Fundamentals of the
Business World
Module Contents
Business and Profits
The Role Business Plays in Society
Entrepreneurial Risk and Factors of Production
The Forces of the Business Environment
Stakeholders and Succeeding in Business
Learning Objectives 1 of 2
 Outline key facets of a business.
 Identify businesses as for-profit or nonprofit.
 Summarize how the American economy has evolved over
time.
 Provide examples of the four ways business can impact
quality of life.
 Explain why entrepreneurs are important to an economy.
Learning Objectives 2 of 2
 Apply the factors of production to a business setting.
 Summarize the importance of the macro-environment.
 Analyze the economic, political/legal/regulatory,
technological, competitive, global, and social forces
that affect business.
 Summarize the types of stakeholders that businesses
must recognize and satisfy.
Business and Profits
Business and Profits 1 of 4
What is a Business Organization?
 Business is any activity that seeks to make a profit by satisfying needs through
selling goods or services and generating revenue.
 An organization is a group of people who work together to accomplish a
specific purpose.
Business and Profits 1 of 4
There are two types of organizations:
1. For-Profit Organizations:
 For-profit organizations are formed to make money, or profits, by
selling goods or services.
 Their measure of accomplishment is generally profit (or loss).
 Examples?
2. Nonprofit Organizations:
 Their purpose is to earn enough profit to cover expenses and further
their goals.
 Money and expenses are important, but success is measured by how
effectively services are delivered, or by other criteria.
 Examples?
Business and Profits 2 of 4
What is the Lifeblood of Business? Profit!
Selling is the exchange of goods or services for an agreed sum of money. The
measure generally is profit (or loss).
Revenue is the total amount of money that the selling of goods or services
produces during a defined period of time.
Expenses are the costs incurred in running the business, such as salaries and rents.
Revenue
Expenses
Profit
Business and Profits 3 of 4
What Do Businesses Sell? Goods vs. Services
Evolution of US Economy
From an economic standpoint, most American jobs today involve the provision of
services. But the dominance of service-based jobs is relatively recent.
 18th Century: The Agricultural Economy
Majority of the workforce was employed in agriculture and producing and
selling goods made on farms and ranches, such as food, cotton, and leather.
 Late 19th – Early 20th Century: The Industrial Economy
The United States evolved from an agricultural nation into an industrial one,
selling manufactured goods: steel, tools, and machines—everything from ships,
locomotives, automobiles, to toasters.
Business and Profits 4 of 4
Evolution of US Economy
 Late 20th Century: The Service Economy
– The United States has evolved into the service economy today.
– Jobs involving manufacturing of goods have declined mainly because
of global outsourcing or offshoring.
– Many of the goods formerly produced in the United States are now
produced overseas.
– In the last 25 years, most new jobs can be attributed to the growth in
services: entertainment, health, legal, financial, educational, personal care,
repair, janitorial, and other services.
LO 1-3
Check your understanding:
Which of the following is a nonprofit organization?
A.
PetSmart
B.
Red Cross
C.
Facebook
D.
Uber
LO 1-3
Role Business Plays in Society
Role Business Plays in Society
How Does Business Improve a Society’s Standard of Living?

How Does Business Improve a Society’s Standard of Living?
Business can raise people’s standard of living, enabling them to live
longer and healthier lives. It can also contribute to human knowledge.

Quality of life refers to a society’s general well-being as measured by standard
of living, health care, educational opportunities, freedom, happiness, and
environmental health. A synonym for quality of life is human development.

A large part of an enhanced quality of life results from an improved standard
of living, which is defined by how many goods and services people can buy
with the money they have.
Role Business Plays in Society
How Do Businesses Support Community Interests?
Producing Goods And Services
 Food and medicine, clothing and shelter, heat and light, and many other necessities
of life are produced by businesses.
Providing Paychecks and Benefits for Employees
 Employees depend on an individual business owner for paychecks and benefits,
such as health insurance and a retirement plan.
Paying Taxes to Support Government Spending
 Most businesses pay taxes.
 The employees pay payroll taxes.
 The government uses these taxes to fund public health programs, social security,
education, defense, and other essential services.
Donating Funds, Goods, and Services for Community Causes
 In many communities, businesses are strong supporters of charitable causes.
Check your understanding:
How do businesses benefit society?
A. By providing paychecks and benefits
B. By providing goods, services, and other necessities
C. By paying taxes to the government
D. By providing social security and other benefits
Entrepreneurial Risks and Factors
of Production
Entrepreneurial Risks and Factors of
Production 1 of 3
What is an Entrepreneur? How Does an Entrepreneur Differ
from an Employee?
 Entrepreneurs take a larger risk in starting a business compared to employees
who work for that business.
 An entrepreneur:
– sees a new opportunity for a product or service.
– risks time and money to start a business with the goal of making a profit.
– provides the catalyst that drives innovation.
– start small businesses designed to capture, meet, or improve a segment of a
market that is underserved.
Entrepreneurial Risks and Factors of
Production 2 of 3
Some elements that businesses need to achieve their
objectives are the Factors of Production
Entrepreneurship
 An entrepreneur is a person who sees a new opportunity for a product or
service, and risks his or her time and money to start a business with the goal of
making a profit.
Natural Resources
 Natural resources consist of production inputs that are useful just as they
appear in nature.
 Most natural resources can’t be created; they must be mined, harvested,
harnessed, or purified.
Capital
 Capital includes the buildings, machines, tools, and technology used to produce
goods and services.
 Money is used to acquire buildings and other capital.
Entrepreneurial Risks and Factors of
Production 3 of 3
The Factors of Production continued
Human Resources
 Human resources consist of labor, the physical and intellectual contributions of
a company’s employees.
Knowledge
 Knowledge is composed of the facts, information, and skills acquired by a
person through training or education.
 It is revolutionized by computers, telecommunications, and databases.
LO 1-6
Check your understanding:
Which of the following statements explains the
importance of entrepreneurs to an economy?
A. Entrepreneurs start businesses to compete in undeserved markets.
B. Entrepreneurs are catalysts that drive innovation.
C. Entrepreneurs help in analyzing company turnover.
D. Entrepreneurs work toward minimizing losses.
The Forces of the Business Environment
The Forces of the Business Environment
1 of 3
What Forces Affect the Business Environment?
Business and entrepreneurship don’t exist in a vacuum. All companies operate
within the business environment, which is the arena of forces that encourage or
discourage the development of business.
They are divided into six categories:
1. Economic Forces: The Tension Between Freedom and Restraint
2. Technological Forces: The Effect on Productivity and Security
3. Competitive Forces: The Influence on Customer, Employee, and Investor
Satisfaction
4. Social Forces: The Impact of Demographics
5. Global Forces: The Effect on Trade and Stability
6. Legal/Regulatory/Political Forces: The Rules Business Must Play By
The Forces of the Business Environment
1 of 3
1. Economic Forces: The Tension Between Freedom and Restraint
Business owners face continual tension between the freedom to operate and the
regulations provided by governments. Several common areas include:
 Taxation
 Contract enforcement
 Corruption
2. Technological Forces: The Effect on Productivity and Security
 Technology mainly includes digital technology and machines.
 Information technology has facilitated e-business.
 Some impacts of technology include:
– Productivity: The amount of output given the amount of input
– Security: Technological systems can enhance productivity, but they can also
compromise security.
The Forces of the Business Environment
2 of 3
What Forces Affect the Business Environment? continued
3. Competitive Forces: The Influence on Customer, Employee, and Investor
Satisfaction
 Competitors (in certain industries – airline)
 Customers (e.g. a public utility – water)
 Employees (e.g. a top talent in IT firms)
 Investors (e.g. Bank)
4. Social Forces: The Impact of Demographics
 Changes in a country’s demographics, the population’s measurable
characteristics, can change a business’s number of customers.
 Customers’ changing needs and tastes can also affect the business.
The Forces of the Business Environment
3 of 3
What Forces Affect the Business Environment? continued
5. Global Forces: The Effect on Trade and Stability
 Globalization is the movement of the world economy toward becoming a more
interdependent system.
 Global forces include:
– Trade pacts and economic unions
– Military alliances
– Currency exchanges
– Immigration policies
– Environmental regulations
6. Legal/Regulatory/Political Forces: The Rules Business Must Play By
 Both nationally and internationally, regulations, laws, and politics set the rules
businesses must abide to stay in business and out of trouble.
Stakeholders and Succeeding
in Business
Stakeholders and Succeeding in Business
1 of 4
Management and Stakeholders
Managers and entrepreneurs operate in an organizational environment composed
of various stakeholders:
Owners: Hoping for Profit but Risking Loss
 Owners are those who claim the organization as their legal property. In the forprofit world, there are several forms of ownership.
 The owners’ goal is to make a profit, but they risk the loss of everything they
have invested.
Customers: The Focus of Business
 Customers are the people or companies that pay to use an organization’s goods
or services.
 For-profit companies and nonprofit organizations both focus on customers.
Employees: The Need for Performance
 Employees are the key stakeholders in a business as they provide the labor,
create the culture, and provide the service that ultimately makes a business
succeed or fail.
Stakeholders and Succeeding in Business
2 of 4
Management and Stakeholders
Suppliers: Providing Parts and Products
 A supplier is a person or an organization that supplies raw materials, services,
equipment, labor, energy, and other products to other organizations.
Distributors: Directing Products to Customers
 A distributor is a person or an organization that helps sell goods and services to
customers.
 They are quite important in terms of ensuring that customers have a place to
purchase a product.
Lenders: Carrying the Company When Money is Short
 Businesses rely on lenders such as banks to give them loans:
– to start a business,
– to keep the business afloat when revenues are low, and
– to expand their operations.
Stakeholders and Succeeding in Business
3 of 4
Management and Stakeholders
Nearby Communities: The Local Environment
 Important stakeholders because schools and municipal governments rely on
businesses for a portion of their tax base.
 Families and merchants depend on the employee payroll for their livelihoods.
 Non-profit organizations such as sports leagues may depend on them for
donations.
Government Regulators: Local, State, Federal, and World
 Government regulators are government agencies that establish rules and
regulations under which organizations must operate; in turn, regulators are
often affected by organizations.
Stakeholders and Succeeding in Business
4 of 4
Management and Stakeholders
Interest Groups: People with Specific Issues
 Interest groups are groups whose members try to influence businesses and
governments on specific issues.
 They try to exert political influence, as in contributing funds to lawmakers’
election campaigns or in launching letter-writing efforts to businesses and
politicians.
 The Sierra Club, the United Auto Workers, and the Chamber of Commerce are
examples of interest groups or special-interest groups.
Media: From Print to Internet
 Media can rapidly and widely disseminate both bad news and good news.
 Most midsized and larger businesses have a public relations person or media
department to communicate effectively with the press.
 Top-level executives often receive special instruction on how to best deal with
the media.
Check your understanding:
Which of the following stakeholders ensures that
customers have a place to purchase a product?
A.
By Lenders
B.
Suppliers
C.
Distributors
D.
Interest groups