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Chapter 1

MGTA01H3 Chapter Notes - Chapter 1: Shoppers Drug Mart, Profit Motive, Delivery (Commerce)

Management (MGT)
Course Code
Chris Bovaird

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chapter 1
What is a business?
-business is an organized effort to provide the things that people need and want, and are
willing to pay for.
-a business exists in order to satisfy those customer needs, and also to make a profit with a
five characteristics common to all business
1. organized efforts
-one or more people have to have an idea and has to put time, thought and effort into carrying
out their idea
-businesses are created as the result of the time, effort and energy o the people who start
them and run them
2. business provides things that people need and want
-definition stated that a business exists to provide the things that people need and want
-your business idea to provide tutorign is a response to need that you have identified.
-a business must provide something that people want, it must satisfy a need
-mcdonalds, burger king supply french fries - they believe people need or want good tasting,
inexpensive meals, served quickly
-microsoft exists because bill gates saw that people need softward to operate their computers
-every business, no matter how large or smal, exists to provide things that people want
3. business must try to satisfy customers needs
-businesses would not, and cannot exist until there are people who need or want - and are
willing ot pay for - the things that those businesses produced
-CUSTOMERS - the people who need or want, are willing to pay for, the things that a
business provides
-some businesses refer to their customers as clients. clientis mot commonly used to refer
to people who use their services of a professional (e.g. lawyer, accountant)
4. business generates revenue from sales
-every time a barber cutes your hair, he asks for a payment
-the money that a business receives from its customers is called revenue
-revenue - is the money that flows into a business every time it sells a product or a service to
a customer
-revenue can come into a business voer the counter, by check, electronic transfer, direct debit.
-the key issue with revenue is that a customer decided that the product or service which the
business provides is worth paying for, and the customer agrees and intends to pay, and
eventually does
-when customer provides a business revenue, expect to get something in return.
-customers who pay for a movie ticket expect to be entertained
-businesses that provide these products or services must incur costs to provide them
-an airline must buy and maintain its aircraft

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-a pizza delivery company mustt purchase dough, cheese, sun-dried tomatoes etc
-the money that a business spends, to provide customers with products, is called “costs” or
most often “expenses”
-in the case of the pizza delivery business, the expenses would include the cost of various
ingridients, rent api for the store or kitchen, wages paid to the chef, cost of buying, insuring
and maintaining the delivery vehicle.
-w/o these costs the business could not provide customers w/ a product
-these costs or expenses, must be subtracted from the revenue that the pizzeria gets
whenever it sells you a pizza
-expenses: the money that a business spends, to provide customers w/ products
-businesses have to build factories and warehouses, advertise for employees in local
newspapers and increasingly pay web designers and internet hosts to maintain their websites
and social media presence
5. businesses try to make a profit
-in our definition it was stated that a business exists in order to make a profit
-profit is the positive benefit from running a business - makes a profit when the revenue that it
brings in is greater than the costs of running the business and making the product
-profit: revenue minus expenses
-profit - essential motivation for starting a business
-when a business owner creates and runs a business, the desire to realize some benefit is
referred to as the “profit motive” (desire to make money)
-the profit motive: the idea that people will give up their time, energy and money only if there
is some incentive for them to do so. if there is no pay-back for their self-sacrifice and risk,
rational people will save their time and money
-irrespective of what you intend to do with your profits, one of the underlying motivations for
starting your business is to make money
-many fail in their attempt to make a profit - the revenues that a business generates are not
sufficient to cover all of the costs and expenses involved in running the business - loss
-loss: when the revenues that a business generates are not sufficient to cover all of the costs
and expenses involved in running the business
businesses versus not-for-profit organizations
-if you tutored kids algebra without charging money you would be satisfying a consumer need,
but would not be running a business
-it is the profit motive that distinguishes businesses from other organizations that are not
-church or mosque - “organized effort” - soccer team, choice, on campus club - none of these
organizations exist for the explicit purpose of making a profit
-places of workship, sports teams, clubs all require time, effort and energy to establish and
keep running - could rely on volunteers or paid staff
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