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Chapter 1

Chapter 1. Motives and Functions of a Business. Learning Objectives. Introduce key terms and concepts Identify the key stakeholders that are involved in a business. Outline resources used to produce products/services. Understand the impact of the business environment.

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Chapter 1

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  1. Chapter 1 Motives and Functions of a Business

  2. Learning Objectives • Introduce key terms and concepts • Identify the key stakeholders that are involved in a business. • Outline resources used to produce products/services. • Understand the impact of the business environment. • Key business functions and decisions.

  3. A business is an enterprise that provides products or services desired by customers. The goal of a business is to be profitable! Profit = Revenues - Expenses Profits go to the business owners and are a major incentive and reward for success. Key Terms and Concepts

  4. Goal of Managers • Maximizing the firm’s value.

  5. Annual Report Excerpts • Walmart – “Everything we do is designed to build shareholder value over the long haul.” • Zenith Electronics – “We are not promising miracles, just hard work with a total focus on why we’re in business: to enhance stockholder value.” • Coca-Cola – “We create value for our share owners, and that remains our true bottom line”

  6. Five Key Stakeholders in a Business • Owners: Organize, manage, and assume risk of starting a business. • Creditors: Provide loans to start businesses. • Employees: Hired to conduct the business operations. • Suppliers: Provide the materials needed for production. • Customers: Buy products which satisfy their needs.

  7. Stakeholder Interaction

  8. Resources Required for Production To produce a product or service, firms rely on these factors of production: • Natural Resources • Human Resources • Capital • Entrepreneurship (intangible)

  9. Business Environment • We cannot control the business environment! • Social Environment • Industry Environment (micro) • Economic Environment (macro) • Global Environment

  10. Key Functions of Business • Management • Means by which employees and other resources are used by the firm • Marketing • Means by which products and services are developed, priced, distributed, and promoted to customers • Finance • Means by which firms obtain and use funds for their business operations

  11. Key Functions of Business • Accounting • Summary and analysis of the firm’s financial condition • Used to make various business decisions • InformationSystems • Information technology, people, and procedures that provide appropriate information to make effective decisions

  12. Common Business Decisions • Management Decisions • What equipment is needed? • How many employees should be hired? • How can employees be motivated to perform well?

  13. Common Business Decisions • Marketing Decisions • What price should be charged? • Should the product be changed to be more appealing to customers? • Should the firm use advertising or some other strategy to promote its product?

  14. Common Business Decisions • Finance Decisions • Should financial support come from the sale of stock or from borrowing money or some combination? • Should the firm attempt to obtain borrowed funds for a short-term or long-term period? • Should the firm invest funds in a new business project?

  15. Business Decisions and Earnings Exhibit 1.4

  16. Lessons to Remember • Successful businesses do not require a great invention. • Many focus on making life more convenient for customers. • Some business ideas will fail—but entrepreneurs can learn from failures and make revisions.

  17. Looking Ahead

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