Business%20Fundamentals

1
Chapter 2

• Business Fundamentals

2
The Nature of Business

• The purpose of a business is to provide
  products and/or services to its customers.
• Money, or value, received from customers for its
  products and/or services is revenue.
• To provide its products and/or, the business
  incurs expenses.

3
The Nature of Business (contd.)

• Profit or Loss is the difference between the
  firms revenues and its expenditures.
• Profit/Loss Revenues-Expenses

4
Business Environment

• The business environment includes
• Economic
• Socio/Cultural
• Political/Legal
• Technological
• and Industry factors.
• Competition, Suppliers, Customers, others

5
Business Environment
6
Economic GDP trends Interest rates Money
supply Inflation rates Unemployment
levels Wage/price controls Devaluation/
revaluation Energy availability and
cost Disposable and discretionary income
Technological Total government spending for
RD Total industry spending for RD Focus of
technological efforts Patent protection New
products New developments in technology transfer
from lab to marketplace Productivity improvements
through automation
Political-Legal Antitrust regulations Environmenta
l protection laws Tax laws Special
incentives Foreign trade regulations Attitudes
toward foreign companies Laws on hiring and
promotion Stability of government
Sociocultural Lifestyle changes Career
expectations Consumer activism Rate of family
formation Growth rate of population Age
distribution of population Regional shifts in
population Life expectancies Birth rates
Societal Environment
7

Industry Analysis
8
Types of Businesses

• Most business are for profit.
• Some businesses are not-for-profit.

9
Types of Businesses (contd.)

• Some businesses sell to other Consumers or
  end-users (B-to C)
• Some businesses sell to other businesses (B-to-B)

10
Types of Businesses (contd.)

• Some businesses manufacture Product(s) for their
  customers.
• Tire manufacturers
• Automobile manufacturers

11
Types of Businesses (contd.)

• Some businesses provide Service(s) to their
  customers.
• Wholesalers (or Distributor)
• Retailers
• Brokers
• Banks
• Insurance companies
• Travel Agents
• Air lines

12
Types of Businesses (contd.)

• Others Provide both Product(s) and provide
  Service(s) to their customers.
• Direct Marketers

13
Business Trends

• Globalization of businesses
• Consolidation of businesses
• Shift away from manufacturing towards service
  businesses

14
Business Functions

• Accounting
• Finance
• Marketing
• Production
• Human Resource Management
• Other functions
• Research and Development
• Information Services

15
The Organization of a Business

• Employees often (but not always) grouped by
  general functions.
• Departments
• Workgroups
• Organization Chart diagrams the arrangement of
  employees.
• Functional
• Divisional

16
Basic Organizational Structures Simple and
Functional
17
Basic Structures of Corporations Divisional
18
The Organization of a Business

• Information flow within a business may be within
  or between workgroups, departments, or within or
  outside the business.

19
Information and Business Management

• Management of a business refers to all the
  activities related to deciding how a business
  functions.
• Planning
• Organizing
• Stafing
• Control
• A decision is a selection among different courses
  of action.
• Management decisions are of three types
• Strategic decisions
• Usually made at the highest level
• Generally long-term decisions

20
Information and Business Management (contd.)

• Tactical decisions
• Usually made at the department or workgroup level
• Generally short to medium term in nature
• Operational decisions
• Usually made by individuals at the front line
• Generally short term in nature
• Information systems support managerial decision
  making.

21
Information and Business Operations

• Business operations are those activities that
  provide products/services and ensure the business
  makes a profit.
• Information systems also support business
  operations.

22
Basic Business Information Processing

• Nine tipical (basic) information processing
  activities
• Accepting Entering customer orders
• Shipping products
• Billing (invoicing) customers
• Collecting customer payments
• Keeping track of inventory
• Purchasing stock and materials
• Paying bills
• Paying employees
• Reporting financial information

23
Entering Customer Orders

• Customer order acceptance and preparation of a
  sales order in a form the business can use.
• Usually part of the marketing function and
  performed in the Sales Department.
• Sales Department determines if there is
  sufficient inventory on hand and the
  creditworthiness of the customer.

24
Entering Customer Orders (contd.)

• Inputs
• Customer orders
• May be received by mail, phone, fax, email, and
  other methods
• Outputs
• Sales order

25
Shipping

• Shipping Department uses the sales order to
  determine what items should be shipped to the
  customer and produces the shipping notice.
• Shipping may be a part of productions and
  operations department of the company.

26
Shipping

• Inputs
• Sales order
• Outputs
• Shipping notice

27
Billing Customers

• Billing Department uses the sales order and the
  shipping notice to prepares the customers bill
  (invoice) for those goods shipped by the Shipping
  Department.
• Billing department may be part of the accounting
  or marketing function.

28
Billing Customers (contd.)

• Inputs
• Sales order
• Shipping notice
• Outputs
• Invoice (bill)

29
Collecting Customer Payments

• The Accounts Receivable Department uses a copy of
  the invoice produced by the Billing Department to
  keep track of the amount a customer owes the
  business.

30
Collecting Customer Payments (contd.)

• Inputs
• Invoice
• Customer payments
• Outputs
• Customer statements
• Overdue notices
• Accounts receivable reports

31
Keeping Track of Inventory

• A business must keep track of its inventory and
  report when inventory is low so it can reorder
  more stock.
• Can be a part of the production or operations
  function.
• Can be a part of the marketing or accounting
  function.

32
Keeping Track of Inventory (contd.)

• Types of inventory
• Raw Materials
• Work-in-Process
• Finished goods

33
Keeping Track of Inventory (contd.)

• Inputs
• Receiving notices
• Shipping notices
• Outputs
• Inventory reorder report
• Inventory value report

34
Purchasing Stock and Materials (Purchasing)

• Determine the best suppliers and prepare purchase
  orders which indicate to the suppliers what items
  the business wants to purchase.
• Can be a part of the production or operations
  function.
• Can be a part of the accounting function.

35
Purchasing Stock and Materials (contd.)

• Inputs
• Inventory reorder report
• Outputs
• Purchase order

36
Paying Bills (Accounts payable)

• Accounts Payable Department uses the purchase
  order, receiving notices, and supplier invoices
  to keep track of money owed by the business for
  purchases, called accounts payable.
• Part of the accounting function.

37
Paying Bills (contd.)

• Inputs
• Purchase order
• Receiving notice
• Invoice from supplier
• Outputs
• Checks payable to suppliers
• Accounts payable report

38
Paying Employees (Payroll)

• Involves paying employees wages or salaries and
  providing reports to other business functions.
• Usually part of the accounting function, but may
  be part of the human resources management
  function.

39
Paying Employees (contd.)

• Inputs
• Employee work report (time sheet)
• Outputs
• Paychecks to employees
• Payroll report

40
Reporting Financial Information

• Provides reports of financial information for the
  management and owners of the business.
• Usually a part of the accounting department.

41
Reporting Financial Information (contd.)

• Categories of accounts
• Assets what the business owns
• Liabilities what the business owes
• Stockholders Equity what the business is
  worth
• Revenues the income of the business
• Expenses the costs incurred to produce the
  revenues of the business

42
Reporting Financial Information (contd.)

• Inputs
• The transactions of the business
• Outputs
• Balance Sheet
• Income Statement