3.1 What is business?

Understanding the nature and purpose of business


Additional information

Why businesses exist

Business objectives such as profit, growth, survival, cash flow, social and ethical objectives

The relationship between mission and objectives


Common business objectives


Why businesses set objectives


The measurement and importance of profit

The measurement of profit should include:

  • revenue (also turnover and sales)
  • fixed costs
  • variable costs
  • total costs.

Understanding different business forms


Additional information

Reasons for choosing different forms of business and for changing business form

Different forms of business include:

  • sole traders
  • private limited companies and public limited companies
  • private sector and public sector organisations
  • non-profit organisations such as charities and mutuals.

Issues with different forms of business include:

  • unlimited and limited liability
  • ordinary share capital
  • market capitalisation
  • dividends.

The role of shareholders and why they invest


Influences on share price and the significance of share price changes


The effects of ownership on mission, objectives, decisions and performance


Understanding that businesses operate within an external environment


Additional information

How the external environment can affect costs and demand

Factors influencing costs and demand to include the effect of:

  • competition
  • market conditions
  • incomes
  • interest rates
  • demographic factors
  • environmental issues and fair trade.