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The importance of business

1.1: Introduction

How does Business Studies help you?

It helps you throughout your life to perform these roles better:

	Business owner,
	Investor,
	Employee,
	Consumer.

Developing a knowledge of the world of business will help you to become:

	A well-informed consumer
	A more productive employee
	A more-informed investor
	A more successful business owner

The importance of business to the economy:

	Export products, which generates income for Australians and helps reduce our trade deficit
	Assists in the development and use of technology
	Provides employment and income for employees
	Pays taxes to governments (company tax and payroll tax)
	Undertakes investment which leads to economic growth
	Produces a wide range of products giving consumers greater choice
	Improves our quality of life
	Provides a training ground for future businesspeople (entrepreneurs)
	Creates value, which encourages economic growth
	Encourages competition, which results in cheaper products
	Provides income for business owners
	Encourages research and development into new (invention) and improved products (innovation)
	Helps provide owners with challenges and rewards

A business is an organised effort of individuals to produce and sell, for a profit, the products and services that satisfy individuals’ needs and wants.

The role of a business is to satisfy the never-ending needs and wants of society.

Profit is earned when revenue is greater than the costs (expense) of production.

1.2: Function of business in creating value/benefits (value chain).

A finished product is one that is ready for customers to buy and use.

All products are a combination of:

	Natural resources (raw materials)
	Capital resources (machinery and technology)
	Labour resources (human skill and effort)

The main activities undertaken by a business include:

	Production
	Organising
	Marketing
	Financial planning
	Controlling
	Forecasting
	Management
	Distribution
	Planning

Production involves value adding: the creation of extra value as raw materials are transformed into intermediate or finished products through the various stages of production.

Intermediate product: one which is produced by a business and then used as an input by another business.

The value of production equals the value of sales minus the value of intermediate products used in production, or the difference in value between the outputs and the inputs of a production process.

1.3: Social and Economic Roles of Business

Wealth creation: the more produced, the more wealth is generated within the Australian economy.

Employment:

	Everyday people exchange their labour for income
	They then exchange this money for products to satisfy their wants
	At the heart of this activity are businesses
	Business represents all the organised effort of individuals to produce, and sell for a profit, the products that satisfy consumers’ wants.

Innovation: something already established is improved upon.

R&D: Research and Development is a set of activities undertaken to:

	Improve existing products
	Create new products
	Develop more efficient ways of distributing and marketing the products.

Quality of life: the overall well-being of an individual and is a combination of both material and non-material benefits.

Choice: provides alternative products and services for consumers to choose from.

Entrepreneurship: people who start operate and assume the risk of a business venture in the hope of making a profit.

1.4: Identification of relevant stakeholders

A stakeholder is any group or individual who has an interest in or is affected by the activities of a business.

The responsibility of a firm to its stakeholders:

Shareholders:

	Provide information about the business’s performance
	Produce an annual report
	Manage the funds so a reasonable return is paid

Employees:

	Fair pay and conditions
	Provide safe working environment
	Access to training and development

Customers:

	Quality products
	Fair prices
	Service during and after sales
	Safety

Society/general public:

	Fair and honest business practices
	Ethically responsible decisions

Environment:

	Consider the impact on environment
	Care and preservation of the environment
	Sound and responsible environmental management

Governments

	Pay taxes
	Abide by laws

Suppliers/creditors:

	Pay debts
	Act ethically and honestly

1.5: Business Goals

Business goals may be:

	Financial
	Social
	Personal

1.6: The importance of small-medium enterprises (SME)

The Australian SME sector:

	Includes approx. 1 026 200 business entities
	Makes up 95% of all businesses
	Provides approx. 50% of all private sector employment
	Produces approx. 40% of all the products produced each year
	Accounts for 20% of all money spent on R & D

1.7: Coordinating the business

Coordinating means ensuring that the various individual activities needed to complete the task are carried out well and fit together to produce a high-quality product. It is the management task of making sure that various parts of the business all operate in harmony with each other.

Effective coordination means:

	Minimal waste
	Greater efficiency
	Superior products

The value chain can be coordinated by:

	Including in the plans for a project the steps that need to be followed
	Ordering the sequence of those steps
	Explaining the role of each person involved in the production process
	Outlining how cooperation can be achieved

The resources to be coordinated as part of the management process include:

	Human resources
	Financial resources
	Physical resources
	Information resources

The four basic functions of management are:

	Planning
	Organising
	Leading
	Controlling

A business has interdependence with its environment: the surrounding conditions in which the business operates and can be divided into two broad categories: the internal and the external environment.

Internal (micro) environment includes all those things which the business has some degree of control over:

	Managers
	Management style
	Shareholders
	Objectives
	Legal structure
	Employees
	Choice of resources
	Production methods

External (macro) environment includes those things over which the business has very little control:

	International influences
	Government policy
	Technology
	Laws and regulations
	Economic conditions
	Society’s attitudes and values
	Political structure and influence
	Competitors
	Geographical influences
	Institutional influences
	Physical environment
	Levels of education