new business module

18
BUSINESS SKILLS
must be able to convince customers to buy their goods or services
instead of those of their competitors. Customers always
choose the goods or services at the prices they like the most.
Researching the market is a very important step on the way to
a successful business and all entrepreneurs should invest the
time and effort it requires. If market research reveals that the
demand for their good or service is likely to be insufficient,
they must modify their business idea or look for a new one.
1.6 Income, cost and profit
Every business generates income by selling goods or services.
Income refers to the total amount of money that results from
a business activity. In the case of a bakery, income is what
customers pay for bread and pastries. The income generated
by a business activity depends on the quantity of goods or
services sold and the price they were sold for:
• Income = Price x Quantity
Every business activity involves costs. Cost is the economic
value needed to acquire something. The cost of a business
activity is the value of the resources that were consumed in
order to generate the income. In the case of a bakery, the flour,
yeast, sugar, butter and the oven used are costs. Salaries for
employees and rent for the bakery are other costs. The time
the entrepreneur invests in the business is also a cost.
Profit is the positive difference between the income that
results from selling goods or services and the costs of producing
them. A business generates profit when the income it generates
exceeds the costs of running it:
• Profit: Income > Total cost
A loss is the opposite of a profit. It accrues when the costs of
running a business exceed the income it generates:
• Loss: Income < Costs
A loss occurs when entrepreneurs put more money into the
business activity than they get out of it – they are losing money.