Business Management - Topic 1

What is a business?

A decision making organization involved in the process of using inputs to produce goods and services (outputs)

What is in a business system?

Inputs, processes, outputs, feedback

What are inputs?

Resources needed to create a product or service

What are types of inputs?

• Physical: raw materials (corn, timber, metal ores, crude oil), semi-finished goods (steel, iron, producer goods), capital goods (equipment, machines)

• Financial: funds needed to set up a business, short, medium, and long

  • Human: people needed to run a business (employees, CEO, managers)

What is an enterprise?

The process of taking risks to combine the other resources to create a good or service

What are processes?

Combining inputs to create outputs (HR, finance and accounts, marketing, operations)

What are outputs?

What the business produces or sells, goods or services

What is feedback?

Process where the results of the outputs have become an input of the same system

What is the effect of negative feedback?

It pushes the system in a different direction, necessary for change and improvement.

What is the effect of positive feedback?

It pushes the system in the same direction, good if the business is doing well, bad if the business is doing poorly

What is the primary business sector?

Extracts and harvests materials from the Earth (agriculture, oil mining, ore mining, fishing, farming)

What is the secondary business sector?

Manufactures and processes goods by using raw materials to create products (car makers, food processing, chemical business)

What is the tertiary business sector?

Services industry (retail, wholesale, entertainment, hotels, healthcare, real estate)

What is the quaternary business sector?

Industries providing information services, knowledge-based, collect, process, and sell information and data (ICT, consultancy, education, R&D, financial services, media)

What is a supply chain?

Steps involved in making products

What determines the dominant sector of a country?

Resources and economic development

What is sustainability?

Meeting needs without compromising the future

What are the 3 aspects of sustainability?

People, Planet, Profit

Who are entrepreneurs?

A person who starts a business

What are characteristics of an entrepreneur?

• Has creativity and passion

• Willing to take risks

• Understands the community and its problems

• Can design and plan solutions

• Wants to share and grow ideas to increase impact

What gives a business a good chance at success?

• Have skilled and collaborative employees

• Have enough funds

• Good marketing

• Efficient operations

• External opportunities and minimal threats

Who is an intrapreneur?

A person who develops new ideas, process, or products for the business they are in

What are reasons to start a business?

• New idea

• Passion to make a change

• Have a powerful sense of purpose in their work, highly motivated

• The market has an unmet need

• Want to earn a living for themselves

• Potential for greater financial reward

• Want to have control of schedule and work

What are challenges of starting a business?

• Lack of funds

• Strong competition, no market share

• No market

• Employees are afraid of risk, unskilled, or not fit for the job

• Poor management skills that lead to expensive mistakes

• Can’t react to external changes

What are the steps of starting a business?

1. Refine idea

2. Prepare a business plan

3. Decide on a legal structure (ownership)

4. Register

5. Find a location

6. Get funding

7. Hire employees

What is SWOT?

A tool to analyze strengths, weaknesses, opportunities, and threats to understand the business’s current position and how to improve

What is STEEPLE and what does it stand for?

Areas of external factors that may affect the business

• Sociocultural (age, health status, culture, education)

• Technological (state of technology, affects process, quality, human well-being, and infrastructure)

• Economic (GDP affects demand)

• Environmental (resource availability, CSR)

• Political (stability of a government, disagreements between political parties)

• Legal (laws and regulations)

• Ethical (pressure for profit can cause unethical decisions)

What is a business plan?

A tool used to describe a business

What is the purpose of a business plan?

Helps people believe in the business, reduces risks, inspires others to join them

What is included in a business plan?

1. Purpose

2. Vision and mission statement

3. Description of problem you are trying to solve

4. Product description

5. Legal structure of the business

6. HR needs

7. Location and facilities

8. Value of your product

9. Effect of business on stakeholders and environment

10. Description of the market and competition or partners (social business)

11. Marketing plan

12. SWOT analysis

13. Cashflow forecast and budget

14. Sources of finance

What is a private sector business?

A business owned and controlled individually, all decisions are made by owners, and has the goal to profit

What are types of private sector businesses?

Sole traders, partnerships, privately held companies/private limited companies (LTD), publicly held companies/public limited companies (PLC)

What do private sector businesses do for the economy?

Creates employment, develops and grow the economy, provides goods and services

What are public sector businesses?

Organizations created and owned by the government

What is the purpose of the public sector?

Provide essential goods and services (healthcare, education, emergency services)

How is the public sector funded?

Government uses tax revenue to fund

What do national governments provide?

Defence, universities, museums, hospitals, embassies, infrastructure

What do local governments provide?

Schools, emergency services, hospitals, water supply, recycling and disposal of trash

What is a sole trader?

An individual who runs a business alone, 1 legal owner

What are advantages of being a sole trader?

• Easy to set up due to little legal formalities, regulations, and paperwork

• All profits go to the owner

• The owner makes all the decisions

• Easier to cater to individual customers due to smaller size

• Finances are kept private

What are disadvantages of being a sole trader?

• Hard to compete with larger organizations

• Unlimited liability, owner is responsible for all debts

• Difficult to finance

• All work is done by owner (can have employees)

• Likely to cease trading if owner dies

• Potential for higher taxes (higher income tax rate than corporate tax)

What are partnerships?

The creation of a business between 2-20 people

What is necessary for a partnership to be formed?

A partnership agreement must be signed

What does a partnership agreement include?

• Initial investment put in by each partner

• How profit and loss is split

• Role and responsibilities of each partner

• Rules of accepting and withdrawal of partners

• Procedures of ending the partnership

What are advantages of being a partnership?

• Easy to set up

• Easier access to finance than a sole trader as there are more owners

• Partners can specialize to increase efficiency and productivity

• Reduces costs for each individual owner and work is split

• Finances are kept private

What are disadvantages of being a partnership?

• Unlimited liability

• Partners must agree on decisions so it may take longer and there may be disagreements

• More legal and financial responsibility as a mistake will affect all other owners

• If 1 partner dies, the deed of partnership may have to be remade

What are companies/corporations?

A larger organization usually owned by many or a group of individuals called shareholders

Who are shareholders?

Someone who owns part of a business

What can shareholders do and what do they get?

• Can vote in AGM

• Receives part of profits in the form of dividends

• Have limited liability (can’t lose personal assets if a company goes bankrupt)

What are the 2 types of limited liability companies?

Private limited companies/privately held companies (LTD) and public limited companies/publicly held companies (PLC)

What are privately held companies (LTD)?

A privately owned business, often with friends or family as shareholders

How do people become shareholders in an LTD?

Shares aren’t sold on the stock exchange and must be approved by all shareholders before sold

What are advantages of being a LTD?

• Control and ownership are kept in a small group

• More investors, so there is more access to finance

• Shareholders have limited liability and only lose as much as they put in

• Finances are kept private

What are disadvantages of being a LTD?

• Profits are shared

• Decisions must be agreed on by many people

• Shares aren’t publicly traded

• The company can’t be examined by external experts

• Costly and time consuming to set up due to paperwork

What are the paperwork needed in the creation of an LTD?

1. Memorandum of associations which states details of a company

2. Articles of association which states the internal roles and responsibilities of the board of directors and shareholders

What is a publicly held company (PLC)?

A company that has sold part of the business to external shareholders

How do companies “go public”?

Companies have an initial public offering (IPO) which sells part of the business to external shareholders for the first time

What are advantages of being a PLC?

• Greater capital from selling shares

• Limited liability

• Risk is split among shareholders

• It is a separate legal entity, so the death of a shareholder doesn’t affect business continuity

What are disadvantages of being a PLC?

• Profits are shared

• Finances are public

• Costly and time-consuming to set up

• Less control as outsiders will have a majority of shars

What paperwork is needed to set up a PLC?

Memorandum of associations, articles of associations, and certificate of incorporation (a license that recognizes a company as a separate legal entity and allows trading)

What are social enterprises?

A business which focuses on social and environmental objectives

What are for-profit social enterprises?

A revenue and profit-making business that integrates social and environmental impact into their business model.

Can be sole traders, partnerships, LTDs, or PLCs

How is profit distributed?

Most of it is reinvested into the business while some is distributed to owners

How to for-profit social enterprises make money?

Sales of goods or services, not donations

What does a private sector for-profit social enterprise do?

Produce goods and services typically sold in market for a price (most for-profit social ents.)

What does a public sector for-profit social enterprise do?

Produces goods and services that are typically provided by the public sector (owned by the government or watched over by the government)

Ex. charging tourists entrance fees to a national park so that they can maintain it, using money from public transportation to improve it, and other things that benefit society

What are cooperatives?

A business owned and operated by members who split the profits

What is the purpose of cooperatives?

Create value for members by operating in a socially responsible way

Who are cooperative members?

People with a common interest who can vote for a decision or elect representatives to make decisions

Profit is shared between members

What are examples of cooperatives

Retail trade/wholesalers

• Common owners: shopkeepers, consumers

• Common purpose: negotiate with suppliers, share marketing expenses, lower prices for members

Agriculture

• Common owners: farmers, consumers

• Common purpose: lower input costs, increase selling price

Banking

• Common owners: customers

• Common purpose: generate more stable profit, boost local economies through loans

Utilities

• Common owners: customers

• Common purpose: provide utilities to the area

Education

• Common owners: teachers, other education-related people

• Common purpose: provide education

Healthcare

• Common owners: doctors, nurses

• Common purpose: make healthcare more affordable

What are benefits of cooperatives?

• Each member feels empowered and has an incentive for working

• Members have power in decision-making

• Benefits society

• Tend to have support from the public

What are the disadvantages of being a cooperative?

• Tend to have lower salaries than other companies

• Limited sources of finance as it tends to be more difficult to get bank loans

• Slow decision-making due to democratic structure

• Limited promotional opportunities due to flat organizational structure

What are benefits of a for-profit social enterprise?

• Positively impacts the world

• Generates more profit, so it is more stable than a non-profit

• Attracts people who value sustainable and responsible businesses

What are challenges of for-profit social enterprises?

• Takes longer time to see returns and often requires patient capital (long-term capital)

• More distrust from people as they are scared of greenwashing or social washing (can gain credibility through certifications)

• Hard to measure social impact

• Complex supply chain as suppliers must align with business objectives and mission

• Hard to remain true to purpose with changing conditions

What are non-profit social enterprises?

Businesses that work to improve social and environmental outcomes by getting funding from grants, donations, or fundraiser events

Where does the money obtained by a non-profit social enterprise go?

Surplus must be reinvested into the business (go to cause, pay workers, provide housing, marketing expenses, etc.)

What are the benefits of being a non-profit social enterprise?

• Limited liability

• All surplus is reinvested

• No tax

• Tend to rely on volunteers (no salary)

• Can receive grants or donations

What are challenges of a non-profit social enterprise?

• Funding is difficult

• Limited salary makes it hard to retain workers

• A lot of paperwork to set up and the government is very strict

What are non-governmental organizations (NGOs)?

A non-profit social enterprise that is not controlled by the government but can receive funding from the government

What is a vision statement?

A long-term goal, dream, or understanding of waht the future should look like

What is a mission statement?

A short statement that defines what the organization does now in order to achieve its vision

What is the importance of having a purpose?

Allows everyone to orient themselves to a goal and allows outside parties to understand a business’s purpose and priorities

What are values?

Any benefit experienced by stakeholder

They come in many different forms and each stakeholder views value differently

What are aims?

Long-term gaols of a business that is often in the mission statement

What are characteristics of aims?

They are the general purpose and intention of a business, they tend to be qualitative, they are vague and abstract, they are created by senior leaders

What are objectives?

Short to medium-term, specific targets and organization sets to achieve its aims

What are characteristics of objectives?

They are SMART goals set by managers or subordinates, often related to growth, profit, market share, customer satisfaction, ethics, and sustainability

What is a strategy?

A plan created to reach a specific objective

What are characteristics of strategies?

Decisions and actions by senior management, medium to long-term, may require large investments, can be risky

What comes with a successful strategy?

More agile and resilient to external changes

What does strategic planning include?

• Understanding and connecting to the vision and mission

• Market and product research

• Consideration of impact of plans

• SWOT analysis

• Sources of finances

• Milestones to evaluate progress and revise strategy

What are examples of strategies?

Profit maximization, growth, improve image and reputation

What are circular strategies?

Strategies where outputs feedback into inputs, reduces waste and uses less resources

What are tactics?

Smaller actions that a business takes to reach its goals

What are characteristics of a tactic?

Shorter timeframe, smaller, less important goals, created by less senior managers or employees, less risk, actions are reversable, requires less resources, can result in loss of money but it won’t destroy a company

What are examples of tactical objects?

Survival or sales revenue maximization

What is corporate social responsibility?

A set of actions taken by a business to improve its impact on the society and the environment

What are the benefits of pursuing CSR?

• Earn a higher revenue in the long term

• Consumers seek out businesses that align with their values

• Consumers are more likely to stay loyal

• More likely to recruit, retain, and motivate employees

• Reduce future risks and protect their reputation

• Easier to adjust to anticipated social and environmental regulations

What are limitations of CSR?

• Difficult to change the culture of a company

• Cost of production may increase (expensive inputs, additional training, change in supply chain)

• Risk of reputation damage if the company doesn’t live up to expectations

• CSR is subjective

What is a circular business model?

Business model where outputs can be inputs so that it becomes more sustainable