err Explain the goal ofa business, Pena roduce a product or service, een eters ved in a business, aes A business (or firm) is an enterprise that provides products or services desired by customers. According 1 | Businesses are established to serve the needs of consumers. En- trepreneurs are encouraged to start a business because they can earn in- come (profits) if their business is successful. They are motivated to make decisions that will increase business revenue and keep expenses low so that they can earn high profits. The creation of successful businesses can be beneficial to the entrepreneurs and other owners who earn profits, the employees who are paid income, and the con- sumers whose needs are satisfied. You can profit from an understand- ing of business even if you do not plan to run a business because the knowledge may help you succeed in your job position, in your career path, or even from investing in a business.Um The Goal of a Business Explain the goal ofa business, Where the Profits Come From Revenue $5,000 — Expenses — $1,000 = Profit = $4,000 "The profits that you earn from your new business are dependent on here needs to be 2 ICO Sevicenatyon (MEE. If there is no demand, you will not generate any revenue and, there- fore, will not earn a profit. SSG you need to FSO meaning that they choose you instead of your competitors (other tutors). If you offer a better service or a lower price than your competitors, the customers who need your service may choose you instead of your competitors. In addition, your customers may want to rehire you for additional tutoring or may refer you to their friends who need tutoring. Third, to earn high profits, you need to keep your expenses low. I! youProfit as a Motive to Understand Business How the Profit Motive Is Influenced by the Government nonprofit organization an organization that serves a specific cause and is not intended Decision Making to make profits Decisions to Create a Business ‘What resources are needed? to Create the Business Business — ] How to sats staeholdas) 5 = Decking Perfomance of Hy Value ofthe a Business a Key funtion manages? How to del with environmental concerns?2 Geese hmarcreltas Identify theresourcesa J feo [Wlete=omisi-1 adie} business uses to produce product or service. To produce a product or service, firms rely on GIGWiiGERGISTs! production: Natural resources Human resources Capital Entrepreneurship vvryvy natural resources any resources that can be used in their natural form human resources people who are able to perform work for a business capital machinery, equipment, tools, and physical facilities used by a business technology knowledge or tools used to pro- duce products and services information technology technology that enables informa- tion to be used to produce prod- ucts and servicesentrepreneurship entrepreneurs the creation of business ideas and people who organize, manage, the willingness to take risk; the act and assume the risk of starting a of creating, organizing, and man- business ing a busi = r aecmmemueal Koy Stakeholders in a Business 3 stakeholders —~_ i people who have an interest in a Identify the key stakeholdersthetare_ UsiNess; the business’s owners, involved in a business. creditors, employees, suppliers, and customers Owners Creditors Employees vvvy Suppliers Customers Each type of stakeholder plays a critical role for firms, as explained next.stockholders (shareholders) investors who become partial owners of firms by purchasing the firm’s stock creditors financial institutions or individuals who provide loans Exhibit 1.2 Interaction among Owners, Employees, Customers, Suppliers, and Creditors stock certificates of ownership of a business managers employees who are responsible for managing job assignments of other employees and making key business decisions Products or 5 (Invested) __ Services Owners [e=-; ——"[oaez Firm Run by cuone ‘of Firm 1_tts Employees | $ (Dividends) $ (Purchases) Suppliers4 ewe acsomaaalcelaantcas Describe the business ‘environment to which a firm is exposed. GH Even after a business is created, its entrepreneurs and managers must continually monitor the environment so that they can anticipate how the demand for its products or its cost of producing products may change. Social environment Industry environment Economic environment vvvy Global environment Social Environment The social environment, which includes demographics and consumer pref- erences, represents the social tendencies to which a business is exposed. The demographics, or characteristics of the population, change over time.As the proportions of children, teenagers, middle-aged consumers, and senior citizens in a population change, so does the demand for a firm’s products. Thus, the demand for the products produced by a specific busi- ness may increase or decrease in response to a change in demographics. Industry Environment The industry environment represents the conditions within the firm’s in- dustry to which the firm is exposed. The conditions in each industry vary according to the demand and the competition. Firms benefit from being in an industry that experiences a high consumer demand for its products. For Economic Environment Economic conditions have a strong impact on the performance of each business, When the economy is strong, employment is high, and compen- SALIOHIPSIAAOREMPIOVEESISISOAIEHE Since people have relatively good in- come under these conditions, they purchase a large amount of products. The firms that produce these products benefit from the large demand. They hire many employees to ensure that they can produce a sufficient amount of products to satisfy the demand. They can also afford to pay high wages to their employees.Global Environment The global environment may affect all firms directly or indirectly. Some firms rely on foreign countries for some of their supplies or sell their prod- [SURVALGUSEOUMIES] They may even establish subsidiaries in foreign countries where they can produce products and sell them. Even if a firm is not planning to sell its products in foreign countries, it must be aware of the global environment because it may face foreign competition when it sells its products locally. Furthermore, global economic conditions can affect local economic (GHGS 1f economic conditions weaken in foreign countries, the foreign demand for U.S. products will decrease. Consequently, sales by U.S. firms will decrease, and this may result in some layoffs. The general income level in the United States will decline, and U.S. consumers will have less money to spend. The demand for all products will decline, even those that are sold only in the United States. Thus, even firms that have no international busi- ness can be affected by the global environment. The global environment is described more fully in Chapter 4. 5 Key Types of Business Decisions Describe the key types RI2AIENINES S170 eee SESSA iness Ol AACA ATACACEMIERSION. Management is the of business decisions, . means by which employees and other resources (such as machinery) are used by the firm, Marketing is the means by which products (or services) are developed, priced, distributed, and promoted to customers. Finance is the means by which firms obtain and use funds for their business operations,A firm's decisions are commonly based on data and information, which are provided by its accounting and information systems. Accounting is the summary and analysis of the firm’s financial condition and is used to make various business decisions. Information systems include information tech- nology, people, and procedures that provide appropriate information so that the firm’s employees can make business decisions. Business majors Exhibit 1.3 ‘Common Business Decisions Management Decisions 1. What equipment is needed to produce the product? 2. How many employees should be hired to produce the product? 3. How can employees be motivated to perform well? Marketing Decisions 1. What price should be charged for the product? 2, Should the product be changed to be more appealing to customers? 3. Should the firm use advertising or some other strategy to promote its product? Finance Decisions 1. Should financial support come from the sale of stock or from borrowing money? Or a combination of both? 2, Should the firm attempt to obtain borrowed funds for a short-term period (such as one year) ora long-term period? 3. Should the firm invest funds in a new business project that has recently been proposed (such as expansion of its exist- ing business or development of a new product), or should it use these funds to repay debt?Exhibit 1.4 How Business Decisions Affect a Firm’s Earnings Demand for aaa Firm's Products > Production Expenses Marketing > Marketing — | expenses Decisions Expenses Finance Interest = ; Decisions Expenses =| Earnings1s. Bad Business Decisions Affect the Profits Earned by the Owners Management Impact on. Impact on Decision Firm’s Operations promts ‘employees Hira employees wa ae proper sie Peharee to srmpoyens Pay insuficient | |__| cient solaris to emplonees ee ize space poorly Excessive expenses Marketing Impact on Decision Firms Operations a product for ceive expenses arsed by Somers Insutcientrevenue | “and instsent “Excessive expenses Unable to expand ‘te bucinese