the roll of businesses

The role of Business’s

The nature of a business

There is one thing people have in common – they all have needs and wants. They need food to eat, clothes to wear and houses to live in. Most of us also want DVD players, iPods, mobile phones and cars – if only for the pleasure they give to us. To satisfy these never-ending wants is the role of business. A business can be defined as the organised effort of individuals to produce and sell, for a profit, the products (goods and services) that satisfy individual’s needs and wants. To satisfy the needs and wants of its customers, the business has to produce the products the customers demand. By producing these products for sale on the market, the business hopes to achieve a number of goals. Making a profit is perhaps the most basic of these.

Production – producing goods and services

When we go shopping we are choosing from a range of finished products – products that are ready for customers to buy and use. Rarely do we stop to think about all the operations that have occurred to transform raw materials into finished products ready for consumption. Business enterprises undertake many activities to provide the products demanded by customers. However, by far the most important of all these actives is production. Production refers to those activities undertaken by other business that combine the resources to create products that satisfy customer needs and wants.

Other functions of business

As outlined previously, Australian business provide employment for millions of people. As well, the products offered for sale provide consumers with a vast selection from which to choose. Therefore, the total output of all businesses adds considerably to the economic wealth and wellbeing of Australia. However, businesses also perform many other important roles.

Profit

The main activity of a business is to sell products to its customers. A business receives money (sales revenue) from its customers in exchange for products. It must also pay out money to cover the numerous expenses involved in operating the business. If the business’s sales revenue is greater than its operating expenses, it has earned a profit. More specifically, profit is what remains after all business expenses have been deducted from the business’s sales revenue.

The business’s profit becomes the property of its owners. For this reason, profit can be regarded as the return, or reward that business owners receive for producing products that consumers want.

Profits encourage risk taking

Although our free enterprise economic system gives individuals the right to start a business, it does not guarantee the success of any enterprise. Individuals who go into business do so at their own risk. The owner of a new business cannot be certain than anyone will buy what her or she plans to sell. Even for the established business owner, there is always the possibility that consumers will change their preference and purchase a competitor’s product.

If a business fails, its owner may lose all or part of the money he or she has put into it. If people are to take this risk, they must be encouraged by the hope of some reward for success. In our economic system, profit is the return (reward) or payment that business owners receive for assuming the considerable risks of ownership. One of these risks is the risk of not being paid. Everyone else – employees, suppliers, and lenders – must be paid before the owner. And if there is no profit, there can be no payment to owners. A second risk is that if the business fails, its owner may lose all or part of the money he or she has put into it.

Employment

Businesses have another important role to play. To be able to purchase products, consumers need money. They usually earn that money by working at jobs provided by businesses.

The number of employees hired by a business at any time will largely depend on the nature of the products and the number of customers who wish to purchase the products. Generally, the more that is sold the more employees a business will hire. Large businesses employ thousands of people within their organisation.

However, the SME sector is a major source of employment in Australia, accounting for about 50 per cent of all private (non-government) sector employment – approximately 5.3 million people. In fact, the SME sector has been the major generator of new jobs since the mid-1980s.

Incomes

Another important function of business is to provide income. For an individual, income is the amount of money received for providing his or her labour. A business’s income is the amount it earns after converting all of its expenses: a return on its investments.

Many businesses require staff to conduct their operations. These employees provide their labour and in return receive either a:

· Wage: money received by workers, usually on a weekly basis, for services they provide to an employer.

· Salary: a fixed amount of money paid on a regular basis, usually fortnightly or monthly, to a permanent employee of a business.

This means that part of the money received from the sale of the business’s products is decided among the workers who contributed to their production. A business receives money from the sale of its products. As previously outlined, this is called sales revenue. From this revenue, all the expenses incurred in operating the business must be deducted. The amount that remains is the business’s profit. This becomes the business owner’s property and consequently their income.

If the business is a private or public company, it will have many owners referred to as shareholders. (A share is part ownership of a company.) Usually some or all of the company’s profit is divided among the shareholders. This type income is called a dividend.

The amount of income a business can generate as wages and salaries, profits or dividends, depends largely on how successful it is in selling its products. A business that is aware of what consumer’s desire and attempts to satisfy this demand will experience increasing sales. This provides the business with the opportunity to offer higher income payments to employees, business owners and shareholders.

Choice

Choice is the act of selecting among alternatives. For instance, you decide to purchase a new toothbrush. At the local supermarket you find a bewildering array of brands, designs, colours, shapes, textures, packaging, bristle arrangements, sizes and prices. A vast assortment of options – and all for the simple task of brushing your teeth.

In our society, consumers have freedom of choice and the opportunity to purchase a variety of products at competitive prices. An average supermarket will have on display approximately 20 000 product lines, with some hypermarkets carrying in excess of 40 000 lines. Freedom of choice exists when consumers can ‘shop around’ and select from a range of competitors products. The more competition there is the greater choice available to consumers. It is businesses, all competing with one another that are responsible for the wide range of products in the shops. Every day thousands of businesses are producing products for specific sections of the overall market.