Part 1: The Structure of the Business Community
Chapter 1.1: Nature of Business
Topic 1: Nature of Business Organization
What is business?
Any activity that seeks to provide goods and services to others while
operating at a profit.
Goods
Tangible products
Services
Intangible products (can’t be held in your hand)
Sales, Revenue and Profit
Profit is what remains after all business expenses have been deducted from
sales revenue.
A loss (negative profit) results when a firm’s expenses are greater than its
revenues.
What is an organization?
A group of two or more people working together to achieve a common set of
goals.
Stakeholders
All the people who stand to gain or lose by the policies and activities of a
business and whose concerns the business needs to address
Business stakeholders
-Stockholders -Bankers
-Dealers -Surrounding Community
-Media -Government Leader
-Customers -Environmentalist
-Employers -Suppliers
Vision
An encompassing explanation of why the organization exists and where it is
trying to head
It gives a sense of purpose and a set of values that unite workers in a
common destiny
Sets by top management
Business Mission Statement
An outline of the fundamental purposes of an organization
Should address :-
The organization self-concept
Its philosophy
Long-term survival needs
Customer needs
Social Responsibility
Nature of the product or service
Goals
The broad, long-term accomplishments an organization wishes to attain
Objectives
Specific, short-term statements detailing how to achieve the organization’s
goals
Vision & Mission
Company : Shell
Vision:
“To be the Top Performing and Most Admired Refinery in Asia”
Mission:
i. Manufacturing and supplying oil products and services that satisfy the needs of
our customers
ii. Constantly achieving operational excellence
iii. Conducting our business in a safe, environmentally sustainable and
economically optimum manner
iv. Employing a diverse, innovative and results-oriented team motivated to deliver
excellence
Business Process
A series of logically related activities or tasks (such as planning, production, or
sales) performed together to produce a defined set of results.
Organization chart
(a)Organization chart
-a diagram that represents the positions and relationships within an organization
(b)Chain of command
-The line of authority that extends from the highest to the lowest levels of the
organization
TOPIC 2: REASON AND PURPOSE OF BUSINESS ORGANIZATION
Flow
All businesses have a flow to their production. Whether you rely on work
orders to start a job or call on clients to make a sale, there is a flow to your work.
Organizing that flow is tantamount to completing each task so that you can
collect your pay
Communication
Communication on every level must follow a pattern so that you don’t miss
important client calls and deadlines.
Developing a chain of command at your company ensures that
communication flows properly to everyone who needs to be involved in a
company decision or policy implementation
Financial Accountability
Financial accountability is tied directly to profitability.
Organizing the billing process and collections, employee payroll, expenses
and overhead bills is a function in business that cannot be ignored.
Leadership
Organizational functions that fall on the leadership in your company include
managing your income, staff, growth, planning, and all the processes that lead to
your profitability.
The leader or manager in a company coordinates all the other organized
functions to make sure they are aligned to reach a common objective
TOPIC 3: TYPE OF BUSINESS ORGANIZATION
SOLE PROPRIETORSHIPS
A business that is owned, and usually managed, by one person.
The owner may operate on his or her own or may employ others.
ADVANTAGES OF SOLE PROPRIETORSHIPS
Ease of starting and ending the business
Being your own boss
Pride of ownership
Leaving a legacy
Retention of company profits
No special taxes
DISADVANTAGES OF SOLE PROPRIETORSHIPS
Unlimited Liability
Limited financial resources
Management difficulties
Overwhelming time commitment
Few fringe benefits
Limited growth
Limited life span
PARTNERSHIPS
A legal form of business with two or more owners.
There are 3 typical classifications of partnerships:-
General partnerships (all owners share in operating the business & in
assuming liability for the business’s debts.
Limited partnerships (one or more general partners & one or more limited
partners.
Master Limited partnerships (in that it acts like a corporation & is traded on
a stock exchange, but is taxed like partnership & avoids the corporate income tax
ADVANTAGES OF PARTNERSHIPS
More financial resources
Shared management and pooled/ complementary skills & knowledge
Longer Survival
No special taxes
DISADVANTAGES OF PARTNERSHIPS
Unlimited Liability
Division of profits
Disagreements among partners
Difficulties of Termination
CORPORATION
A business corporation is a for-profit, limited liability entity that has a separate
legal personality from its members.
A corporation is owned by multiple stockholders and is overseen by a board of
directors, which hires the business’s managerial staff.
ADVANTAGES OF CORPORATIONS
Limited liability
Ability to raise more money for investment
Large Size
Perpetual Life
Ease of ownership change
Ease of attracting talented employees
Separation of ownership from management
DISADVANTAGES OF CORPORATIONS
Initial cost
Extensive paperwork
Double taxation
Two Tax Returns
Large Size
Difficulty of termination
Possible conflict with stockholders & BOD
FRANCHISE
Def : The right to use a specific business’s name & sell its products/services
in a given territory
An arrangement whereby someone with a good idea for a business sells the
rights to use the business name & sell a product or service to others in a given
territory
Franchisor : A company that develops a product concept and sells others the
rights to make & sell the products
Franchisee : A person who buys a franchise
COOPERATIVE
A business owned and controlled by the people who use it – producers,
consumers, or workers with similar needs who pool their resources for mutual
gain.
