BUSINESS MANAGEMENT NOTES

1.1 INTRODUCTION TO BUSINESS MANAGEMENT

The role of business

Production process:

 Input
 Processing
 Output

A business is a decision-making organization

involved in the process of using inputs to
produce goods and/ or to provide services.
Inputs are the resources that a business uses
in the production process, e.g. labour and
raw materials. This process generates outputs (also known as products).

Reasons for starting up in Business?

The main reason to why people want to start up a business is for the money. It is to be said that you will
make more money when you are working for yourself rather than for somebody else. Over the LT, you will
most likely earn much more money that runs through the business of your own.
Secondly, there are just some people who simply hate working for somebody else under them. There may
be people who hate the idea of having a boss above them and must obey the rules according to them.
Therefore, these people may be best suitable to run their own business and having a job that they exactly
know what to do. You will get to work towards something that belongs to you entirely.

- More profit from business

- Earn as much effort as you put in
- Inheritance
- Transference
- Cultural obligation
- Challenge
- Autonomy: flexibility freedom and independence
- Job security
- Bringing your passion to the workplace – drives one to earn more

What is a Business Plan?z

A business plan is straight up, a guide for your business that outlines the needed expectations and details
on how to achieve them. It helps you allocate resources properly and make the right decisions. A business
plan is crucial because it provides specific and organised information about your company, also on "how
you will repay borrowed money" because any type of loan package is considered important in a good
business plan.

Those who wants to see a business plan may be sales personnel or suppliers as it informs them about your
operations and goal. An investor may also search for a good business plan for consideration for
investment.
They might expect
a) an experienced team
b) believable exits (whether the money coming out of the company invested will go back into the bank
account)
c) Real growth prospects
d)Real planning.

Reasons for having a business plan:

- Make your visions and mission very clear for the start-up (where do you see your business in 5 years)
- Important for investors, shareholders and bankers
- Will help the business if they want a loan, banks see the business plan
- What you are expect

Problems that a new enterprise may face

Note that the speed of economic and technological changes to the world may be unpredictable therefore
the right path yesterday may not work for today, and even disastrous by tomorrow.

- Every business needs to reach the break-even point as soon as starting the business. Break-even point
refers to the point of the business where there is no profit and no loss. It ensures that the money is not
taken through their personal earnings.
- Not enough working capital – paying for rent, water supply of the workplace (basic expenses of the
workplace) Big MNCs need to ensure a separate expense for working capital.
Example;
- Not enough money for fixed assets and current assets. Fixed assets can include machinery for bakers,
if the baker cannot pay back for the machinery
- Assets:
- Liability:
- Current liability can include loans, paying your depts
- Liability > assets = loss of business
1. Cash, Borrowing and Resource Management
 
- Cash flow --> a healthy profit. Therefore, if capital expenditures are draining your cash, it is a
sign that the business is in risk. In order to avoid these, businesses must store up cash to meet
the obligations needed to handle any emergencies. Cash restrictions can be the biggest factor
that may limit growth and overtrading to be fatal. 
- It is crucial to make the best of your finances, because it is a key opportunity to assess new right
set of circumstances.
- Effective credit management and tight control of overdue debts.
- Good stock and effective supplier management
- Planning ahead (to anticipate your financing heeds)

2. Keeping up with the market

- Business conditions change continually, therefore your market research should be continuous
as well.
- Can easily lead to business/market failure (out-of-date information...etc)
- More you succeed = more competitors will notice you
- Important to invest in innovation to build new profitable profits to market (to maximise overall
profitability)
- Your own experiences may be more valuable (useful insights)
- Continually watch the customers' purchasing behaviour and preferences.
- Analyse key info on the customer's reaction to a new product.

3. Skills and Attitudes

 - May need outsiders for help as business grows
- Must learn to listen, take advices of people, to be a successful entrepreneur.
- Your employs are not meeting the supply

Departments of a business
 HR: The HR department is responsible for managing the personnel of the organization
In managing people, the HR department is likely to deal with the following issues: workforce
planning, recruitment, training, appraisal, dismissals and redundancies, and outsourcing human
resource strategies

 Marketing:
o Responsible for identifying and satisfying the needs and wants of customers
o In charge of ensuring that the firm’s products sell
o Done through a series of activities such as:
o market research, test marketing, advertising and branding
 Functions of the marketing department can be summed up as the traditional four Ps
of marketing 
a) Product
- Ensuring that goods and services meet the customer’s requirements
- A product’s various sizes, colours, packaging and core functions
- Other roles related to the product include product differentiation
and product position mapping

b) Price
- Using various pricing strategies to sell the products of a business
- Numerous pricing strategies can be used, depending on factors such as the level of
demand, the costs of producing the good or service, and the number of substitute
products available
-
c) Promotion
- Making sure that customers know about the firms products
- This is often done through the mass media
e.g. television and newspaper advertising
- Alternatively, cheaper methods include the use of sales promotions, social networking
and guerrilla marketing 

d) Place
- Ensuring that goods and services are available in convenient places for consumers to buy
- Marketing managers must ensure that they select appropriate ways to distribute
products to the marketplace
e.g. online purchases, retail outlets, vending machines

 Finance and accounts: This department is in charge of managing the organization’s money

The finance and accounts director must ensure that accurate recording and reporting of financial
documentation takes place
o To comply with legal requirements
 o (e.g. to prevent deliberate understating of profits to avoid corporate taxes)
o To inform those interested in the financial position of the business (such as shareholders
and potential investors)

 Operations:
- Also known as operations management or production
- Functional area of an organization is responsible for the process of converting raw materials and
components into finished goods

o Ready for sale and delivery to customers

- Examples of production include:

o The extraction of crude oil, car manufacturing and the construction of roads

- Operations also applies to the process of providing services to customers as in the case of
hotels, restaurants, beauty salons and financial institutions
- Operations topics are covered in.

Revenue: Money that comes into the business

Direct (cost of goods sold): Cost of raw material to help make the product
Example: Paying for other resources
Revenue – direct expenses = gross profit

Indirect revenue:
Example: rent, paying the other departments, taxes
Gross profit - indirect expenses = net profit
Net profit – taxes = retained profit
Dividend: profit you pay to the shareholders
Four factors of productions (relevant to start a new business)
- Capital (money)
- Enterprise/ entrepreneurship (required skills, risk taking ability)
- Land: where you want to start your business
- Labor: people who will work under you

Business sectors: All sectors work hand in hand; chain of production

- Primary sector: Working with nature directly
The primary sector of the economy is the sector of an economy making direct use of natural
resources. This includes agriculture, forestry, fishing and mining. 
Example: agriculture, mining

Secondary sector: More employment and manpower is required (working with the raw materials
produced) Secondary industries are those that take the raw materials produced by the primary
sector and process them into manufactured goods and products. Example, factories, industries
(where goods are processed)

- Tertiary sector: Service sector and skill leveled work (not providing goods but giving services)
The tertiary sector is also called the service sector and involves the selling of services and skills.
They can also involve selling goods and products from primary and secondary industries.
Example: banking, insurance
Quaternary sector: NASA, Scientists (requires extremely high-level skills)
The quaternary sector consists of those industries providing information services, such as
 computing, ICT (information and communication technologies), consultancy (offering advice
to businesses) and R&D (research, particularly in scientific fields).
The quaternary sector is sometimes included with the tertiary sector, as they are both
service sectors. The tertiary and quaternary sectors make up the largest part of the UK
economy, employing 76 per cent of the workforce.

Chain of production: The four business sectors are linked through the chain of production which tracks the
stages of an item's production, from the extraction of raw materials used to make the product all the way
through to it being delivered to the consumer.

Sectoral change: Change of dominant sector

Refers to a shift in the relative share of national output and employment that is attributed to each business
sector over time.
Example: India’s dominant sector was primary sector with a high demand for spices and mining of gold but
changed into a secondary sector as it turned into a developing country.

Dominant sector is determined by the highest GDP from which sector

The role of entrepreneurship and intrapreneurship

Entrepreneurship

For entrepreneurship the Departments of a business, HR, Marketing, Finance and accounts, Operations is
all handled by one person. An entrepreneur is an individual who plans, organizes and manages a business,
taking on financial risks in doing so.

Advantages Disadvantages

Intrapreneurship

Not the owner of the business, but a higher position in the company. They lead or be the only one in a
department. Intrapreneur as an employee who thinks and acts as an entrepreneur within a section of the
organization

Advantages Disadvantages

Difference between entrepreneurs and Intrapreneur

Entrepreneurs Intrapreneur
Owners and or operator of organization Employs of an organization
Takes substantial risks Takes medium to high risks
Visionary Innovative
Rewarded with profit Rewarded with pay and remuneration
Responsibility for workplace (labour) Accountability to the owner or operator
Failure incurs personal costs Failure is absorbed by the organization
1.1 INTRODUCTION TO BUSINESS MANAGEMENT KEY TERMS
- Adding value is the practice of producing a good or service that is worth more than the cost of the
resources used in the production process.
- Business plan refers to the document that sets out the business idea, its goals and objectives and
other details of how the business will operate (such as its marketing, operations and finance). It is
often a crucial pa
- rt ofan attempt to raise external sources of finance.
- Businesses are organizations involved in the production of goods and/or the provision of services.
- Consumers are the people or organizations who actually use a product.
- Customers are the people or organizations that buy the product.
- Entrepreneurs: are owners or operators of an organization who manage, organize and plan the
other three factors of production. They are risk takers who exploit business opportunities in return
for profits.
- Entrepreneurship refers to the collective knowledge, skills and experiences of entrepreneurs.
intangible products, e.g. haircuts, bus rides, education and health care.
- Production is the process of creating goods and/or services, using factors of production to add
value.
- Quaternary sector is a subcategory of the tertiary sector, where businesses are involved in
intellectual, knowledge-based activities that generate and share information, e.g. information
communications technology and research organizations.
- Secondary sector is the section of the economy where business activity is concerned with the
construction and manufacturing of products.
- Sectoral change refers to a shift in the relative share of gross domestic product (or national output)
and employment that is attributed to each business sector.
- Services are intangible products sold to customers, e.g. air flights, restaurants, cinemas, finance,
health spas, public transportation, consultancy and education.
- Tertiary sector refers to the section of the economy where business activity is concerned with the
provision of services to customers.
- Wants are people's desires, i.e. the things they would like to Factors of production are the
resources needed in have, e.g. a larger home, a new smartphone or to go on an the production
process, i.e. land, labour, capital and overseas holiday. entrepreneurship.
- Goods are physical products produced and sold to customers, e.g. laptops, contact lenses, perfume,
and toys.
- Intrapreneurship is the act of behaving as an entrepreneur but as an employee within a large
business organization. Intrapreneurs work in an entrepreneurial capacity, with authority to create
innovative products or new processes for the organization.
- Needs are the basic necessities that a person must have to survive, e.g. food, water, warmth,
shelter and clothing.
- Primary sector refers to businesses involved in the cultivation or extraction of natural resources,
e.g. farming, mining, quarrying, fishing, oil exploration and forestry.
- Product can refer to both goods and services. Goods are physical products, e.g. cars, books and
food. Services are

REVIEW QUESTIONS

What is a business?

Distinguish between goods and services.

Distinguish between customers and consumers of a business.

What are the four functional areas of a business?

Describe the four business sectors of the economy.

What is meant by the chain of production?

What is meant by sectoral change?

Differentiate between entrepreneurs and intrapreneurs.

What are the main reasons for starting up a business?

What are the main steps in starting up a business?

What are the problems that new businesses may face?

What is a business plan and what are the main elements that go into a business plan?

VIDEO LINKS USED

1.2 TYPES OF ORGANIZATIONS

Limited Liability: When a person

Unlimited liability

Public sector: Organizations that operate in the public sector are under the ownership and control of the
government.

- Government owned
 - Not profit oriented

Example: Government schools, railway, government colleges

Public sector: organizations that operate in the private sector are owned and controlled by private
individual

- Made for ones profit (pocket profit)

Example: TATA

Profit-based organizations
Sole trader: A sole trader (or sole proprietor) is an individual who runs and owns a personal business.
Whole point of being a sole trader is to earn profit.

Example: bakers, salons,

Advantages and disadvantages of sole proprietorships

Partnerships

A partnership is a profit-seeking business owned by two or more persons. For ordinary partnerships, the
maximum number of owners is 20 (although this can vary from one country to another).

Types of partners
 - Silent or sleeping partners: only interested in their profit
- Ordinary partnerships

Deed of partnership (or partnership deed), then it is likely to include:

- the amount of finance contributed by each partner

- the roles, obligations and responsibilities of each partner
- how profits or losses will be shared among the partners 18

Advantages and disadvantages of partnerships

Companies

joint-stock companies

Examples of private and public limited companies

Advantages and disadvantages of companies/corporations

PUBLIC SECTOR (by government) PRIVATE SECTOR (by pvt. Individuals)

Owned Owned
Managed Managed
Financed Financed

NGOs and charities ( Non profit organisation )

Dividend: You’re revenue after all subtracting internal costs

KEY TERMS

Charities are non-profit social enterprises that provide voluntary support for good causes (from society's point of view), such as
protection of children, animals and the natural environment.

Cooperatives are for-profit social enterprises set up, owned and run by their members, who might be employees and/or
customers.

A company (or corporation) refers to a business that is owned by shareholders. A certificate of incorporation gives the company
a separate legal identity from its owners.

Deed of partnership is the legal contract signed by the owners of a partnership. 1l1e formal deeds specify the name and
responsibilities of each partner and their share of any profits or losses.

Incorporation means that there is a legal difference between the owners of a company and the business itself. This ensures that
the owners are protected by limited liability.

An initial public offering (IPO) occurs when a business sells all or part of its business to shareholders on a stock exchange for
the first tin1e.

Limited liability is a restriction on the amount of money that owners can lose iftheir business goes bankrupt, i.e. shareholders
cannot lose more than they invested in the company.

Microfinance is a type of financial service aimed at entrepreneurs ofsmall businesses, especially females and those on low
incomes.

Non-governmental organizations (NGO) are private sector not-for-profit social enterprises that operate for the benefit of others
rather than primarily aiming to make a profit, e.g. Oxfam and Friends of the Earth.

Partnerships are a type of private sector business owned by 2-20 people (known as partners). They share the responsibilities and
burdens of running and owning the business.

A private limited company is a business owned by shareholders with limited liability but whose shares cannot be bought by or
sold to the general public.

The private sector is the part of the economy run by private individuals and businesses, rather than by the government, e.g. sole
traders, partnerships, companies and cooperatives.

A public limited company is an incorporated business that allows the public to buy and sell shares in the company via a stock
exchange. All shareholders enjoy limited liability.
Public-private partnerships occur when the government works together with the private sector to jointly provide certain goods
or services.

The public sector is the part of the economy controlled by the government. Examples include state health and education services,
the emergency services and national defence.

A sole trader is a self-employed person who runs and controls the business and is the sole person held responsible for its success
(profits) or failure (unlimited liability).

Social enterprises are revenue-generating business with social objectives at the core of their operations. They can be for-profit or
non-profit businesses, but all profits or surpluses are reinvested for that social purpose rather than being distributed to
shareholders and owners.

State-owned enterprises are organizations wholly owned by the government.

A stock exchange is a market place for trading stocks and shares of public limited companies. Examples include the London
Stock Exchange (LSE) and the New York Stock Exchange (NYSE).

Unlimited liability is a feature of sole traders and ordinary partnerships who are legally liable for all monies owed to their
creditors, even ifthis means that they have to sell their personal possessions to pay for their debts.

REVIEW QUESTIONS

I. Distinguish between the private sector and the public sector.

2. Compare and contrast the benefits of a partnersh ip with those ofa sole trader.

3. Why is the concept of limited liability important for investors?

4. What is the difference between a private limited company and a public limited company?

5. Distinguish between non-profit organizations and non- governmental organizations.

6. What are social enterprises?

7. Distinguish between cooperatives, microfinance providers and public- private partnerships.

8. Outline the benefits of social enterprises from society's point ofview.

9. Distinguish between non-governmental organizations (NGOs) and charities.

10. What is the difference between an operational NGO andan advocacy NGO?