely to help plan the direction of the business with its owners. They
also have to control resources, such as finance, equipment, time and people. Managers are also
accountable to the owners. This means they have to take responsibility if things go wrong.
FINANCIERS
Financiers lend money to a business. They may be banks but could be individuals, such as family
members, or private investors, such as venture capitalists. Clearly these stakeholders have a
financial interest in a business and will be keen for it to do well.
SUPPLIERS
Businesses that provide raw materials, parts, commercial services and utilities, such as
electricity and water, to other businesses are called suppliers. Relations between businesses and
their suppliers must be good because they rely on each other. Businesses want good quality
resources at reasonable prices. In return suppliers will require prompt payment and regular
orders.
THE LOCAL COMMUNITY
Most businesses are likely to have an impact on the local community. A business may employ a
lot of people who live in the local community. If the business does well the local community
may benefit. There may be more jobs, more overtime and possibly higher pay. In contrast a
business may be criticised by the local community. For example, if the owners of a noisy factory
decide to introduce night shifts, there may be complaints from local residents.
THE GOVERNMENT
The government has an interest in all businesses. They provide employment, generate wealth
and pay taxes. Taxes from businesses and their employees are used to finance government
spending.
THE CHANGING BUSINESS ENVIRONMENT
All businesses operate in a changing business environment. This means that they may be
affected by external factors that are likely to change over time. Such factors include the strength
of competition, the economic climate, government legislation, population trends, demand
patterns, world affairs and social factors.
To survive, businesses must produce goods and services that satisfy people's needs and wants.
They must have clear objectives and be aware that the changing environment can bring new
opportunities and impose new limitations.