1.1 Understanding The Nature And Purpose Of A Business Flashcards
Why business exists
A business is an organisation that exists to:
Provide goods
Services on a commercial bases
What are business objectives?
Key objectives;
Profit
Growth
Survival
Cash flow
Social
Ethical
Business objectives (SMART)
S - Specific achievement.
M - Measurement (possible to measure achievement).
A - Achievable, should be realistic.
R - Relevant, relevant to the people responsible. for achieving them.
T - Time bound, sei in a time frame mind.
The Mission Statement is
(Part 1 of Relationship between Mission and Obj)
The overriding goal of a business
The reason for it’s existance
A strategic perspective
A vision for the future
At the top of the Hierarchy for priority
What makes a good Mission Statement?
Contains formulation and objectives enabled to be measured
Differentiates from competitors
Defines the martkets or business in which the firm wants to operate
Relevant to stakeholders - not just directors
Excites, motivates, inspires and guides
Common criticism of Mission Statement
Not always supported by actions of a business
Often too vague and general
Sometimes not a true reflection of reality
To mean anything they must be supported wholeheartedly by senior management
Corporate objectives
(Relationship between Mission and Obj Part. 2)
Derived from the Mission Statement/corporate objectives
Departmental and functional obj are set
Why businesses se objectives
Implent the Mission
Provide clear focus for decision making
Provide target
Motivate employees
Facilitate control of actual performance
Provide criteria to evalutate performance
Reduce uncertainty
Provide a sense of unity
The measurements and importance of Profit
Profit = Total revenue - Total costs (fixed costs + variable costs)
Revenue ( Turnover / Sales ) Formula
Total revenue = N° of unit’s sold × Selling price per unit
Costs (definition)
Costs are amounts that business incurs in order to make goods and or provide services
Variable costs & examples
Change based on the output
Lower risk for a start-up
No sales = No variable costs
E.g.
Raw materials
Wages
Marketing costs (% commission)
Fixed costs & Examples
Costs that do not change based on output
It increases the risk of a start-up
E.g.
Rent
Salaries
Software licenses
Design and development
Calculating total costs
Total costs = Total Fixed costs + Total Variable costs
Calculating Variable costs
Total variable costs = Variable cost per unit × N° of units sold
