A business can easily be defined as an entity or an organization that undertakes commercial, industrial, or even professional activities for the benefit of another. Businesses could be either for-profit or non-for-profit entities that conduct business to meet a social cause or further a charitable purpose. Whatever the nature of the business may be, the basic structure remains the same. The business managers designate employees to undertake certain tasks or functions and they decide how to divide resources among different activities so as to maximize productivity. When a business grows big and powerful enough to engage in international trade or invest in valuable assets, it is known as a multinational business.
In business, it is very easy to become corrupted if certain people have more power than others. This is also because human nature dictates that those who are at the top of an organization tend to get more benefits and responsibilities than those below them. For instance, if there are a lot of executives who get more benefits and responsibilities than the employees, there is likely to be corruption in the workplace. The classic example of this phenomenon is when a CEO takes a holiday and a major shareholder gets a huge bonus.
There are four factors that determine a firm’s profit margin: accumulation of assets, income from investment, productivity and the profitability of sales. Assets, which include fixed assets and inventories, are referred to as circulating resources that allow a firm to produce surplus goods or service, while liabilities refer to liabilities that affect production, performance, distribution and disposal. Accumulation of assets is referred to as the firm’s ability to generate surplus goods or service on credit. Income from investment refers to the value that a firm gains from its capital stock or retained earnings and is equal to the fair market value of the total value of the assets.
Profits are obtained by adding the cost of doing business plus the profits to total revenue. A firm that produces and sells products at a cost less than the total revenues it receives in payments is said to be a producer and a firm that sell commodities at a cost equal to or greater than the total revenues it receives minus the costs of doing business. A producer’s profits usually exceed the costs of production because the market price for commodities is higher than the cost of production. The larger the enterprise, the larger the difference between its total revenue and its cost of production. A producer that operates on a foreign market also has to account for the price of goods received and the price of export goods. The economic value of a firm’s stock is determined by the price it pays for the total quantity of the outstanding stock and by the rate of interest it pays on its borrowings.
The process of profit maximization is the development of a strategic plan to achieve and maintain adequate levels of both revenues and savings. The planning must take into account all the various factors that affect production, sales, marketing, financing, operations, distribution, cost, prices, personnel, and the economic value added of the firm. Strategic planning also should take into account the satisfaction of stakeholders.
There are three primary keys to the achievement of the above objectives. These keys are profit, cost, and society. The ability to add value adds to the profits of the organization. It is cost effective if the firm utilizes all the tools available to it at optimum efficiency. Profit can also be increased through increasing efficiency, cutting costs, and gaining access to other economies of scale. The ability of an enterprise to build and maintain relationships with key stakeholders is essential if it wishes to stay ahead of the competition.