Understanding the nature of business
Understanding the Nature of Business
Business Activities
- Profit Oriented: These activities focus on generating financial gains for stakeholders.
- Non-Profit Oriented: These activities focus on charity or social causes, where profit isn't the primary objective.
- Public Sector Operations: This involves running of government bodies to provide services to the public.
Goals of Business
- Profit Maximisation: Most businesses aim to maximise profit to achieve growth, expansion, and increase shareholder returns.
- Sales Maximisation: Businesses may seek to increase the volume of sales which can lead to increase in market share.
- Growth: Businesses often strive to expand their operations, size, market presence and product offerings.
Business Sectors
- Primary Sector: Involves extraction of raw materials - mining, agriculture, fisheries, and forestry.
- Secondary Sector: Encompasses industries that produce goods using raw materials - manufacturing, construction.
- Tertiary Sector: Provides services to consumers and other businesses - retail, health, education and leisure services.
Business Ownership Types
- Sole Traders: Owned and run by one individual with no legal distinction between the owner and the business.
- Partnerships: Owned by two or more people with shared decision-making and responsibilities.
- Limited Companies: A separate legal entity from its owners, liabilities are limited to the amount invested.
- Public Limited Companies (PLCs): Shareholders own the company with shares traded publicly on the stock exchange.
Role of Financial Planning and Analysis in Business
- Budget Preparation: This includes preparing detailed financial plans for the upcoming accounting period.
- Financial Analysis: Analyses financial performance and indicators like profitability, liquidity and solvency.
- Cash Flow Management: This involves monitoring, analysing and adjusting the business's cash flows.
- Decision Making: Financial analysis supports business decisions on investment, funding, and risk management.
- Strategic Planning: Outlines long-term goals and plans of the business aligned with financial resources.