The Purpose of Business Activities

Topics: Economics, Mixed economy, Capitalism Pages: 9 (1307 words) Published: September 12, 2010
The purpose of business activities(prepared by Lincoln Henry)

Business is the production of goods or provision of service with the aim of making a profit.

Production – is the process of transferring raw materials into semi – finish of finish goods.

Provision – making something available.

Good – is a tangible item that one can see, touch and that is portable.

Service – is intangible, it is something that one can experience and enjoy.

Profit – profit is cost of production minus sales.

Businesses exist because people have needs and wants.

Needs – a need is something that is necessary /essential for survival e.g. food, clothing and shelter. They are basic needs.

Wants – a want is something that we desire in order to improve our quality of life or make our lives more comfortable e.g. fridge to keep our drinks cool.

Objectives of business

Objectives are the ends that a person or organization sets out to achieve. Objectives need to be

S – Specific that is to the point.

M – Measurable – either quantitative or qualitative e.g. 1, 2, 3.

A – attainable – must be capable of achieving.

R – relevant – must be related to the subject matter

T – Time bound – must be completed in a certain time.

Objective of a business.

Profit maximization.

Cutting cost - one of the main ways is by reducing the number of employees. One way of reducing labour is by outsourcing some of the work or paying a specialized firm to do it.

Satisfying customers – they try to find out what customers want to satisfy their wants so that they become regular, loyal customers.

Increase market share – is the percentage of total market that a product or a company holds.

Calculating market share – market 6 billion, company A 750 million, company B 300 million.

Company A market share = 750/6 billion x 100 = 12.5%.

Market share is one of the best measures of success.

Expanding the business.

The size of the company can be measure by turnover, number of employees, amount of money invested, and stock market value.

Building a reputation

A good reputation wins customers, which in turns wins profit.

Role of business

Provide employment – that is, people work for pay.

Provide goods or service.

Look after the well – being of the workers and customers.

Promote local industry

Increase yearly sales

Stake holders of business

A stake holder is someone with an interest in the success of an organization.

Entrepreneur – are particularly interested in their firm’s survival and the likelihood of profits.

Employees – all employees will wish to see the business be successful to keep their jobs and income. They may also benefit through share ownership or profit sharing schemes.

Shareholders – share holders are part owners of the business. Have an interest in the company financial performance.

Customers – concerned about the quality and price of the product.

Lenders – they are interesting in obtaining interest and the repayment of their money.

Community – they are interesting in employment and environmental policy.

Government – that good goods and services are provided to the public and the collection of taxes.

Economic problem

In theory the basic economic problem is how to use the available resources in a community to meet the existing needs of society. The resources are usually limited. All countries have land, labour and capital. However, their quantity and quality vary.

On the other hand needs and wants are unlimited. The basic need for food , clothing and shelter are fulfilled for most people living in the developed countries of the world.

In the undeveloped countries basic needs are often rarely met, although occasionally the luxurious wants of the rich few are satisfy.

As all wants cannot be met, choices have to be made in allocating the resources. In making these choices, decisions about production have to be made.

For whom to produce?

What to...
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