What you need to know

A business is an organisation that combines resources (land, labour, capital and enterprise) to produce goods (tangible products such as surfboards) or services (intangible products such as tutoring) that satisfy customer needs and wants. Most businesses aim to make a profit, which is the amount left over after all expenses are deducted from revenue. Businesses matter well beyond their owners: they create employment, pay wages and taxes, give consumers choice, drive innovation and entrepreneurship, and contribute to Australia's overall quality of life and wealth.

Classifying businesses

A stakeholder is any individual or group that has an interest in, or is affected by, the activities of a business. Internal stakeholders are inside the business: owners and shareholders, managers and employees. External stakeholders are outside it: customers, suppliers, lenders, competitors, the government (for example the ACCC, which enforces competition and consumer law), unions and the wider community including the environment. Stakeholder interests often conflict: shareholders may want higher dividends while employees want higher wages, and a decision to move production offshore may please shareholders but harm the local community.

Business goals are usually a mix of financial goals (profit, growth, market share, share price) and non-financial goals (employee satisfaction, environmental sustainability, community service). Goals are shaped by the business environment: internal influences such as products, location, resources, management and culture, and external influences such as economic conditions, financial markets, geography, social attitudes, laws, politics, institutions, technology, competitors and markets. Good managers scan both environments constantly.

Check yourself

1. Define 'profit' in one sentence.
2. A dairy farm, a cheese factory and a cheese shop belong to which three industry sectors, in order?
3. Which legal structure gives the owner unlimited liability and the simplest set-up?
4. Name two internal and two external stakeholders.
5. Explain one way the interests of shareholders and employees might conflict.
6. Is a business with 150 employees that sells in every Australian state best described as small or medium, and local or national?

Answers: 1. Profit is the revenue left after all expenses have been paid. 2. Primary (farm), secondary (factory), tertiary (shop). 3. Sole trader. 4. Internal: owners, managers, employees (any two); external: customers, suppliers, lenders, government, community (any two). 5. Shareholders want higher profit and dividends, which may mean limiting wage increases; employees want higher pay and job security, which raises costs. 6. Medium (20 to 199 employees) and national.