What is a Business?
A business is any organisation that is involved in the production of a good or the
provision of a service.
Businesses exist because people, firms and government have needs and wants for goods
A business aims to satisfy these needs and wants, thus making a profit itself, paying the
workers and rewarding its owners.
The difference between a need and a want:
A need basic requirement for living e.g. food, water, warmth, security, shelter and
A want a desire beyond our needs. Once a want has been satisfied, something more is
wanted, e.g. a better watch or faster computer.
Business activity is a three-stage process
INPUTS -> TRANSFORMATION PROCESSES -> OUTPUTS
INPUTS the main types (also known as the factors of production)
Land and natural resources the area where production takes place and the raw
materials that are used (e.g. wood, fuel).
Labour the people who transform the inputs (e.g. machine operators, bar staff).
Capital the man made means of production (e.g. plant, machinery, computers, and
Entrepreneurship the people who are prepared to invest in and manage a business
theyare the risk takers.
The transformation process ADDS VALUE to inputs. This means that the value of the
outputs is greater than the value of the original inputs.
ADDED VALUE is therefore the difference between the price of the output and the cost of
inputs. This is the way that a business makes a profit.
OUTPUTS - goods and services produced.
Main Functions in a Business
A business has four main functions:
Marketing and sales
Accounts and finance
Production and operations
Human resource management
They each have an important role to play in helping to make a business operate
effectively to achieve its aims.
They are known as the internal functions of the business. There are all interrelated, so if
a change happens to one area, it will have some impact on all the other areas.