Chapter 1 Introduction to business management
1.1 What is a business?
What are the different key concepts?
- Change: Refers to modification or transformation from one form, state or value to
another, over time or across places.
- Creativity: The process of generating new ideas, considering ideas from different
perspectives to form a business idea.
- Ethics: The moral principles and values that for the basis of how a person or an
organization conducts their activities
- Sustainability: The ability of the present generation to meet its needs without
compromising the ability of future organizations to meet their own needs.
● The nature of a business
- A business aims to meet the needs and wants of individuals or organizations
through producing crops, extracting raw materials, creating a product, or
providing a service.
- All businesses input resources and process them to generate a desired output
● The resource inputs are categorized as the following:
1. Human - the right quality and quantity of people required to make the product or
provide the service
2. Physical- the right quality and quantity of materials, machinery, and land space
required to make the product or service
3. Financial- the right quantity of cash and other forms of finance required to make the
product or service
4. Enterprise- the least tangible input but crucially important as it is the business idea
and the determination to turn the idea into a functioning and thriving business
● How to add value:
- Labor intensive processes use a large proportion of land and machinery relative to
other inputs, especially labor
- Capital intensive processes use a large proportion of labor relative to other inputs
especially in relation to land or machinery.
● The product outputs:
→ Goods: Tangible (maybe produced in the primary or secondary sector)
→ Services: Intangible
Business functions: Small businesses have to deal with functions alone versus larger
businesses that can hire specialized managers to carry out functions in separate areas.
They are divided into four key elements:
➢ HR: Ensuring that the right people are employed.
➢ Finance/accounting: Ensuring that the appropriate funds are made.
➢ Marketing: Ensuring that the business offers a product or service that is desired by
consumers through the use of appropriate strategies.
➢ Operations management: Ensuring that appropriate processes are used to make the
product or service controlling the quantity and flow of stock.
Sectors of a business activity:
1. Primary: part of the economy engaged in extraction and production of raw materials
2. Secondary: Production of finished goods (manufacturing)
3. Tertiary: Delivery of services
4. Quantery: Production, processing and transmission of information - sharing of
knowledge
→ The production chain turns raw materials into consumer goods that are marketed.
, Sectoral change
- More advanced sectors require more complex social context for a business
- Developed countries see social technologies and economics in tandem as an
economy develops.
- As social technology improves, economies develop
- Developments are not always linear → technological improvements in an area and its
related workers can make other technologies/ occupations obsolete.
→ Developed countries tend to move away from the primary as they can anticipate
or adapt to the changing environment.
● What are the reasons for starting a business?
→ Rewards, independence, necessity, challenge, interest, finding a gap, sharing an idea
● What is the process of starting a business:
Business idea→ organizing the basics→ researching the market→ planning the business→
establishing legal requirements→ raising the finance→ testing the market.
★ What are the challenges:
→ Organization, market research, business plan, legal requirements, finance, and the
market.
1.2 Types of business entities
- Public sector: part of the economy controlled by the government
- Private sector: part of the economy not controlled by the government
Types of profit-based commercial organizations:
1. Sole trader/ sole proprietorship
→ A commercial for-profit owned by an individual fulfilling many of the reasons for
business such as becoming their own boss, seeking a gap in the market, creating
their own product, etc..
Main features: Sole trader owns and runs the business, no legal distinction between
business and the sole trader (liable for all debts), finance is limited, Financial
institutions regard them as non accountable as they have no reason to declare
finances unless they want to borrow money, provides more specialized services, has
privacy expect to tax authorities, registering business is not easy.
Advantages Disadvantages:
- All profits go back to the sole trader - Their success depends on how much
- Complete control on all decisions drive/enthusiasm/ health the sole trader has
- Flexibility in working hours, products/ - Competing against established businesses alone
services, changes can be daunting
- Privacy - Stressful resulting to ineffectiveness
- Minimal legal formalities - Lack of continuity upon death
- Close ties to customers. - Limited scope for expansion
- Limited capital as focus will be on sufficient cash
- Unlimited liability of the owner.
2. Partnerships: A business formed by two or more people with related qualifications
Main features: Number of partners depends on the country who own and manage it,
decisions are made jointly by partners, no legal distinction between business and partners,
finance is usually more available/ stable, some partners are just sleeping partners, offers a
more varied service, has a greater degree of accountability, partners are not shared equally.
,Advantages Disadvantages:
- Brings different skills and qualities - Each person has unlimited liability, legally
- Efficient production due to specialization/ responsible for business debts
division of labor - Partners have less access to loans compared to
- Perceived as having greater stabilities corporations
- Partners can cover each other incase of - Limited finance can prevent business from making
emergency profit
- Higher chance of continuity. - No individual has complete control
- Profits are shared among partners
- There may be disagreements.
3. Companies/ corporations: The business is a limited liability company once the
business and owner are separated; being legally separated from each other.
Main features: It has multiple owners, the company has legal existence and its own
rights, employs executives to manage the company, must obey the law of the land/
pay taxes, and shareholders pay profit through dividends.
4. Privately held company: Can only sell shares to people known to the owner offering
limited liability
Main features: It has less reporting requirements, must produce audited financial
statements once per year publicly, shareholders only provide finance, business and
owner are separate entities, the details of a company are legally recorded and are
matters of public record, greater finance is available, has greater stability and higher
chance of continuity.
→ If the business goes public: It has to offer its share in a public place like the stock
market/ loses privacy
Why does the business choose to be a company?
- To separate legal existence from them personally
- Allows them to have limited liability
- Enhanced status= successful business
- Selling shares is a good source of finance
- Increases stability of company
- Improved chances of gaining finances
Advantages: Disadvantages:
- Finance is more readily available - Set-up tasks take time
- Perceived as having a greater degree of - Costs are a great deal of money to fulfill necessary
stability requirements.
- Individuals and institutions are more likely to - Must retain lawyers, legal paperworks, government
invest file papers.
- Investor has limited liability - it only loses the - Selling shares even if the company “goes public”
value of shares does not intend that the amount of finance will be
- Sum of all large investors can add up to a raised.
large sum of finance. - Owners risk partial/ entire loss of control of
- Possibility of expansion business.
- Established business structure exists - Loss of privacy which could jeopardize its future
- There is a long-term established relationship performance
between customers and suppliers. - Company has no control on the stock market
- Company has limited control over who buys shares
5. For-profit social enterprise: Form of a business that has a social purpose aiming to
prove environmental, social, and human-wellbeing.
, Main features: Social aim takes priority, the aim to make profit but not to maximize it
- Public sector companies: operate in the public sector- a revenue generating
business with a social aim at its core
→ Does not distribute surplus as revenue; it is given to the needy (no profit is
gained)
6. Cooperatives: A form of partnership that is owned and run by all its members.
There are different types:
- Financial cooperative: Financial institution that talkies precedence over profits
- Housing cooperative: Run to provide housing for members
- Workers cooperative: owned/ operated by workers themselves occurs when
business is about to fail.
- Producer cooperative: groups of producers collaborate in certain stages of
production
- Consumer cooperative: Provides a service to consumers who are also part
owners of a business- not a priority to make profit
Main features: Social aim takes precedence over profit, high degree of collaboration
between business and local community, more democratic, operates in the same function as
other businesses.
Advantages: Disadvantages:
- Favorable legal status achieved - Decision-making is more
- Strong communal identity exists complex/time-consuming
- Stakeholder community benefits - Capital may be insufficient for growth/
financial strength
7. Non profit social enterprises: Businesses that operate in the private sector who do
not aim to make profits.
Main features: Generate surpluses rather than profit which is used to advance the social
purpose.
8. NGOs: Non-governmental organization that aims to support a cause that is generally
desirable
- Charities: type of an NGO that aims to provide relief for those in need
→ its main focus is on philanthropy/ the desire to help others
Main features: Donations are important and there is unclear ownership or control
Advantages: Disadvantages:
- Help people or causes in need - Intense lobbying from non-profit social
- Can foster a philanthropic spirit in the enterprises can lead to socially undesirable
community goods
- Fosters informed discussions in the - Sometimes employees have a passion/zeal to
community about allocation of ill serve the organization
resources - Funding can be irregular
- Can innovate
1.2 Organizational Objectives
- Vision statement: A philosophy, vision or set of principles which steers the direction
and behavior of an organization.
→ Long term goals
- Mission statement: It states a company’s purpose and explains why the business
exists.
→ A mission statement generally includes the business’s aim and implies its most
important values.
1.1 What is a business?
What are the different key concepts?
- Change: Refers to modification or transformation from one form, state or value to
another, over time or across places.
- Creativity: The process of generating new ideas, considering ideas from different
perspectives to form a business idea.
- Ethics: The moral principles and values that for the basis of how a person or an
organization conducts their activities
- Sustainability: The ability of the present generation to meet its needs without
compromising the ability of future organizations to meet their own needs.
● The nature of a business
- A business aims to meet the needs and wants of individuals or organizations
through producing crops, extracting raw materials, creating a product, or
providing a service.
- All businesses input resources and process them to generate a desired output
● The resource inputs are categorized as the following:
1. Human - the right quality and quantity of people required to make the product or
provide the service
2. Physical- the right quality and quantity of materials, machinery, and land space
required to make the product or service
3. Financial- the right quantity of cash and other forms of finance required to make the
product or service
4. Enterprise- the least tangible input but crucially important as it is the business idea
and the determination to turn the idea into a functioning and thriving business
● How to add value:
- Labor intensive processes use a large proportion of land and machinery relative to
other inputs, especially labor
- Capital intensive processes use a large proportion of labor relative to other inputs
especially in relation to land or machinery.
● The product outputs:
→ Goods: Tangible (maybe produced in the primary or secondary sector)
→ Services: Intangible
Business functions: Small businesses have to deal with functions alone versus larger
businesses that can hire specialized managers to carry out functions in separate areas.
They are divided into four key elements:
➢ HR: Ensuring that the right people are employed.
➢ Finance/accounting: Ensuring that the appropriate funds are made.
➢ Marketing: Ensuring that the business offers a product or service that is desired by
consumers through the use of appropriate strategies.
➢ Operations management: Ensuring that appropriate processes are used to make the
product or service controlling the quantity and flow of stock.
Sectors of a business activity:
1. Primary: part of the economy engaged in extraction and production of raw materials
2. Secondary: Production of finished goods (manufacturing)
3. Tertiary: Delivery of services
4. Quantery: Production, processing and transmission of information - sharing of
knowledge
→ The production chain turns raw materials into consumer goods that are marketed.
, Sectoral change
- More advanced sectors require more complex social context for a business
- Developed countries see social technologies and economics in tandem as an
economy develops.
- As social technology improves, economies develop
- Developments are not always linear → technological improvements in an area and its
related workers can make other technologies/ occupations obsolete.
→ Developed countries tend to move away from the primary as they can anticipate
or adapt to the changing environment.
● What are the reasons for starting a business?
→ Rewards, independence, necessity, challenge, interest, finding a gap, sharing an idea
● What is the process of starting a business:
Business idea→ organizing the basics→ researching the market→ planning the business→
establishing legal requirements→ raising the finance→ testing the market.
★ What are the challenges:
→ Organization, market research, business plan, legal requirements, finance, and the
market.
1.2 Types of business entities
- Public sector: part of the economy controlled by the government
- Private sector: part of the economy not controlled by the government
Types of profit-based commercial organizations:
1. Sole trader/ sole proprietorship
→ A commercial for-profit owned by an individual fulfilling many of the reasons for
business such as becoming their own boss, seeking a gap in the market, creating
their own product, etc..
Main features: Sole trader owns and runs the business, no legal distinction between
business and the sole trader (liable for all debts), finance is limited, Financial
institutions regard them as non accountable as they have no reason to declare
finances unless they want to borrow money, provides more specialized services, has
privacy expect to tax authorities, registering business is not easy.
Advantages Disadvantages:
- All profits go back to the sole trader - Their success depends on how much
- Complete control on all decisions drive/enthusiasm/ health the sole trader has
- Flexibility in working hours, products/ - Competing against established businesses alone
services, changes can be daunting
- Privacy - Stressful resulting to ineffectiveness
- Minimal legal formalities - Lack of continuity upon death
- Close ties to customers. - Limited scope for expansion
- Limited capital as focus will be on sufficient cash
- Unlimited liability of the owner.
2. Partnerships: A business formed by two or more people with related qualifications
Main features: Number of partners depends on the country who own and manage it,
decisions are made jointly by partners, no legal distinction between business and partners,
finance is usually more available/ stable, some partners are just sleeping partners, offers a
more varied service, has a greater degree of accountability, partners are not shared equally.
,Advantages Disadvantages:
- Brings different skills and qualities - Each person has unlimited liability, legally
- Efficient production due to specialization/ responsible for business debts
division of labor - Partners have less access to loans compared to
- Perceived as having greater stabilities corporations
- Partners can cover each other incase of - Limited finance can prevent business from making
emergency profit
- Higher chance of continuity. - No individual has complete control
- Profits are shared among partners
- There may be disagreements.
3. Companies/ corporations: The business is a limited liability company once the
business and owner are separated; being legally separated from each other.
Main features: It has multiple owners, the company has legal existence and its own
rights, employs executives to manage the company, must obey the law of the land/
pay taxes, and shareholders pay profit through dividends.
4. Privately held company: Can only sell shares to people known to the owner offering
limited liability
Main features: It has less reporting requirements, must produce audited financial
statements once per year publicly, shareholders only provide finance, business and
owner are separate entities, the details of a company are legally recorded and are
matters of public record, greater finance is available, has greater stability and higher
chance of continuity.
→ If the business goes public: It has to offer its share in a public place like the stock
market/ loses privacy
Why does the business choose to be a company?
- To separate legal existence from them personally
- Allows them to have limited liability
- Enhanced status= successful business
- Selling shares is a good source of finance
- Increases stability of company
- Improved chances of gaining finances
Advantages: Disadvantages:
- Finance is more readily available - Set-up tasks take time
- Perceived as having a greater degree of - Costs are a great deal of money to fulfill necessary
stability requirements.
- Individuals and institutions are more likely to - Must retain lawyers, legal paperworks, government
invest file papers.
- Investor has limited liability - it only loses the - Selling shares even if the company “goes public”
value of shares does not intend that the amount of finance will be
- Sum of all large investors can add up to a raised.
large sum of finance. - Owners risk partial/ entire loss of control of
- Possibility of expansion business.
- Established business structure exists - Loss of privacy which could jeopardize its future
- There is a long-term established relationship performance
between customers and suppliers. - Company has no control on the stock market
- Company has limited control over who buys shares
5. For-profit social enterprise: Form of a business that has a social purpose aiming to
prove environmental, social, and human-wellbeing.
, Main features: Social aim takes priority, the aim to make profit but not to maximize it
- Public sector companies: operate in the public sector- a revenue generating
business with a social aim at its core
→ Does not distribute surplus as revenue; it is given to the needy (no profit is
gained)
6. Cooperatives: A form of partnership that is owned and run by all its members.
There are different types:
- Financial cooperative: Financial institution that talkies precedence over profits
- Housing cooperative: Run to provide housing for members
- Workers cooperative: owned/ operated by workers themselves occurs when
business is about to fail.
- Producer cooperative: groups of producers collaborate in certain stages of
production
- Consumer cooperative: Provides a service to consumers who are also part
owners of a business- not a priority to make profit
Main features: Social aim takes precedence over profit, high degree of collaboration
between business and local community, more democratic, operates in the same function as
other businesses.
Advantages: Disadvantages:
- Favorable legal status achieved - Decision-making is more
- Strong communal identity exists complex/time-consuming
- Stakeholder community benefits - Capital may be insufficient for growth/
financial strength
7. Non profit social enterprises: Businesses that operate in the private sector who do
not aim to make profits.
Main features: Generate surpluses rather than profit which is used to advance the social
purpose.
8. NGOs: Non-governmental organization that aims to support a cause that is generally
desirable
- Charities: type of an NGO that aims to provide relief for those in need
→ its main focus is on philanthropy/ the desire to help others
Main features: Donations are important and there is unclear ownership or control
Advantages: Disadvantages:
- Help people or causes in need - Intense lobbying from non-profit social
- Can foster a philanthropic spirit in the enterprises can lead to socially undesirable
community goods
- Fosters informed discussions in the - Sometimes employees have a passion/zeal to
community about allocation of ill serve the organization
resources - Funding can be irregular
- Can innovate
1.2 Organizational Objectives
- Vision statement: A philosophy, vision or set of principles which steers the direction
and behavior of an organization.
→ Long term goals
- Mission statement: It states a company’s purpose and explains why the business
exists.
→ A mission statement generally includes the business’s aim and implies its most
important values.
