AP® Business with Personal Finance review sheet from Aim for Five (aimforfive.com/business-finance/units/1/1-5)
Unit 1 · Topic 1.5
1.5 Vision
A business's core values and core competencies guide what it chooses to do, and its vision and mission statements put those values and goals into words. Businesses, social enterprises and nonprofits all serve customers, but they aim for different things.
Key terms
- core values
- core competencies
- vision statement
- mission statement
- social enterprise
- nonprofit organization
Core values and core competencies
Core values are the beliefs and principles that guide how a person or business acts, such as creativity, honesty, empathy, excellence or reliability. A business shares its values so employees work toward a common purpose and so decision makers pick actions that fit what the business stands for.
Core competencies are what a person or business is especially good at: the skills and expertise that let it outperform rivals. Examples include innovation, customer service, efficiency and clear communication. A business looks at its core competencies when deciding which opportunities to chase and where to put its money and people. A company famous for customer service might expand into a field where service matters most, rather than one where only price matters.
You can use the same two ideas for yourself. When you choose classes, a college major or a job, your values (what matters to you) and your competencies (what you're good at) point you toward some paths and away from others.
Vision vs. mission statements
Both statements tell people inside the business what it's aiming for, so everyone shares a purpose. They also tell customers and investors what the business values.
| Statement | What it says | Example for a bike-repair shop |
|---|---|---|
| Vision statement | A short description of the business's core values and big hopes for the future | A town where everyone can get around safely and cheaply on two wheels. |
| Mission statement | What the business does and how it will reach its long-term goals | We repair and refurbish bikes quickly and affordably, teach free maintenance classes, and keep used bikes out of landfills. |
Three kinds of organizations
- Businesses aim to earn and grow profit, meet their stated goals and stay competitive over the long run. Since profit = revenue − costs, a business can raise profit by bringing in more revenue, by cutting costs, or both.
- Social enterprises aim to earn a profit and reach a social goal. They can make an impact through what they sell (affordable eyeglasses), how they operate (hiring people leaving prison) or how they handle money (giving part of every sale to a cause).
- Nonprofit organizations serve the public good instead of making money for owners. If revenue is greater than costs, the surplus must go back into the organization by law. Many nonprofits rely on donations and grants (money given for a specific purpose) as well as any sales.
Worked examples
Try each one yourself first, then open the solution.
- Example 1Calculator allowed
Two ways to raise profit
A food truck has $80,000 in yearly revenue and $70,000 in yearly costs. Option A cuts costs by 5%. Option B raises revenue by 5% with costs unchanged. Find the profit under each option and the percent change in profit.
Show the solutionHide the solution
- Step 1: Current profit = revenue − costs = $80,000 − $70,000 = $10,000.
- Step 2: Option A: new costs = $70,000 × 0.95 = $66,500. Profit = $80,000 − $66,500 = $13,500.
- Step 3: Option B: new revenue = $80,000 × 1.05 = $84,000. Profit = $84,000 − $70,000 = $14,000.
- Step 4: Percent change = (new − old) ÷ old × 100. A: ($13,500 − $10,000) ÷ $10,000 × 100 = 35%. B: ($14,000 − $10,000) ÷ $10,000 × 100 = 40%.
- Step 5: Notice that a 5% change in revenue or costs moves profit by much more than 5%, because profit is a small slice of revenue.
Answer: Option A: $13,500 profit (up 35%). Option B: $14,000 profit (up 40%).
Common mistakes
- Swapping vision and mission. Vision is the values and the big future picture; mission is what the business does and how.
- Saying nonprofits can't take in more money than they spend. They can have a surplus; it just has to be reinvested in the organization.
- Confusing core values (beliefs) with core competencies (skills).
On the exam
- You may be asked to judge whether a business decision fits its stated core values or mission, so read any vision or mission statement in the stimulus closely.
- Know the difference between a business, a social enterprise and a nonprofit well enough to classify a short description.
Connected topics
Videos
Check yourself: 1.5 Vision
4 questions on 1.5 Vision. Pick an answer to see if you got it, and why.
Kind Threads makes school uniforms from recycled fabric. Its website includes two statements.
Statement 1: "We imagine a world where no child misses school for lack of a uniform."
Statement 2: "We design, sew and sell durable uniforms made from recycled fabric to schools across the state, and for every ten uniforms we sell, we donate one to a family in need."
Kind Threads earns a profit that goes to its owners, and it reports each year how many uniforms it has donated.
The founders say their team's greatest strengths are fast, careful sewing and strong relationships with school principals.
Hypothetical business profile
Statement 1 is best described as
Statement 2 is best described as a mission statement because it
Kind Threads is best classified as which type of organization?
The founders' description of their team's "fast, careful sewing and strong relationships with school principals" identifies the company's
0 of 4 answered