Transcript Chapter 5 - MsLessardsPage

Chapter 5
What Makes a Successful
Business?
What is Business Success?
Success of a business can be
measured in 4 ways:
– Profit
– Demonstration of Social Responsibility
(giving back to the community)
– Employee Satisfaction
– Personal Satisfaction for the owner
1. Profit
A successful business makes money
An unprofitable business will not operate for long
Think-Pair-Share: If you are selling spaghetti
sauce, what do you need to buy in order to make
it?
To make a profit, you need to price your product
above cost price.
The cost equation:
Profit = Selling Price – Cost of Goods Sold – Expenses
Often profit is expressed as a return of sales.
This means that you keep a certain percent of
total sales (example – 10%). Big businesses
often have a very low return because they sell so
much (example – Supermarket at 2% return).
Example – if you sell $4000 and get a 5% return,
how much do you get to keep as a profit?
Controlling Expenses
Companies can control expenses by buying
products from/making products in factories. This
is called the “economies of scale” and it means
that the more you can make using the same
factory, the cheaper the product can be. It’s a
good way to save money.
Pair-Rally Robin: Name as many companies as
you can that use factories as a part of their
business.
Variable Cost: Products that become cheaper the
more you buy.
Fixed Cost: Products that stay the same no
matter how many you buy (example –
insurance).
You can control your expenses by making a
budget. If you exceed your budget, scale back
an expense.
2. Social Responsibility
Good businesses can really help their
community
Businesses are encouraged to be
good “corporate citizens” by
helping out their community.
Pair-Rally Robin: Can you think of
businesses that do this? Name them
and what they do!
3. Employee Satisfaction
The goal is to get employees to stay
with you: it is expensive to train
employees and good employees can
give your business a positive image.
Compensation: Employee discounts,
good salaries, benefits, vacation
Safe and positive work environment
4. Personal Satisfaction
Often business owners start their
own businesses in a field they enjoy.
Being satisfied with your business
helps you to enjoy what you do for a
living.
Making a profit can lead to personal
satisfaction and success.
Factors Affecting Business Success
Personal Factors
Economic Conditions
Influence of the Government
1. Personal Factors
Starting and business and running a
business are entirely different. You need:
– Desire for Control (like to be in charge and
direct others)
– Vision
– Passion
– Perseverance
– Teamwork
Think-Pair-Share: Do you have one of
these qualities? Choose one you possess
and think of an example of when you’ve
used it.
2. Economic Conditions
Cannot be controlled but can be
anticipated to help run the business.
A) Supply and Demand (as it changes, the
price changes with it)
– If you control supply, you can set the price
much higher than cost
– Price Fixing: “Without government
permission, businesses in a particular industry
get together in order to set a price for their
product rather than letting competition
determine the price.”
– Supply Quota: “amount of a good that
producers are allowed to supply”; goes handin-hand with price fixing
– These companies form into groups called
trusts or cartels (illegal in Canada)
B) Labour Market Conditions
– Availability of skilled labour
– Unemployment rate (percentage of able
people not working taken from labour
force)
– Labour Force = everyone who is
currently employed + able people
seeking employment
– Unemployment rate affects the types of
jobs offered and pay rates, may be
seasonal
– Government subsidies/grants are given
to businesses who are looking to open
in areas of high unemployment
– There are now workshare programs as
well
C) Inflation
– Prices of products and services increases
meaning that your money is worth less/can
buy less
– May occur because a lot of people use credit to
purchase (hence, low value of money) and
they purchase more, meaning there is an
increase in demand
– Can happen slowly or quickly (days)
– Means that the salary you make may not be
enough (why minimum wage continually
increases)
– Inflation = reduced spending from customers
– The only way to stop inflation is to reduce
spending (government steps in) but this puts
the business world into recession
3. Government Influence
We have a modern-mixed economy so the government has
influence in Canada’s business world.
– Taxes: PST, GST, duty on customs
– Control of Distribution: controls distribution of certain
products (example – milk) but promotes free market of others
(example – soda)
Marketing Boards: throughout Canada, they regulate the
distribution of agricultural products through quotas (control
distribution, manufacturing and processing)
Money Supply: control money supply through the Bank of
Canada (Canada’s central bank) and they approve the opening of
new businesses; sets rates for other banks and regulates how
much money is circulated (allows businesses to grow/open but
controls inflation)
Licensing and Permits: Businesses are given licenses/permits in
order to be able to do business in Canada
– Health and Safety Regulations (Food and Drug Act requires
testing)
– Quality Control: Businesses sell low quality for cheap prices
but the government sets a standard that products need to
meet.
– Ethical Business Practices: In order to maximize sales,
some businesses trick the customer with false/misleading
advertising, putting two tags on a product and selling for the
higher of the two, etc. The government has Acts to protect
against this.
Why Do Businesses Fail?
Lack of Skill or Knowledge
Expanding too Quickly
Lack of Capital
Inability to Stay Competitive