Business Notes Chapter 1.docx - Chapter 1 What is a Business There are different ways to describe or classify a business depending on characteristics

Business Notes Chapter 1.docx - Chapter 1 What is a...

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Chapter 1 What is a Business? There are different ways to describe or classify a business, depending on characteristics such as the purpose of the business, its size, its structure, and the role it plays in a community. Profit or Non-Profit Some businesses are run to make a profit. A business that is run in order to make a profit 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.” While most businesses are run to make a profit, some are organized strictly for the purpose of helping people in a community. A For-profit Business The goal of most businesses is to make a profit by supplying goods and services to meet customer demands. Profits are the income that is left after all the costs and expenses are paid. Expenses are those expenditures that are involved in running a business, such as wages, as well as those assets that get “used up” in the process, such as paper and toner. Costs are the amount of money required for each stage of production, such as the costs of raw materials. To be successful, a for-profit business must earn a profit while keeping both expenses and costs down. One of the largest expenses for any business is its payroll. If a business decreases its staff to save on expenses, profits may increase. However, if there are not enough employees to do the work, sales could decrease and profits could actually decline. Revenue – Expenses = Profits/Loss Making a profit enables a business to put more money back into the operation for expansion or growth. Some businesses might chose to use profits to provide better goods or improved services. Profits can also be given to the owner to spend on personal needs and wants. If a business does not make any profit, but they are still able to pay of any debts, the business is considered solvent. Solvency means having the ability to pay your debts and meet financial obligations. Businesses are always looking for new ways to produce new and better goods and provide better services to customers. Non-profit and Not-for-profit Organizations A non-profit organization is one that does not seek profit as its primary motive, but instead raises funds for a specific goal. In fact, only charities and charitable organizations can truly be called non-profit. Not-for-profit organizations, such as housing or child-care co-operatives, also do not seek a profit. Any surplus funds they have are used to improve services offered to members; they are not distributed to members. Not all co-operatives are not-for- profit however. Some do generate a profit, which is shared amongst members or are
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used to expand the organization. A co-operative can be defined as an independent association of persons who come together to meet their economic, social, and cultural needs and goals. They accomplish this by creating a jointly owned and democratically controlled business.
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