MOTIVES AND FUNCTIONS OF A BUSINESS
THE GOAL OF A BUSINESS
EXPLAIN THE GOAL OF A BUSINESS
 Businesses are established to serve the needs of consumers by owners who seek to make profits.
 The people who create a business may see an opportunity to produce a product or service that is not already
being offered by other firms.
 Alternatively, they may believe that they can produce a product or service that they can sell for a lower price than
existing firms.
 By providing a product that is desired by customers, they may be able to make profits for their business.
WHERE THE PROFITS COME FROM
 A business receives revenue when it sells its products or services.
 It incurs expenses from paying its employees and when it purchases machinery or facilities
 The difference between the revenue and the expenses is the profit (or earnings) generated by the business.
 For example, assume that you have decided to offer to tutor other students in the basics of developing a website
because you know that many students would be willing to pay for this service. During this year, you receive
$5,000 from students for tutoring, and you pay a total of $1,000 in expenses to advertise your service in the
college newspaper.Your profit is shown below:
 Revenue $5,000

Expenses $1,000
 Profit $4,000
PROFIT AS A MOTIVE TO UNDERSTAND BUSINESS
 If you develop a good understanding of business, you may be more capable of creating and running a successful
business, and you will be directly rewarded with higher profits.
 You’ll be rewarded with some other benefits even if you don’t want to run your own business. Such as

Better job

Enjoying job

Better performance

Better understand the type of business you are likely to perform
PROFIT MOTIVE IS INFLUENCED BY THE GOVERNMENT
 Free market economy
 Socialism
 Non profit org.
RESOURCES USED TO PRODUCE PRODUCTS OR SERVICES
 Natural resources: Natural resources include any resources that can be used in their natural form. Mostly used
one is land.
 Human resources: Human resources are the people who are able to perform work for a business. It can be of
physical form or mental ability.
 Capital: Capital includes machinery, equipment, tools, and physical facilities. All of these types of capital are
commonly used by human resources to produce products.
 Entrepreneurship
TECHNOLOGY
 Technology can be defined as knowledge or tools used to produce products or services. Ex: internet
INFORMATION TECHNOLOGY
 technology that enables information to be used to produce products and services.
 It includes the use of computers to transfer information among departments within a firm and the use of the
Internet to provide customers with information.
 A related type of technology is electronic business (e-business), also referred to as electronic commerce (e-
commerce) which is the use of electronic communications to produce or sell products and services.
 E-business includes both business transactions, such as sales of products over the Internet, and interactions
between a firm and its suppliers over the Internet.
 In fact, many people use the terms information technology and e-commerce interchangeably
 Name some successful top E-business in BD.
ENTREPRENEURSHIP
 Entrepreneurship involves the creation of business ideas and the willingness to accept the risk.
 Entrepreneurs attempt to identify business opportunities. When they find one, they invest some of their own money to
create a business with the expectation that they will earn adequate profits as a reward for their efforts.
 However, they face the risk that the profits of the business may not be as high as expected. In fact, if expenses exceed
revenue, the profits may be negative and the business could fail.
 In a free market economy, many businesses may be created within the same industry, which results in intense
competition. In this situation, a firm that charges too high a price for its product may fail because customers will switch
to its competitors.
 Similarly, a firm that is not well managed may fail because its expenses are too high. This risk of failure can reduce the
motive to create a business.
 To limit their risk, entrepreneurs should be cautious and realistic before deciding to invest their money to create a new
business
KEY STAKEHOLDERS IN A BUSINESS
 Stakeholders are people who have an interest in a business
 the business’s owners
 Creditors
 Employees
 suppliers, and
 customers
OWNERS
 An entrepreneur who creates a business initially serves as the sole owner. Yet, in order to expand, the business
may need more funding than the entrepreneur can provide. Consequently, the entrepreneur may allow other
people to invest in the firm and become co-owners.
 When the ownership of the firm is shared, the proportion of the firm owned by the existing owners is reduced.
 Consider a bakery that two people created with a $100,000 investment each. Each person owns one-half of the
firm. They can obtain more funds by allowing a third person to invest in the firm. If the third person invests
$100,000, each of the three people will own one-third of the firm.
 Any profits (or earnings) of the firm that are distributed to the owners will be shared among the three owners.
By accepting investment from more owners, however, the firm may be able to expand its business so that the
original owners benefit despite their decreased share of ownership.
 Many firms have also grown through stock
CREDITORS
 The owners of a new business may initially have to rely on friends or family members for credit because their
business does not have a history that proves it is likely to be successful and therefore able to pay off its credit in a
timely manner.
 Many firms that need funds borrow from financial institutions or individuals called creditors, who provide loans.
 Firms that borrow from creditors pay interest on their loans.
 Creditors will lend funds to a firm only if they believe the firm will perform well enough to pay the interest on
the loans and the principal on time.
EMPLOYEES
 Firms hire employees to conduct their business operations.
 Managers: employees who are responsible for managing the job assignments of other employees and making key
business decisions. The goal of a firm’s managers is to maximize the firm’s value and, therefore, to maximize the
value of the firm’s stock.
SUPPLIERS
 Firms cannot complete the production process if they cannot obtain the materials. Therefore, their performance
is partially dependent on the ability of their suppliers to deliver the materials on schedule
CUSTOMERS
 Firms cannot survive without customers.
 To attract customers, a firm must provide a desired product or service at a reasonable price.
 It must also ensure that the products or services produced are of adequate quality so that customers are satisfied
INTERACTION AMONG STAKEHOLDERS
THE BUSINESS ENVIRONMENT
 The business environment can be segmented into the following parts:
1. Social environment
2. Industry environment
3. Economic environment
4. Global environment
SOCIAL ENVIRONMENT
 Includes demographics and consumer preferences
 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.
 For example, an increase in the elderly population has led to an increased demand
for many prescription drugs
 Demographic Dividend
INDUSTRY ENVIRONMENT
 the conditions within the firm’s industry to which the firm is exposed. It varies
according to the demand and the competition.
 Firms benefit from being in an industry that experiences a high consumer demand for
its products. For example, the demand for cell phones is very high.
 High demand for their products also tends to have substantial competition because
many firms enter the industry but it is good for consumers because it forces firms to
keep their prices relatively low in order to compete.
ECONOMIC ENVIRONMENT
 When the economy is strong, employment is high, and compensation paid to
employees is also high. Since people have relatively good incomes under these
conditions they purchase a large number of products. The firms that produce these
products benefit from the large demand.
 When the economy is weak, firms tend to lay off some of their employees and
cannot afford to pay high wages. Since people have relatively low income under these
conditions, they purchase a relatively small amount of products. The firms that
produce these products are adversely affected because they can not sell all the
products that they produce
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 products
in various countries.
 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.
GLOBAL ENVIRONMENT
 Furthermore, global economic conditions can affect local economic conditions.
 If economic conditions weaken in foreign countries, the foreign demand for local
products will decrease. Consequently, sales by local firms will decrease, and this may
result in some layoffs.
 The general income level in the country will decline, and consumers will have less
money to spend. The demand for all products will decline, even those that are sold
only in the country.
KEY TYPES OF BUSINESS DECISIONS
 The key types of decisions involved in running a business can be classified as
 management
 marketing, and
 finance decisions
HOW BUSINESS DECISIONS AFFECT PERFORMANCE
 a firm’s performance is commonly measured by its earnings (or profits). The effect
that each type of business decision has on a firm’s earnings
 Since management decisions focus on the utilization of employees and other
resources, they affect the amount of production expenses incurred.
 Since marketing decisions focus on strategies that will make the product appealing to
customers, they affect the firm’s revenue. Marketing decisions also influence the
amount of expenses incurred in distributing and promoting products.
 Since finance decisions focus on how funds are obtained (borrowing money versus
issuing stock), they influence the amount of interest expense incurred.
HOW BUSINESS DECISIONS AFFECT PERFORMANCE