Ch. 1 - EnterpriseEQ: What is the nature of business activity and

the role of enterprise in setting up and developing businesses?

Unit 1

Business & It’s

Environment

Chapter Objectives

You will be able to:Understand what business activity involvesAnalyze the meaning & importance of value addedRecognize the key characteristics of successful

entrepreneursAssess the importance of enterprise and entrepreneurs

to a country’s economyUnderstand the meaning of social enterprise and the

difference between this and other businesses

Purpose of Business Activity

Provide a product or service

Add value to resources to make them more desirable

W/O business we are limited to what we can make/grow ourselves

A business is any organization that uses

resources to meet the needs of customers

Business Activity uses…Scarce Resources

To Produce

Desirable Goods & Services

Purpose of Business Activity

0 Identify the needs of customers0Purchase resources • Using factors of production

• Produce goods & services• Satisfy needs while making $$$$

What do businesses do?

Key Definitions

0 Consumer goods (items that can only be used once)physical and tangible goods sold to the public –includes

durable consumer goods, (cars, houses and household appliances), and non-durable consumer goods (clothing, food, drinks, and candies)

0 Consumer services (emotional items/services)The non-tangible products sold to the public (hotel

accommodations, insurance and travel services)0 Capital goods (items used in production)

Physical goods used by industry to aid in the production of other goods and services (machines and commercial vehicles)

Purpose of Business Activity

1. Identify the needs of customers2. Purchase resources (factors of

production)

3. Produce goods & services

4. Satisfy needs while making $$$

What do businesses need to produce goods and

services?

Factors of Production (p.4)

Resources needed by business to produce goods or services

Land

EnterpriseCapital

Labor

Added ValueThe difference between the cost of purchasing raw

materials and the price the finished goods are sold for

Cost of inputs/materials

Value of output of finished goods,

includes the services, and ‘extras’ added

during production

Production process adds value

Role of the entrepreneur (p.7)

Entrepreneur – someone who takes the financial risk of starting and managing a new venture

Characteristics of successful entrepreneurs0 Innovation0 Commitment and self-motivation0 Multi-skilled0 Leadership skills0 Self-confidence and an ability to “bounce back”0 Risk taking

Challenges faced by entrepreneurs

0 Identifying successful business opportunities0 Sourcing capital (finance)

0 Lack of sufficient own finance0 Lack of awareness of financial support & grants available0 Lack of any trading record to present to banks as evidence of

past success0 Poorly produced business plan that fails to convince potential

investors0 Determining a location0 Competition0 Building a customer base

Why do new businesses often fail?

0Lack of record keeping

0Lack of working capital

0Poor management skills

0Changes in the business environment

3 Types of businesses

0Primary sector - Extract natural resources• Farming , fishing, oil drilling

0Secondary Sector - Manufacture and process products made from natural resources

• Computers, clothes making, construction

0Tertiary sector – provides services people need• Hairdressing, car repair, daycare, restaurants

Impact of Enterprise on a country's economy

0Employment creation0Economic growth0Firms’ survival and growth0 Innovation and technological change0Exports0Personal development0 Increased social cohesion

Social Enterprise

A business with mainly social objectives that reinvests most of its profits into benefiting society rather than

maximizing returns to owners

0Makes money in socially responsible ways0Uses most of it’s profits to benefit society0ARE NOT A CHARITY!

Social Enterprise

Common features:0They directly produce goods or provide services0They have social aims and use ethical ways of

achieving them0They need to make a profit to survive as the do not

rely on donations

Social Enterprise 3 Objectives

0 Economic – make a profit to reinvest back into the business and give a return to owners

0 Social – provide jobs or support for local, often disadvantaged, communities

0 Environmental – to protect the environment and to manage the business in an environmentally sustainable way

Triple Bottom

Line

Economic Activity & Choice

0Consumers have to choose what to buy

0Opportunity cost – the benefit of the next most desired option which is given up

OR

With limited resources, if consumers choose the iPod, then the Jordan's become the opportunity cost.