Business: Profits and Wealth Creation

Chapter Learning Objectives

• Businesses strive for profits, forming the basis of wealth.
• Businesses that act as benefactors can yield payoffs beyond monetary gains.
• Entrepreneurship and risk drive business innovation in the factors of production.
• The business environment consists of encouraging and discouraging forces for entrepreneurship.
• There are also 7 key business rules for thriving in the 21st century.

Business and Profits

• An enterprise that provides products or services desired by customers defines a business or firm.
• Businesses aim to serve consumer needs and generate profits for their owners.
• Business founders spot opportunities to offer unique products or services.
• Businesses create products or services selling at a lower price than competitors.
• Profits are gained by providing products that customers want.

Business and Profits: The Basis of Wealth

• A business sells goods or services to others in order to generate profit.
• Organizations can be either for-profit or nonprofit.
• For-profit organizations exist to generate income through the sale of goods or services.
• Nonprofit organizations provide services, but any surplus funds go towards furthering their goals, not towards owners' profits.
• Non-governmental organizations (NGOs) depend heavily on donations.

How a Business Makes Money

• Businesses generate revenue by selling goods or services to satisfy needs and make a profit.
• Selling involves exchanging goods or services for an agreed amount of money.
• Revenue is the total income the business makes from selling goods or services over a period, like 3 or 12 months.
• Goods are tangible products, such as food, clothes, appliances, gasoline, and books.
• Services are intangible products like education, recreation, and healthcare.
• Profit is the money a business earns after covering salaries and costs and is revenue minus expenses
• Loss happens when a business spends than it earns.

Business as Benefactor

• Providing a fair working environment with fair wages and good benefits is one role of a business.
• Improving overall societal well-being also raises the quality of life.
• Businesses raise employees' standards of living.
• Standard of living is the quantity of goods and services employees can purchase with their earnings.
• Businesses benefit society.
• Businesses benefit society by:
  • Generating goods and services
  • Giving paychecks and benefits
  • Paying taxes
  • Providing charity help through donations and goods.

Wealth, Entrepreneurship, & Risk

• Most wealthy people are self-employed business owners.
• Risk in business is the potential for failure even after investing time and money.
• Self-employed business owners are four times more likely to become millionaires because of entrepreurship
• Risk involves the potential monetary loss for business owners.

Factors of Production

• Creating wealth requires four key resources called factors of production.
• Natural resources are useful inputs in their natural state.
• Capital includes buildings, machines, tools, and technology for producing goods and services.
• Human resources refers to physical and mental labor contributions of employees.
• Technology encompasses the knowledge or tools used to create products or services.
• Information technology, a subset of technology, uses information for products and services.
• IT uses computers for internal information transfer and the Internet for providing customer information.
• Entrepreneurship involves taking risks to launch new ventures.
• Knowledge can be considered a fifth element of production.
• Entrepreneurship means creating ideas, plus organizing and managing the business.
• Entrepreneurs organize, manage, and take the risks of starting businesses.

The Business Environment

• Companies function within a business environment with economic, technological, competitive, global, and social forces.
• These forces can either support or hinder the growth of a business.

Forces in the Business Environment

• Economic forces involve tensions between freedom and limitations like taxation, contract enforcement, and corruption.
• Technological forces impact productivity and security positively and negatively, which require more security measures.
• Competitive forces affect customer, employee, and investor satisfaction.
• Competition impacts the way companies treat customers and their employee retention.
• Global forces affect business through trade agreements and political stability.
• Social forces, like changes, impact customer needs, tastes, and the employee pool and skills.

Seven Key Business Rules for Success

• Stakeholders must have their needs met.
• Adapting to change is crucial, especially technological.
• Excelling in the competitive landscape keeps out of rivials.
• Operating within the interdependent global economy is crucial.
• Businesses must be ethical and socially responsible.
• Working with people of different backgrounds is key.
• It is important to keep working on personal skills for business success.

Self-Development Rule #1: Stakeholders

• Businesspeople need management skills to coordinate their organizational activities with rules to meet goals.
• Owners have a legal property and are hoping for a profit, but risking loss.
• A company's customers are the focus and pay for goods or services.
• Employees work for the organization and are crucial to its success.
• Suppliers give raw materials, services, and labor for production.
• Distributors bring products to the consumer, helping improve business.
• Lenders can be banks, funds, or investors who give money during shortages.
• Nearby communities provide workers, taxes, a good living place, etc.
• Government regulators set the rules for organizations.
• Interest groups try lobbying for issues.

Self-Development Rule #2: Uncertainty

• Current Economic Changes.
• Information changes quickly.
• E-commerce
• Climate Change is occuring
• There is always a risk of terrorism.
• Computer Security is a rising concern

Self-Development Rule #3: Competition

• Four things are needed in a competitive environment.
  • Be responsive to customers
  • Have continual improvement in the quality of the product or service
  • Strive to deliver new or better products and services
  • Aspire to employee efficiency

Self-Development Rules #4 & #5 – Globalization & Social Responsibility

• Work with an interdependent global economic system.
• Globalization has a more interdependent system on the world economy.
• Businesses must be ethical and socially responsible.

Self-Development Rule #6: Diversity

• Businesses learn about and work with different kinds of people.
• Changes in demographics move quicker.
• It is important to encourage diversity for business
• Diverse environments can be complex.

Self-Development Rule #7

• Here are the skills one should cultivate to be successful:
  • Have the ability to do a specific job
  • Possess Analytical thinking
  • Be able to Interact well with people