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Chapter One Presentation Transcript

  • 1. Chapter One Understanding Business
  • 2. What is Business
    • A business is an organization that produces or sells goods or services to satisfy the needs, wants and demands of consumers for the purpose of making a profit
    • Businesses can differ based on:
      • Type of ownership
      • Goods it produces or services it offers
      • Different functions it performs for the community
      • Types of jobs it provides
  • 3. Goods and Services
    • Essential goods and services: A need is an item that is necessary for survival.
    • Luxury goods and services: A want is an item that is not necessary for survival but adds pleasure and comfort to life.
    • Tangible: A good is an item that can be seen or touched.
    • Intangible: A service is assistance provided; a product that cannot be touched.
  • 4. Producers and Consumers
    • A producer is an individual or business that makes a product.
    • A consumer is a person or business who buys goods and services.
  • 5. Economic Resources
    • Goods must be created from basic components called factors of production.
    • Natural resources are raw materials that come from the earth, water and air.
    • Human resources (labour) are the people who work to create the goods and services.
    • Capital resources including buildings, equipment, tools, trucks and factories.
  • 6. Demand
    • Demand is the quantity of a good or service that consumers are willing and able to buy at a particular price.
    • Law of Demand: as the price of an item decreases, the demand for it increases; as the price of an item increases, the demand for it decreases
  • 7. Conditions That Create Demand
    • Consumer must be aware or interested in the good and service
    • There is a supply of the good or service available for the consumer
    • Prices are reasonable and competitive
    • The good or service must be conveniently located for the consumer to purchase
  • 8. Factors That Affect Demand
    • Changes in consumer income
    • Changes in consumer taste
    • Changes in expectations of future conditions
    • Changes in other prices
    • Changes in population
  • 9. Supply
    • Supply is the quantity of a good or service that businesses are willing and able to provide within a range of prices that people would be willing to pay.
    • Law of Supply: as the price of an item increases, the supply of it increases; as the price of an item decreases, the supply of it decreases
  • 10. Factors That Affect Supply
    • Change in the number of producers
    • Change in the price of related goods
    • Change in technology
    • Change in expectations
    • Changes in the environment
  • 11. Price
    • Affected by both supply and demand
    • If demand is high and supply is low, the price will be high.
    • If demand is low and supply is high, the price will be low
  • 12. Competition
    • Free enterprise: economic system in which economic resources are privately owned and decisions about what to produce are made freely by individual owners
    • Level and amount of competition influences price
    • Competition benefits consumers through:
      • Lower prices
      • Higher quality goods and services
      • Product development
  • 13. Business Survival
    • To survive a business must produce items the public wants and needs
    • In order to prevent obsolesce (product no longer in use) a business must:
      • Take risks
      • Innovate
      • Adapt
  • 14. Interdependence
    • People rely on goods and services from thousands of different businesses to satisfy our needs and wants
    • Businesses rely on other businesses to provide them the resources they need to satisfy wants and needs
  • 15. Profit
    • Profit is the income that is left after all expenses are paid.
    • Revenue is all the income from the sale of goods and services
    • Expenses are all costs associated with running the business and producing the good or services
    • Profit = Revenue – Expenses
  • 16. Profit Example
    • A-1 Lawn Service, April
    • Mowed 83 lawns at $20 per lawn
    • Rototilled 36 garden plots for $25 each
    • Spent $248 on gasoline and oil
    • $702 for equipment rental
    • Paid customer $40 for broken flower planter
    • Calculate the profit
  • 17. Answer
    • Revenue
      • 83 x 20 + 36 x 25 = $2560
    • Expenses
      • 248 + 702 + 40 = $990
    • Profit
      • 2560 – 990 = $1570
  • 18. Types of Costs
    • Fixed costs: An expense that does not change depending on the quantity produced
    • Variable costs: An expense that changes based on the quantity produced
    • Profit = Revenue – Variable Costs – Fixed Costs
  • 19. Example
    • You decide to sell candy at school since the vending machines do not offer chocolate bars.
    • You buy chocolate bars for $0.50 from a wholesaler.
    • You sell the bars for $1.00
    • You photocopy 100 flyers for a total cost of $10.
    • How much money do you make if you sell 40 chocolate bars?
  • 20. Example Solution
    • Revenue: 40 x 1 = $40
    • Variable Cost: 40 x 0.50 = $20
    • Fixed Cost: $10
    • Profit = 40 – 20 – 10 = $10.
    • How many chocolate bars do you need to sell to cover your costs (break-even point)?
    • For each chocolate bar you sell, you make (1 – 0.5=.5) $0.50
    • To cover your fixed costs, you need to sell (10/0.50 = 20) 20 chocolate bars
  • 21. Types of Businesses
    • A manufacturing business produces the product from raw materials Eg. GM
    • A retail business takes a finished product and sells it to the consumer Eg. The GAP
    • A service business provides a particular service for the consumer Eg. Cadet Cleaners
    • A franchise business is given the right to operate using its parent company’s name and logo Eg. McDonald’s
  • 22. Small Businesses
    • Small businesses, employing 0 to 19 people, were 92% of the businesses in Canada in 2003
  • 23. Starting a Business
    • http://careerccc.org/products/cp_99_e/section4/quiz.html
  • 24. Starting a Business
    • Why start your own business?
      • Be your own boss
      • Financial independence
      • Opportunity to use your skills, knowledge, creativity
  • 25. Before starting your own business, you must consider:
    • What are your skills best suited for?
    • Where can you find information regarding the type of business you plan to open?
    • What are the startup costs?
    • Should I use debt or equity financing?
    • Where can I find financing (capital /money)?
    • What level of risk can I expect?
    • What are the steps involved in running this business?
    • What resources would I need?
    • Should my business be home-based?
    • What type of business would you like to operate?
  • 26. Types of Business Ownership
    • Sole Proprietorship
      • A business owned and operated by one person
      • Owner is responsible for all the operations of the business and assumes all the risks Partnership
    • Partnership
      • A business owned and operated by two or more people
      • A partnership agreements is required before the business opens
  • 27. Types of Business Ownership
    • Corporation
      • A legal entity that exists independently from its owners
      • The owners of a corporation are called shareholders (they own stock in the business)
    • Corporations can either be:
      • Private  only 50 shareholders (normally within a family)
      • Public  anyone can buy shares in the company. These shares are traded on stock exchanges
      • Crown  owned by the government (Canada Post, LCBO)
      • Non-profit  Corporations like the United Way who’s goal is to not make a profit, but to fight for a cause
  • 28. Types of Business Ownership
    • Co-operatives
      • Businesses owned and operated by a group of people with a strong common interest
    • Franchise
      • A business given the right to operate using its parent company’s name and logo
  • 29. Franchise
    • A business given the right to operate using its parent company’s name and logo
    • Advantages:
      • You have a recognizable name
      • Franchisor supplies training and other expertise
      • Franchisor provides advertising, equipment, and packaging
    • Disadvantages:
      • Expensive
      • A lot of rules to follow
  • 30. Sole Proprietorship
    • Advantages:
      • You keep all the profits (you get all the money you make)
      • Easier to make decisions
      • Financial information can be kept secret
      • Easy to start up and close down
    • Disadvantages:
      • Unlimited Liability
      • Cost and time commitment can be high
      • Funding can be difficult to obtain
  • 31. Partnership
    • Advantages:
      • Responsibilities are shared
      • More resources
      • Less risk and lower time commitment
    • Disadvantages:
      • Partners have unlimited liability
      • Conflict
      • Shared profits
      • Difficult to end partnership
  • 32. Corporation
    • A legal entity that exists independently from its owners
    • The owners of a corporation are called shareholders (they own stock in the business)
    • To INCORPORATE your business, you (along with a lawyer and accountant) must submit ARTICLE OF INCORPORATION to the government specifying what type of corporation you will be (how many shares will be issued etc.)
    • Shareholders elect a BOARD OF DIRECTORS who guide the corporation
  • 33. Corporation Continued
    • Advantages
      • Limited liability for its owners
      • Easy to raise money
      • Lower tax rates
      • Can continue even if owners pass away
    • Disadvantages
      • Difficult to set up
      • Complicated management structures
      • Employees may not be as committed
      • Value changes daily on the stock market
  • 34. Co-operatives
    • Businesses owned and operated by a group of people with a strong common interest
    • Advantages:
      • The responsibilities and costs are shared among the members of the co-op
      • Members pay less for Goods and Services and will share in any profit
    • Disadvantages:
      • Decision making may be difficult
      • Do not exist to make large profits