Valentina Mónaco 4°B business

Business
Summary of unit 1: 1.1 - 1.2 - 1.3

1.1 Introduction to business management

What is a business
A business is any organization that uses resources to meet the needs of customers by
providing a product or service that they demand.

Business activity at all stages involves adding value to resources such as raw materials and
semi-finished goods and making them more desirable to the final purchaser.

The role of businesses

Businesses identify the needs of their customers or other firms. Then they purchase
resources, which are inputs of the business, or factors of production, in order to produce
output. The “outputs” of a business are the goods and services that satisfy consumers’
needs, usually with the aim of making a profit. Business activity exists to produce goods and
services, which can be classified in several ways: consumer goods, consumer services, and
capital goods.

Consumer goods: The physical and tangible goods sold to the general public. They include
cars and washing machines, which are referred to as durable consumer goods. Non-durable
consumer goods include food, drinks, and sweets that can only be used once.

Consumer services: Non-tangible products that are sold to the general public and include
hotel accommodation, insurance services, and train journeys.

Capital goods: Physical goods that are used by industry to aid in the production of other
goods and services such as machines and commercial vehicles.

Business inputs
These are human, physical, and financial resources needed by businesses to produce
goods or services. They are also known as factors of production. Firms will use different
combinations of inputs, depending on the product being produced and the size of the
business.

Main inputs:
- Land: Includes land itself and all of the renewable and non-renewable resources of
nature.
- Labour: Manual and skilled labour make up the workforce of the business.
- Capital: The finance needed to set up a business and pay for its continuing
operations.
- Enterprises: This is the driving force of the business, provided by risk-taking
individuals, which combines the other factors of production into a unit that is capable
of producing goods and services.

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Business functions
Most businesses have four main functional departments. These will be staffed by people
with specific qualifications and experience in the work of the functional areas.
- Human resource management. Identifies the workforce needs of the business,
recruits, selects, and trains appropriate employees, and provides motivational
systems to help retain workers and encourage them to work productively.
- Finance and accounts. This function has the responsibility of monitoring the flow of
finance into and out of the business.
- Marketing. This department is responsible for market research and for analyzing the
results of such research so that consumer wants can be correctly identified.
- Operations management. Has responsibility for ensuring adequate resources are
available for production, maintaining production and quality levels, and achieving
high levels of productive efficiency.

Economic sectors
Primary sector: Firms engaged in farming, fishing, oil extraction, and all other industries that
extract natural resources so that they can be used and processed by other firms

Secondary sector (manufacturing): Firms that manufacture and process products from
natural resources, including computers, brewing, baking, clothing, and construction

Tertiary sector (service) industries: firms that provide services to consumers and other
businesses, such as retailing, transport, insurance, banking, hotels, tourism, and
telecommunications

Quaternary sector: is focused on information technology (IT) businesses and information

service providers such as research and development, business consulting, and information
gathering.

Starting a business
Why start a business?
Reasons for starting a new business include some of all the following:

- Losing a job encourage many people to set up a business by themselves

- With the desire for independence, some people do not like the idea of being told what
to do. By creating their own business, they have work flexibility and control over their
working lives.
- By talking to friends and family, it might become clear that a business opportunity
exists that an entrepreneur could take advantage of.
- A wish to make more money than in a current job.

Role of the entrepreneur

New business ventures by entrepreneurs can be based on a totally new product or customer
service or a new way of offering a service.
-People who set up their own business show skills of “entrepreneurship”.

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-People who are given the responsibility to develop and market a product within a large
corporation shows skills of “intrapreneurship”

Entrepreneurs have
- Had an idea for a new business
- Invested some of their own saving and capital
- Accepted the responsibility of managing the business
- Accepted the possible risks of failure

Intrapreneurs do not risk their own capital and the consequences of failure are accepted by
the organization that they work for. They can drive forward a new product idea and help
make the organization that they work for more innovative and able to cope with change.

Definitions:
-Entrepreneur is someone who takes the financial risk of starting and managing a new
venture
-Intrapreneur is someone who within a large corporation who takes direct responsibility for
turning an idea into a profitable finished product through using “entrepreneurial talents” such
as risk-taking and innovation

The personal qualities and skills for entrepreneurs and intrapreneurs to make a success of a
new business venture:
- Innovate (formas de atraer consumidores,presentar su emprendimiento como
especial, diferente)
- Commitment and self-motivation
- Multi-skilled (tiene que crear el producto o proporcionar el servicio, promoverlo,
venderlo y contar el dinero ganado)
- Leadership skills (tiene que ser el ejemplo a seguir y tener una personalidad de
liderazgo)
- Belief in oneself (tener auto confianza y creer en su emprendimiento)
- Risk-taker (deben tomar riesgos)

Start-up businesses

-primary sector: fishing, market gardening (producing cash crops to sell at local markets)
-secondary sector: jewelry making, dressmaking, craft manufacture
-tertiary/service sector: hairdressing, car repairs, cafés, and restaurants, childminding
-quaternary sector: IT support, website design, consultancy

Impact of the enterprise (and intrapreneurship) on business activity

What are the claimed benefits to the economy and business activity of enterprise?

- Employment creation: (creación de empleos) In setting up a new business an

entrepreneur is employing not themselves (“self-employment”), very often will employ
other people too. (si el emprendimiento funciona y crece después va a haber más
empleados y nuevos trabajos dentro del negocio)

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- Economic growth: (crecimiento económico) Any increase in the output of goods or

services from start-up businesses will increase the gross domestic product of the
country. This is called economic growth. (If enough small businesses are created, it
will lead to increased living standards for the population. In addition, increased output
and consumption will also lead to increased tax revenues for the government.

- Firms´survival and growth: (supervivencia y crecimiento de la Empresa) Although a

high proportion of new firms fail, some survive and a few expand to become really
important businesses. This will employ large numbers of workers, add considerably
to economic growth, and will take the place of declining businesses that may be
forced to close due to changing consumer tastes of technology.

- Innovation and technological change: (Innovación y Cambio tecnológico) New

businesses tend to be innovative and this creativity adds dynamism to an economy.
This creativity can “rub off” on other businesses and help to make the nation's
business sector more competitive.

Common steps in starting a business or enterprise

Identifying market opportunities

The original idea for most new businesses comes to enable one of several sources
including:
- own skills or hobbies - ex. dressmaking
- previous employment exercise - ex. learning hairdressing skills with established
business
- franchising conferences and exhibitions offering a wide range of new business start-
up ideas - ex. fast-food restaurants.
- small-budget market research - the use of the internet allows any user to browse
business directories to see how many businesses there are in the oca area offering
certain goods or services. This low-cost research might indicate a gasp in local
markets that could be profitably filled by the entrepreneur.

Sourcing capital (finance)

Once the entrepreneur has decided on the business idea or opportunity, the next task is to
raise the necessary capital. (la capital puede venir de varios inversionistas, de un préstamo
del banco “crédito” aunque sea muy difícil de obtener porque el banco se fija en todo el plan
del nuevo negocio, pero seguramente el emprendedor tenga que poner mucho de su dinero
ahorrado)

Determining a location
A suitable location is vital if the start-up business intends to sell directly to consumers.
-The most important consideration when choosing a location for a new business is the need
to minimize fixed costs.(Cuando no tienes mucho presupuesto es mejor buscar los mejores
precios y encontrar todo lo más barato posible así gastas menos dinero, haciendo más
posible que el negocio prospere).
-This has the great advantage of keeping costs low, but there are drawbacks:
● It may not be close to the area with the biggest market potential.

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● It lacks status - a business with its own prestigious premises tends to generate
confidence.
● It may cause family tensions.
● It may be difficult to separate private life from working life.
The costs and position of these locations could have a big impact on the business
entrepreneur´s chance of success.

Building a customer base

To survive, a new firm must establish itself in the market and build up customer numbers
very quickly as possible. Many small businesses try to encourage this by offering a better
service than their larger and better-found competitors.
- This better service might include:
● Personal customer service.
● Knowledgeable pre-and after-sales service.
● Providing for one-off customer requests that larger firms may be reluctant to provide
for.

Problems faced by start-ups

Even if the entrepreneur has all the qualities listed above, success with a new business can
never be guaranteed. Many businesses fail during their first year of operation.
- The most common reasons for this are:

Competition
This nearly always a problem for new enterprises unless the business idea is unique. A
newly created business will experience competition from older, established businesses with
more resources and market knowledge.

Lack of record-keeping
Accurate records are vital to pay taxes and bills and chase up debtors.

Lack of finance and working capital

Why is obtaining finance such a major problem for entrepreneurs?
- Lack of sufficient own finance (muchos emprendedores no tienen capital propia)
- Lack of awareness of the financial support and grants available
- Lack of any trading record to present to banks as evidence of past business success
(darle confianza al banco)
- A poorly produced business plan that fails to convince potential investors of the
changes of a business 's success. (Un plan de negocios mal elaborado que no logra
convencer a los potenciales inversores de los cambios del éxito de un negocio. La
falta de capital es de las mayores razones por las que un negocio no funciona el
primer año). (La capital se necesita para el dinero del dia a dia, para renovar el
stock, permitir la concesión del crédito comercial a los clientes que despues se
vuelven debutantes)

Serious working capital shortages can usually be avoided if businesses take several
important steps:

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● Construct and update a cash flow forecast so that the liquidity and working capital
needs of the business can be assessed.
● Inject sufficient capital into the business at start-up for the first few months.
● Established good relations with the bank so that the short-term problems, maybe,
overcome with an overdraft.
● Use effective credit control over customer’s accounts.

Poor management skills

Most entrepreneurs may not have gained experience of:
- Leadership skills
- Cash handling and cash management skills
- Planning and coordinating skills
- Decision-making skills
- Communication skills
- Marketing, promotion, and selling skills

Changing in the business environment

One of the problems and challenges of creating a business is the risk of change.
A new business may fail if any of the following occurs:
- New competitors.
- Legal changes.
- Economic changes leave customers with much less money to spend.
- Technological changes make the methods used by the new business old-fashioned
and expensive.

Business plans
A written document that describes a business, its objectives, and its strategies, the market it
is in, and its financial forecasts.

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1.2 Types or organizations

Topics of the chapter:
- The private and public sector
- Profit-based and non-profit-based organizations.

Private sectors and public organizations:

Private Sector: comprises businesses owned and controlled by individuals or groups of

individuals

Public Sector: comprises organizations accountable to and controlled by central or local

government (the state)

Public corporation: A business enterprise owned and controlled by the state - also know as
nationalized industry or public sector enterprise.

Public limited companies are in the private sector of industry, but public corporations are
not.

For-profit organizations

Sole traders
-A business in which one person provides the permanent finance, in return, has full control of
the business and is able to keep all of the profits
- This is the most common form of business organization.
- There is a single owner in this business organization.
- All sole traders have unlimited liability. This means that the owner´s personal possessions
and property can be taken to pay off the debts of the business should it fail.

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Partnership
- A business formed by two or more people to carry on a business together, with shared
capital investment and, usually, shared responsibilities.
- A partnership agreement does not create a separate legal unit; a partnership is just a
grouping of individuals.
- Partnerships are formed in order to overcome some of the drawbacks of being a sole
trader.

Limited company
Limited liability: The only liability – or potential loss – a shareholder has if the company
fails is the amount invested in the company, not the total wealth of the shareholder.

Shareholders: Individuals or institutions that buy/own shares in a limited company.

Legal personality: It is legally recognized that a company has a separate identity from that
of its owners. This means, for example, that if products sold by a company are found to be
dangerous or defective, the company itself can be prosecuted, but not the owners, as would
be the case with a sole trader or a partnership.

Continuity: In a company, the death of an owner or director does not lead to its break-up or
dissolution.

Private limited companies

A small to medium-sized business that is owned by shareholders who are often members of
the same family; this company cannot sell shares to the general public.

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Public limited companies

A limited company, often a large business, with the legal right to sell shares to the general
public; its share price is quoted on the national stock exchange.

For-profit social enterprises

1. Social enterprises: A business with mainly social objectives that reinvest most of its
profits into benefiting society rather than maximizing returns to owners.

2. Cooperative: a group of people acting together to meet the common needs and
aspirations of its members, sharing ownership and making decisions democratically.

3. Microfinance: the provision of very small loans by specialist finance businesses,

usually not traditional commercial banks.

Public-Private Partnership (PPP): involvement of the private sector, in the form of

management expertise and/ or financial investment, in public sector projects aimed at
benefiting the public.

Private finance initiative: Investment by private sector organizations in public sector projects.

Non-profit organization: Any organization that has aims other than making and distributing
profit and which is usually governed by a voluntary board.

A non-governmental organization (NGO): A legally constituted body with no participation or

representation of any government, which has a specific aim and purpose, e.g. supporting
disadvantaged groups in developing countries or advocating the protection of human rights.

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Charities: An organization set up to raise money to help people in need or to support causes
that require funding.

1.3 Organisational objectives

Business of any size can benefit from setting clear objectives. In small businesses, such as
sole traders, these objectives are often not written down or formalized in any way, but the
owners will usually have a clear idea of what they are trying to achieve. In partnerships, it is
important for partners to agree on the direction their business should take to avoid future
disagreements. Limited companies must state the overall objectives of the business.

- This chapter focuses on the importance of business objectives, the different forms
that these can take, including ethical and social objectives, and how they can be
used to direct the work of employees in an organization.

Mission statements and vision statements

Mission statement: A statement of the business´s core aims, phrased in a way to motivate
the employees and to stimulate interest by outside groups.
- The mission statement outlines the overall purpose of the organization.

Vision statement: A statement that describes a picture of the “preferred future” and outlines
how the future will look if the organization achieves its mission. It is a clear statement of the
future position that offers the ideal of what owners and directors want their business
organization to become.

Aims, objectives, strategies, and tactics

Corporate aims: The long-term goals which a business hopes to achieve.

The hierarchy of objectives:

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Divisional/operational objectives: Short or medium-term goals or targets - usually specific

in nature - which must be achieved for an organization to attain its corporate aims.

Operational objectives should be “SMART”

SMART objectives (or SMART goals) are a form of objective setting which allows managers
and employees to create, track and accomplish, short-and-long-term goals.

Business aims and objectives help to direct, control and review the success of the business
activity.
- The most effective business objectives usually meet the following SMART.

● S — SMART Objectives Should Be SPECIFIC and STRETCHING. The “S” in

SMART usually stands for specific, to ensure the objective is not vague. This gives
employees a clear idea about what to achieve and by when.
● M — SMART Objectives Should Be MEASURABLE. It is important for both an
employee and their manager to understand what success looks like for the objective.
The measure of a SMART objective could be quantitative or qualitative.
● A — SMART Objectives Should Be ACHIEVABLE and AGREED. Objectives must be
achievable.
● R — SMART Objectives Should Be RELEVANT. An effective performance objective
should be relevant to what the organisation and/or the team needs to achieve.
● T — SMART Objectives Should Be TIME-SPECIFIC. It is very important that objec-
tives have a time limit, or when they should be completed. 

Interlinking aims, objectives, and strategies

Corporate aims relate to the whole organization. They need to be broken down into specific
tactical or operational objectives for separate divisions.

Divisional, operational objectives are set by senior managers to ensure:

- Coordination between all divisions: if they do not work together, the focus of the
organization will appear confused to outsiders and there will be disagreements
between departments.
- Consistency with strategic corporate objectives
- Adequate resources are provided to allow for the successful achievement of the
objectives.

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Relationship between aims, objective, strategy, and tactics

Aims and objectives provide the basis and focus for business strategies – the long-term
plans of action of a business that focuses on achieving its aims. Without a clear objective,
a manager will be unable to make important strategic decisions.
Without a clear corporate objective, which is then translated into a marketing objective,
decisions of this kind become very arbitrary. For any corporate aim to be successfully
achieved, there has to be an appropriate strategy – or detailed plan of action – in place to
ensure that resources are correctly directed towards the goal. This strategy should be
constantly reviewed to check whether the business is on target to achieve its objectives.
Both the aims of an organization and the strategies it adopts will often change over time.
Indeed, a change of objective will almost certainly require a change of plan too. A poor plan
or strategy will lead to failure to reach the target.

Strategy: A long-term plan of action for the whole organisation, designed to achieve a
particular goal.

Tactic: A short-term policy or decision aimed at resolving a particular problem or meeting a

specific part of the overall strategy.

Common corporate aims

Profit maximisation:
- Profits are essential for rewarding investors in a business and for financing
further growth, and are necessary to persuade business owners and
entrepreneurs to take risks.
- Profit maximisation means producing at the level of output where the greatest
positive difference between total revenue and total costs is achieved.

Profit satisficing: This means aiming to achieve enough profit to keep the owners happy but
not aiming to work flat out to make as much profit as possible. This is often the objective of
owners of small businesses.This is often the objective of owners of small businesses who
wish to live comfortably but do not want to work very long hours in order to earn more profit.

Growth: The growth of a business in terms of sales or value of output.

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Increasing market share:Closely linked to overall growth of a business is the market share it
enjoys within its main market.

Survival: This is likely to be the key objective of most new business start-ups. The high
failure rate of new businesses means that to survive for the !rst two years of trading is an
important aim for entrepreneurs. Once the business has become !rmly established, then
other longer-term objectives can be established.

Maximising short-term sales revenue: This could benefit managers and sta# when salaries
and bonuses are dependent on sales revenue levels. However, if increased sales are
achieved by reducing prices, the actual pro!ts of the business might fall. Maximising
shareholder value Management, especially in public limited companies, take decisions that
aim to increase the company share price and dividends paid to shareholders. These targets
might be achieved by pursuing the goal of profit maximisation. This shareholder value
objective puts the interests of shareholders above those of other stakeholders.

Ethical objectives
Ethical objectives are targets based on a moral code for the business.

Ethics: Moral guidelines that determine decision making

Ethical code (code of conduct): a document detailing a company’s rules and guidelines on
staff behaviour that must be followed by all employees.

Corporate social responsibility (CSR)

This concept applies to those businesses that consider the interests of society by taking
responsibility for the impact of their decisions and activities on customers, employees,
communities and the environment
- When a firm fully accepts its legal and moral obligations to stakeholders other than
investors, it is said to be accepting corporate social responsibility (CSR).

Stakeholders: people or groups of people who can be affected by, and therefore have an
interest in, any action by an organisation.

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