CHAPTER 1

Foundations of Business

Chapter Learning
Objectives:
Define the term Business and explain the features of a
Business.
Understand the main objectives of a Business.
Explain the functions of Business.
Explain the importance and benefits of Business.
Understand what businesses need to produce goods and
services.
Understand the accounting profit and economic profit of
a Business.
Discuss the problems and prospects of doing Business in
Bangladesh

Definitions of Business
Stephenson defines business as, "The regular
production or purchase and sale of goods
undertaken with an objective of earning profit
and acquiring wealth through the satisfaction
of human wants."
According to Skinner and Ivancevich,
"Business is the exchange of goods, services
or money for mutual benefit or profit.

FEATURES OF BUSINESS

1. Exchange of goods and services

2. Profit is the main Objective
3. Business skills for economic success
4. Risks and Uncertainties
5. Buyer and Seller
6. Marketing and Distribution of goods
7. Deals in goods and services

Types of goods and services

Consumer goods: Goods which are used by final
consumer for consumption are called consumer goods
e.g. T.V., Shampoos, etc.

Producer goods: Goods used by producer for further

production are called producers goods e.g. Machinery,
equipments, etc.

Services are intangible which means you cant touch it

but can be exchanged for value like providing
transport, education and insurance services, etc.

Objectives of Business

Economic objectives
Human Objectives
Social Objectives
National Objectives

Functions of Business
1. Internal functions
2. External functions
3. Support functions

The Importance of Business

1. Supply of Goods and Services
2. Harnessing Capital and other
Resources in Production
3. Employment Generation
4. Preservation of Natural Resources
5. Research, Development and Innovation
6. Income Generation
7. Quality of Life
8. Contribution to Social Development
9. Contribution in the Development of
Education, science and Technology

What do businesses need

to produce goods and
services?

Land
Labor
Capital
Entrepreneurship

Key Business decisions

Management decisions:
Marketing decisions:
Financing decisions:

Accounting profit
Accounting profit is calculated by
subtracting total costs from total revenue
and revenue is calculated by multiplying
quantity with price and costs are included
all fixed costs like rent, managers salary
etc and variable costs like raw materials,
hourly wages of labor etc. When total
revenue exceeds costs, the firm earns
accounting profit but not necessarily it is
making economic profit.

Economic profit
Economic profit is defined as total revenues
minus total operating costs minus opportunity
cost. Opportunity cost is defined as the cost of
the profits you have given up by not doing another
activity. For example, you have invested 1 lac taka
in the share market last year and you now have
1.1 lac taka in your portfolio which means you
have made ten thousand taka profit which is
accounting profit. But if we calculate economic
profit then you may have lost a minimum two
thousand taka given that you could just buy the
risk-free government savings bonds which pay a
minimum 12% annual interest. So you would have
received one lac twelve thousand taka out of your
one lac taka investment.

Problems Facing by
Businesses in Bangladesh

Need for capital

Poor infrastructure
Rampant corruption
Lack of skilled labor
Political instability
Labor unrest
Lack of financing
High rates of taxation

Business prospects in
Bangladesh

Cheap labor
Young labor force
Cheap cost of conducting business
Huge consumer base
Strong banking sector
GSP facilities
Strategically important location
Nice weather

Case Study
Making profit or maximizing
profit - what should be the
ultimate objective of a Business?

The end