Business objectives

All businesses have objectives, it’s a goal, it’s a target. Businesses base their performance and
strategies based on those objectives in order to achieve those objectives.

Why are business objectives? If you don’t have a goal, or a target, it will be nearly impossible for the
business to measure its progress. Objectives can help business assess how close they are to
accomplishing something that is for the good of the company. Business objectives also give the
business a purpose. For instance, employees are told about the business objective, this could
motivate the workers and make them know what they are supposed to do.

It is usually the owners of the business that set the objectives, but there are a lot of business
objectives businesses could aim to achieve by a certain point in the future.

Most new freshly opened business have an objective of SURVIVAL. A lot of businesses these days
tend to fail and shut down after 12 or 24 weeks because firstly they are new to the industry,
customers are not aware of the existence of the business yet, and because there would be
competitors with the firm that just opened.

Suppose a business has passed the survival objective and are now known by the industry and
produce an average amount of profit. Then these businesses would mostly focus on generating as
much profit as possible, otherwise known as profit maximization, whereby the sales revenue is at its
greatest over the total costs of the business (including taxes and all expenses). Profit driven
Businesses (PLC).

If business is okay with their profit, then they would aim at INCREASING OUTPUT or INCREASING
MARKET SHARE. Businesses that aim at increasing their level of output would either operate as a
labour-intensive business, or as a capital-intensive business where everything is done my machines.
Companies that want to be more vicious and aggressive in the industry would aim to increase their
market share, however only public limited companies have their company listed in the stock
exchange market.

Business objectives must be SMART. Specific, measurable, achievable, realistic, time specific.

When aiming to achieve objectives, business use either strategies or tactics. Strategies are used to
achieve their long-term objectives, while tactics are used to resolve current problems within the
business. Strategies= Long term. Tactics= Current.

Business objectives change over time depending on the situation of the business. Say for example
the country is experiencing a state of unemployment or the currency is crashing. Then to deal with
unemployment, business would want to focus on finding a way to resolve this, which is either by
finding new workers or replacing workers with machines, however this would cost a lot.

Businesses that are in a country that is experiencing economic recession would go back to square
one, Survival objective.

Mission Statement – a statement of the business’ core aims, phrased in a way to motivate
employees and to stimulate interest by outside groups. It is used in marketing and advertisements,
to give others a good impression
Stakeholders and shareholders

Shareholders want to be rewarded from owning shares in the organization. Some shareholders are
short term where they would buy shares of a company and sell them very sooner and earn
immediate return. Shareholders want the shares or the stock’s value to rise so that they could later
on make more money if they were to sell their shares.

1. There are two types of stakeholders. Internal stakeholders and external stake holders.
INTERNAL STAKEHOLDERS (which are people that can be affected by any decision an
organization makes as these people own shares in the company) include Employees, they
want job security and they want to make sure that their position in the company or business
is not threatened, in addition a good pay; Managers are similar to employees, they want pay
and want job security, but they also want status. Managers want to fill out their working to
an organization that has status (e.g.) a manager on the engineering department in Apple;
trade unions (an organized association of workers in a trade, group of trades, or profession,
formed to protect and further their rights and interests.), trade unions want to have a say I
the company in which they own shares in.

2. EXTERNAL STAKEHOLDERS include customers, they want quality. Meaning that they want
the business producing quality products which meet their needs. They also want a degree of
choice, a business that has a wide range of products. In addition, they also want value;
Suppliers needs are a bit more specific. They want a frequent customer; they want to always
have a person to sell their products to. Also, depending on the power balance between the
suppliers (creditors) and the customers (debtors), some suppliers could be larger business
wise than their customer so they want a balance to be treated with equity; Banks, they want
prompt payments, meaning that they want their loans to be repaid with ease and not having
to deal with people who take time to repay the loan.; Local community, first thing they
benefit from is the availability of jobs in their local communities. But they also want
businesses to be available to in their community; Pressure groups, they want businesses to
behave and not negatively cause any consequences.; Governments want businesses that
twill grow and create employment, and businesses that are corporately socially responsible
(CSR), meaning that the business would be aware whether their products harm the
consumer or environment.

Not to confuse, owners and shareholders are different and don’t mean the same thing. Owners are
people that are interested in the performance and profit of the business WHILE shareholders are
people that own a couple of shares in a company in which they look forward for the returns which
are DIVIDENDS= dividends, which are cash payments made on a per-share basis to investors. For
instance, if a company pays a dividend of 20 cents per share, an investor with 100 shares would
receive $20 in cash. Stock dividends are a percentage increase in the number of shares owned.
Each kind of stakeholder has his role, rights and responsibility for example:

1) Customers:
ROLE: They purchase goods and services, provide revenue from sales
RIGHTS: to receive goods and services that meet the local laws and safety; to be offered
replacements, repairs and compensation in the event of failure of the product.
RESPONSIBILITIES: to be honest and pay for goods and services; not to steal not to make
false claims about the business.

How can a business changing its objective affect its stakeholders?

1) Say for example there is economic recession in a country, and the business has to change its
objective from growth and expansion to survival, this could lead to workers either losing
their jobs or job vacancies would decrease.
2) PriveateLCs might convert to PublicLC, means that they are changing their objectives from
retaining control to rapid growth, pressure groups might be a problem since they would be
worried about the environmental impact of increased industrial output.

The table below shows how business decisions might affect different kinds of stakeholders:

Business decision Stakeholders that benefit Stakeholders that lose

Supermarket
- Expand the business
operation by building a
new warehouse
Café chain- purchase more
coffee supplies from ‘fair trade’
producers, paying above
market prices
Workers- more jobs.
Customers- more reliable
deliverance and wider choice
of stock
Government- increased
economic activity and tax
revenues.
Suppliers- likely to be more
orders.
Suppliers- offered ‘fair trade’
prices above the market price.
Local community (of the
suppliers) - higher local income
will increase spending.
Customers- those who want to
buy ‘ethical products’
Local community- additional
transport of goods, for example,
more trucks on roads
Environmental groups- building of
warehouse uses ‘greenfield’ site and
extra truck movement creates more
pollution
Customers- those who want lowest
possible prices- they might rise to pay
for the higher cost of ‘ethical’
supplies.
Non-fair trade suppliers and their
workers- fewer orders may lead to
businesses failing and job losses

When you get a question regarding the effect of business decisions affecting stakeholders, try to
think about teach kind of stakeholder, both internal and external.

INTERNAL EXTERNAL
employees Customers
managers Suppliers
Trade unions Local community
Banks
Pressure groups
Governments
Enterprise
There isn’t really much to know about this except mostly for definitions,

A business is organised efforts that include individuals working together to produce goods and
services to meet their targets often driven by profit.

An Enterprise is a collection of entrepreneurs that combine the other factors of production into a
unit that is able to produce goods and services.

An entrepreneur is a person that Is willing to take risks, start a business with his own money,
sacrifice time and effort, in order to start a business. An entrepreneur is a person who has an idea, a
vision, is willing to be responsible and undertake failure knowing they can redeem themselves and
bounce back.

ADVANTAGES
Independent: the person is able to make the
decisions for the business without having to
consult anyone
Ideas: they are able to implement their own
ideas into the business without having to hear
other ideas and waste time
Income: Income as an entrepreneur might be
higher than working as an employee
DISADVANTAGES
Lack of business experience: Lack of knowledge
and experience in starting and operating a
business
Risk: An entrepreneur would be investing his
own money into the business with either a very
high chance of return of very high chance of
loss
Opportunity Cost: the person would be giving
up the opportunity of becoming an employee

A business could add value to its product. Added value is the difference between the selling price of
the product and the cost oof production of the product EXCLUDING TAXES AND OTHER EXPENSES.

(e.g.) For example, if I am selling a wooden chair. 

Cost of wood for one chair = $100
Selling Price of one chair = $250
Added Value= Selling Price - Cost of raw material

= $250-$100 = $150

every business wants to add vale to its product so they may charge the product for a higher price.

There are two ways in creating value for a product:

1) Reducing cost of materials, while maintaining cost of product.

 Disadvantage: decreasing cost of materials could mean buying cheaper and lower quality
materials which could mean less product durability .

2) Maintaining cost of materials, increasing cost of product.

Disadvantage: increasing the price of the product could lead the customers not buying them
due to perhaps finding it more expensive than other venture’s pricing. This could lead to
customers buying from the business’s competitors.

Other methods of adding value include:

1) Creating a brand
2) Advertising
3) Providing customised services
4) Providing additional features
5) Offering conveniences

Example of creating value:

How would you add value to a jewellery store?

 Design an attractive package to put the jewellery items in.

 An attractive shop-window-display.
 Well-dressed and knowledgeable shop assistants.
All of this will help the jewellery store to raise prices above the additional costs involved.

Explain the reason why scarcity of resources results in choice and opportunity cost?
Scarcity is when there are not enough goods and services to satisfy the wants for everybody.
Because of this, we will have to make a choice.

We make choices every day. This is because we have limited resources but so many wants.
Therefore, we must decide which wants we will satisfy (that will be of more benefit to us) and which
we will not when buying things.
All choices involve giving something up – this leads to opportunity cost. Due to scarcity, people are
often forced to make choices. When choices are made it leads to an opportunity cost

Types of goods and services

 Consumer Goods – these are physical and tangible goods sold to the general public.
 Consumer Services – non-tangible products that are sold to the general public e.g. hotel
accommodation, insurance services, train journeys, education, medical care
 Producer goods (Capital Goods) – physical goods that are used by industry to aid in the
production of other goods and services e.g., machines, commercial vehicles
 Producer services – non-tangible products that are offered to other businesses to aid in
production of other goods and services e.g., banking, insurance, communication,
transportation, advertising.

The 4 factors of production are:

Land
Labor
Capital
Enterprise

Why do new businesses often fail?

1) Poor record keeping
2) Poor management skills
3) Lack of working capital
4) Changes in business environment

What is a social enterprise?

Social Enterprise – a business with mainly social objectives that reinvests most of its profits into
benefiting society rather than maximising profits. They directly produce goods or resources and use
social aims and ethical ways to achieve them. They need surplus or profit to survive.

Triple Bottom Line – three main aims of Social Enterprises:

 Social – provide jobs or support for local, often disadvantaged communities
 Economic – make a profit to reinvest some of it back into the business and provide some
return to owners
 Environmental – to protect the environment and to manage the business in an
environmentally sustainable way i.e. not polluting the environment

Management and leadership

Mintzberg’s management roles:
1) Interpersonal: dealing and motivating staff
2) Informational: acting as a source and transmitter of information
3) Decisional: taking decisions and allocate resource to meet organization’s objectives
Managerial roles:
Interpersonal roles

1) Figurehead: a symbolic leader of the organisation that takes care of all social and legal duties
(e.g.) making presentations, opening new factories.
2) Leader: motivates people, selects and trains staff
3) Liaison: internal and external linking with managers and leaders of other departments within
the business

Informational Roles:

1) Monitor: collecting data relevant to business operations. (e.g.) reading research reports to
gain information about the industry
2) Disseminator: Makes information available by sending information collected from external
and internal sources to the people within the business.
3) Spokesperson: communicating information about the organisation. (e.g.) presenting reports
to groups of stakeholders like annual general meeting.

Decisional Roles:

1) Entrepreneur: looks for new ideas and opportunities to develop the business.
2) Disturbance handler: Responds to changes in situations that may put the business at risk, a
problem solver.
3) Resource allocator: Decides the spending of the organisation’s financial resources.
4) Negotiator: Represents the organization in all important negotiations (e.g.) with the
government like having a meeting with the minister to influence policy.

Leadership role in the business:

Managers are responsible for setting objectives and motivating staff so that the organisation’s aims
are met.

Directors are SENIOR managers and are elected to office by shareholders in a limited company.

Supervisors are appointed by management to watch over the work of others.

Worker’s representatives are a person who is elected by the workers in order to discuss areas of
common concern with managers.

Informal leader is a person who has no formal authority but has the respect of colleagues and some
power over them.

Delegation is the passing of authority down the organisational hierarchy.

Empowerment allows worker some degree of control over how their task should be undertaken.
A good leader should have the desire to succeed, the ability to think beyond the obvious and be
creative. In addition to be able to identify the heart of the issue. Being multi-talented could be a
perk.

Styles of leadership:
1) Autocratic leadership: Most decisions made are kept at the centre of the organization.
There isn’t really any delegation in this system of leadership as it is the leader who makes u
most of the decisions.

Advantages
Experienced leaders have full control of
decision making
good style of leadership in terms of crisis
Disadvantages
Demotivates staff who want to contribute
and accept responsibility
Staff input is not really taken into
consideration

2) Democratic leadership: is a style of leadership that allows the majority opinion of the staff
to influence decisions. Unlike autocratic leadership, staff input is taken into consideration.

Advantages Disadvantages
Encourages participation in decision making Asking for staff about their opinion could be
time consuming
Feedback from staff is allowed Some issues among the staff could be taken
personal

3) Laissez-Faire Leadership: is a leadership style that leaves much of the running of the
business and decision making of the business to the workforce. Laissez faire in French
translates to (let them do) or (let them be) which is as the name suggests. This style of
leadership is mostly implemented in research and development departments comprised of
skilled specialists that are self-motivated.

Advantages
Gives employees as much freedom as
possible
Managers communicate goals to
employees but allow them to choose how
they wish to work
Disadvantages
Lack of feedback may be demotivating
Workers may not appreciate the lack of
structure in their work

In brief:
Autocratic: A leadership style where the leader makes all the decisions
Democratic: A leadership style where workers take part in decision-making
Laissez-faire: A leadership style where most of the decisions are left to the workers

McGregor’s Theory X and Y leadership styles:

1) Theory X: Managers believe that the workers dislike work. They are lazy, and will avoid
responsibility and are not creative.
 2) Theory Y: Managers believe that workers can derive as much enjoyment from work as from
rest and play, they will accept responsibility and are creative.

In brief:
Theory X: dislike work, avoid responsibilities, do not contribute to work

Theory Y: workers will behave as a result of management attitudes.

Goleman’s Intelligence theory:

He said that leadership depends not only on personal qualities, but also in emotional
intelligence.
Emotional Intelligence: is the ability of managers to understand their own emotions and
other’s emotions. (e.g.) if I am happy, and I communicate with my workers happily, they will
also be happy. If I am mad, and I treat workers in a harsh way, workers will be demotivated
and not perform their jobs well. There are 3 types of emotional intelligence:
1) Self-awareness: Knowing how we feel, using that, we guide ourselves to decision
making and also sensing what others are feeling.
2) Self-management: is being able to quickly recover from stress
3) Social Skills: handling emotions in relationships well and understanding social
situations.

Motivation
Motivation is the process of influencing people’s behaviour to achieve stated goals.

What motivates workers?

 Pay
 Promotion
 Working conditions such as uniforms, working environment.
 Fringe benefits (an extra benefit provided by the company supplementing an employee’s
money or salary) such as company house or paid school fees.

Benefits of motivated staff:

1) Higher levels of productivity: workers who are motivated and like their job will work form
their hearts and do a good job at producing output
2) Lower labour turnover: workers who are satisfied with their jobs will not leave the job
3) Lower rate of absentees: Workers who are motivated will not try and miss out on a day at
work. Since they are motivated, they are eager to go back to work.
4) Creativity: When employees are motivated, they are likely to come up with new ideas for the
business
 5) Improved customer service: since the worker likes his job, he will try to do it at its fullest.
Meaning increased output production, being nice to customers and earning their satisfaction
and loyalty to the company.

Indications of poorly motivated staff:

1) High rate of absentees: workers who are not satisfied with their jobs will try to either avoid
it or leave their job which leads to the next point.
2) High labour turnover: When workers do not like their jobs and are fed up with it, they would
leave. Demotivated workers and unsatisfied workers would later on resign from their jobs.
3) Conflicts: there will be a lot of disagreements within the workforce.
4) Poor response rate: workers who are given orders tend to slowly accomplish them and
anything in their work cycle is slow
5) Low worker moral: Employees feel as if they are not needed and this decreases their
productivity

Motivational Theories:
Divided into 2:

Content theories which are comprised of theorists whose work focuses on the nature of the work
itself or the terms and conditions of employment.

Theorists:

1) Taylor:
He believed that workers are motivated mainly by pay. He put forward that people are
motivated by money and that they should be paid according to the output that they produce
(e.g.) he/she is driven by the desire to earn more money. An economic man will work extra
hard to be able to receive the highest pay possible.

Application:
Henry ford used this theory to the make his first production line which is now known as Ford
the car company.

How to improve output per worker according to Taylor.

 Tell workers to perform a task
 Observe how they do it
 Record the time taken to do each task
 Look for a faster way
 Train them to do it the faster way
 Look how they do it the faster way
 Pay workers according to the basis of results (piece rate, which is a payments
according to the level of output of a worker)

Disadvantages of Taylor’s’ theory:

 This encourages autocratic style of leadership which might demotivate some

workers
  Mass production can lead to repetitive or boring tasks which can demotivate
employees.

2) Abraham Maslow:
He based his theory on a series of human needs which can be placed in order of importance.
He put forward that there are five levels of human needs which employees need to have
fulfilled during work.

Maslow’s hierarchy of needs:

Cell production: refers to groups or teams of employeesperforming various tasks. Just like
cells in the body, each call has its own job. Each cell is specialized in performing a certain
task.

Self-esteem: refers to the desire of an individual to be respected by other and to gain their
approval.

Application of Maslow in the business environment:

 Basic Needs: Paying a fair wage to workers which enables them to live comfortably
 Safety needs: Follow the safety guidelines for a safe work environment
 Social Needs: Encourage team work so that workers can socialize
 Esteem needs: give recognition for good work. Acknowledging workers gives them a
sense of achievement which can motivate them to work better.
 Self-actualization: Giving workers hard tasks to perform so that they get the feeling
of achievement.

Disadvantages of Maslow’s Theory:

  Not everyone has the same needs assumed by this theory. (e.g.) some people might
not care about social needs, so after they accomplish their safety needs, they would
skip social needs and look to accomplish self-esteem or self-actualization.
 Money is not necessary to satisfy basic needs, not all people care about money.

3) Elton Mayo
He thought that the work rate of employees is affected by the physical conditions in which
they were placed. After a series of experiments, after placing two groups of workers in
opposite working environments (bad environment and good environment), he concluded
that working conditions in themselves were not that important in determining productivity
levels.

Mayo’s conclusion on Motivation:

 Changes in working environments and financial rewards have LITTLE or NO EFFECT
on productivity.
 Workers are motivated by better communication between manager and workers.
 Workers are motivated by working in teams or groups
 TAYLOR and MASLOW are similar because they both think that social needs must be
met while at work.

4) Herzberg
He believed that two factor theory of motivation. He argued that there are certain factors
that a business could introduce that would directly motivate workers to work harder. He
analysed motivational factors by grouping them into two broad categories namely Hygiene
factors and motivators.

Motivators: These things drive people to achieve more in their work as these are what lead
to employees gaining job satisfaction. (e.g., of motivators) Recognition, promotion, etc…

How can a business satisfy motivators?

 Give positive feedback to employees
 Let employees have a say in decision making
 Allow delegation of tasks

Hygiene Factors: Refers to the aspects of work that DO NOT MOTIVATE, but IF WERE NOT
PRESENT, could lead to DISSATISFACTION. (e.g., of hygiene factors) wage, fringe benefits,
relationship with co-workers, etc…

How can a business satisfy hygiene factors?

 Pay a fair wage

 Make sure that working conditions are as good as possible
 Limit supervision
 Ways to improve nature and content of the job

 Job enlargement: give workers a variety of tasks to perform which makes things
more interesting.
 Job enrichment: give workers more and different tasks to perform so that it gives
the employee a higher sense of achievement.
 Job rotation: change a worker’s tasks so he/she doesn’t get bored
 Empowerment: delegate more power to employees to make their own decisions.

Process Theories:
Theorists:

1) McClelland
He argued that the effort exerted by individuals or the way they behave depends on 3
motivational needs.
 Achievement Motivation (N-Ach): these are people oriented by their achievements.
Their main aim is to achieve goals especially the challenging ones.
 Power motivation (N-pow): such people are power and authority seekers. They
always want to lead and control others.
 Affiliation Motivation (N-Affil): these are the people who want to be liked by others.
People who seek social satisfaction tend to want to work in groups so that they can
feel respected and supported.

How can businesses meet these needs of:

1) Needs of achievements:
 Set challenging but realistic targets.
 Give credit to workers by managers

2) Need power:
 Involve employees in decision making
 Encourage team work

3) Need affiliation;
 Promote teamwork
2) Victor Vroom:
He believed that employees behave In different ways depending on what they thing to desired
outcome. He thought that employees are prepared to work harder if they feel that their efforts
will be suitably rewarded.

The three beliefs of expectancy theory:

1) Valence: Refers to the depth of the want of an employee. How much the employee desires a
certain thing.
2) Expectancy: refers to how much an employee believes in him/her self. How far can they go
to get their desires?
3) Instrumentality: refers to the employee knowing that an increased level of performance will
lead to a greater reward.

Conclusion:

 Individuals will only act when that have a reasonable expectation that their behaviour will
lead to the desired outcome.
 Rewards okay an important role in satisfying needs of employees.

Human Resource management

Human resource Management: The purpose of HRM is to make sure that the business has the
appropriate workforce in order to complete its objectives.

Functions of HRM:
 Recruiting and selecting employees
 Salary administration
 Skills development
 Preparing employment contracts
 Keeping staff records etc….

Recruitment: refers to all Human resource activities that are aimed at finding and attracting job
candidates who have the necessary knowledge. Businesses need to recruit people is to:

 Fix labour turnover

 Hire new employees in case of expansion
 Replace retired employees

There are 2 types of recruitment:

1) Internal recruitment: Occurs within the organization, meaning that employees are
promoted.

Advantages:
  Since all this is occurring within the organization, then the company shouldn’t
bother putting flyers and posters to show that they need new employees, they
would just promote existing workers from within the organization.
 The workers within the company already know how things work so they wouldn’t
need to be trained unlike workers who are recruited from outside.

2) External recruitment: Workers form outside the company are recruited. This is done
through advertising such as (e.g.) magazines, newspapers, radio announcements and
recruitment agencies.

Advantages:
 New ideas and skills are brought to the company
 Chances of attracting the best candidate are high

Disadvantages:

 It is time consuming
 Recruiting from outside comes along with expenses such as advertising, etc…

Job description: refers to a written description of the job and its requirements. The description
includes a job title, main purpose of the job, duties, pay scale, etc…

Job specification: refers to a written description of the characteristic and qualification required of
the person that fill the job. It is a person profile which will help in the selection process by
eliminating applicants who do not match up to the necessary requirements.

Aptitude test: tests the candidate’s skills or the ability to perform a certain task

Psychometric test: written examination or role plays on situations that are designed to test the
character, attitude and personality.

Note: Interviews, aptitude test and psychometric test are methods of selection.

Contract of employment: once a candidate is appointed, the individual receives a letter of

appointment followed by a contract of employment. It contains:

 Details of the employer

 Details of the employee
 Working hours
 Date of commencement
 Duration of contract
 Termination of contract, this can be done by the employee resigning, the employee reaching
age of retirement, employee breaches the contract thus employer can dismiss the worker.

Performance appraisal: is the process of assessing an individual’s performances at work.

There are 2 types of appraisal:

1) Formal appraisal: involves the use of standardized forms which are completed by the
employees and managers
 2) Informal appraisal: takes place when managers check on the work of the employees and
discuss how it can be improved.

Workforce planning: AKA manpower planning. It involves the analysis and forecasting the number of
workers and skills of those workers that will be required by the organization to achieve its objectives.

Advantages:

 Planning for the future

 To have staff with precise skills
 To achieve the objectives of the business in the future

Workforce-life balance: refers to a situation in which employees are able to give the right time and
effort to work and their personal outside life. This can be done by applying:

 Flexible working: allow employees to come at busy times during the day
 Teleworking: allowing workers to work from home
 Job sharing: Allow workers to take shifts of the same job

Types of training:

1) Induction training: involves the introduction of new staff to the firm as they are told about
its business and the way of operation.

BENEFITS OF INDUCTION TRAINING

• Helps employees to settle into their job quickly/familiarise workers with the
business/provide
 information about the business so that he/she can easily cope with flow production
• Aware of health and safety/legal issues in the factory
• the new employee will know who to ask if there is a problem and this helps to prevent
wastage of
 expensive raw materials
• Help keep productivity/efficiency high so that the business will remain competitive

Moral and welfare of employees in a business:

Employee moral: is defined as attitude, satisfaction and overall outlook of employees during their
association with an organization or a business.

Staff welfare: means everything done for the comfort and improvement of the employees. In other
words, “the efforts to make life worth living for workmen”

What kills moral?

 Overworking people
 Holding people back
 Playing the blame game
 Frequent threats of firing
 Not praising workers
 Not letting people pursue their passion

How to fix it:

  Have a team building activities
 Connect with the workers
 Give recognition
 Establish a good relationship with the workers.

Costs
Break-even point: is the point at which the revenue is equal to the total costs. Meaning that the
business is neither making profit nor a loss.

Break-even level of output: informs a business of how man products it needs to sell to reach the
break-even point.

Profit: is the money left after all expenses including taxes and rent have been cut from the revenue.

Cash flow: Is the flow of money in and out of the business. If flow of money in > flow of money out
then cash flow is (+), but if cash flow in < cash flow out the cash flow is (-).

Break-even analysis: Determines the minimum level of production needed to break even the profit
made.

Costs: are the amount that a business incurs in order to make goods and provide services. They are
important because:

• They are the thing that drains away the profits made by a business
• Are the difference between making a good and poor profit margin (is the amount by which
revenue from sales exceeds the costs of a business) sales revenue > costs of business.

There are 6 types of costs:

1) Fixed costs: these are costs that do not change and are static (e.g.) rent, electricity, water,
etc…
2) Variable costs: are the costs of variable factors that change with output (e.g.) direct labour,
raw materials, packaging costs, etc…
3) Semi-variable costs: include both a fixed and a variable element. Some costs will neither be
fixed nor variable (e.g.) raw materials, wages, energy for machinery.
4) Total costs: all costs required in the production process.
5) Direct costs: These costs that can be clearly classified with each unit of production
6) Indirect costs: Costs that cannot be linked with the output of any particular product.