Intro to Business Concepts

What is a Business?

• A business is a collective effort to create and sell products or services that cater to societal needs, with the aim of making a profit.
• There are for-profit businesses that seek financial gain for their owners.
• Non-profit businesses focus on societal benefit rather than financial gain.
• Businesses come in various sizes, ranging from small local shops to large multinational corporations.

Goods vs. Services

• Products are tangible items.
• Services are intangible actions or activities.

Transformation Process

• Businesses use resources (inputs) to create products or services (outputs).

The Importance of Business

• Creates numerous job opportunities.
• Produces essential goods and services to meet societal demands.
• Generates revenue that contributes to taxes, investment, and community support.

The Business Environment

• The business environment comprises all internal and external factors influencing a company's operations and performance.

Factors of the Business Environment

Internal Factors

• Organizational structure, functional areas, employees, and strategic plans.

External Factors

• Economic conditions: Broad economic health, including inflation, exchange rates, unemployment rates, and supply and demand dynamics.
• Competition: The number and strength of companies offering similar products or services.
• Technology: Cutting-edge technologies that can enhance efficiency and productivity.
• Government regulations: Laws and regulations that businesses must adhere to.

Types of Business According to Expanse of Operation

• Local: Businesses operating within a specific geographic area.
• National: Businesses operating throughout a country
• International: Businesses operating in multiple countries.
• Global: Businesses operating across the globe.

Types of Business According to Ownership

• Public Business: Owned by the government, serving the people.
• Private Business: Owned by individuals or shareholders.

Types of Business According to Business Purpose

• Profit Motive: Businesses established to generate profits.
• Non-Profit/Voluntary: Established for charitable purposes, not profit-making. Led by trustees.

Types of Business According to Legal Form

• Sole Trading: Owned and controlled by a single individual.
• Partnership: Owned and controlled by multiple individuals (partners).
• Company (Corporation): Started by issuing shares, owned by shareholders who elect a board of directors.
• Franchise: A license granted by one company to another to sell its goods or services under the same name.

Types of Business Ownership: Advantages and Disadvantages

Sole Trader

• Advantages:
  • Simple to organize.
  • Owner has decision-making freedom.
  • Owner receives all profits.
  • Minimal legal restrictions.
• Disadvantages:
  • Potential lack of experience and skills.
  • Difficulty securing capital.
  • Unlimited liability: Creditors can seize the owner's personal assets (car, house, savings) to recover debts.

Partnership

• Advantages:
  • Easy to organize.
  • Combines talent, judgment, and skills.
  • Access to larger capital.
• Disadvantages:
  • Unlimited liability: Partners are responsible for each other's debts, putting personal assets at risk.
  • Potential for disagreements and conflicts.

Corporation

• Advantages:
  • Limited liability for stockholders.
  • Easy transfer of ownership.
  • Ability to raise significant capital through stock issuance.
• Disadvantages:
  • Complex government regulations.
  • High tax payments.
  • Slow decision-making processes

Franchise

• Advantages:
  • Reduced risk of failure due to established business models.
  • Brand recognition and customer loyalty.
  • Comprehensive support and training from franchisors.
• Disadvantages:
  • High initial investment.
  • Limited control for franchisees due to franchisor guidelines.

Types of Business According to Business Sector

• Primary Business: Extracts raw materials from nature.
• Secondary Business: Transforms raw materials into finished goods.
• Tertiary Business: Provides goods and services to consumers.
• Quaternary Business: Focuses on intellectual activities like education, software development, and research.

Types of Business According to the Nature of Operation

• Trading (Retailing): Sells products purchased from other businesses to customers (e.g., grocery stores, electronics stores)
• Manufacturing: Converts raw materials and resources into finished products for sale.
• Services: Provides services to customers instead of tangible products (e.g., banks, hotels, hospitals, professional consultations).

Business Types Based on Expanse of Operation

• Local Business: Operates within a specific geographical area.
• National Business: Operates across the entire country.
• International Business: Operates in more than one country.
• Global Business: Operates throughout the world.

Business Types Based on Ownership

• Public Business: Owned and controlled by the government.
• Private Business: Owned and controlled by private individuals or shareholders.

Business Types Based on Purpose

• Profit Motive Business: Established for making profit.
• Non-Profit/Voluntary Business: Focused on helping people, usually for charitable purposes.

Business Types Based on Legal Form

• Sole Trading: Owned and controlled by a single individual, who has unlimited liability.
• Partnership: Owned and controlled by two or more individuals called partners, who share unlimited liability.
• Company (Corporation): Started by issuing shares, owned by shareholders who elect a board of directors to make major decisions. Shareholders have limited liability.
• Franchise: A license granted by one company to another, allowing the licensee to sell goods or services under the franchisor's name.

Business Types Based on Sector

• Primary Business: Extracts raw materials from nature, such as oil wells.
• Secondary Business: Transforms raw materials into finished goods, such as factories.
• Tertiary Business: Provides goods and services to consumers, such as retail stores or banks.
• Quaternary Business: Focuses on intellectual activities, such as education or research and development.

Business Types Based on Nature of Operation

• Trading (Retailing): Sells products purchased from other businesses to customers (like grocery stores).
• Manufacturing: Converts basic inputs, like materials, labor, and overhead, into finished products sold to customers.
• Services: Provides services instead of products to customers, examples include banks, hotels, hospitals, and consulting firms.

Sole Trader Advantages and Disadvantages

• Advantages:*
• Simple organization
• Freedom to make decisions
• Retains all profits
• Limited legal restrictions
• Disadvantages:*
• Possible lack of experience and skills
• Difficulty in obtaining capital
• Unlimited liability

Partnership Advantages and Disadvantages

• Advantages:*
• Ease of organization
• Combined talent, judgment, and skills
• Larger capital available
• Disadvantages:*
• Unlimited liability
• Potential for disagreements and conflicts

Corporation Advantages and Disadvantages

• Advantages:*
• Limited liability for stockholders
• Ease of transferring ownership
• Ability to raise large amounts of capital
• Disadvantages:*
• Complex government regulations
• High tax payment
• Slow decision-making

Franchise Advantages and Disadvantages

• Advantages:*
• Reduced risk of failure due to proven business operations
• Brand recognition and customer loyalty
• Support and training provided by the franchisor
• Disadvantages:*
• High initial investment
• Limited control for the franchisee
• Strict guidelines set by the franchisor