Download Introduction To Business

1
Bus& 101 Chapter 01
Introduction To Business
Goals:
1) What is the relationship between profit and risk.
2) How do businesses & entrepreneurs add to the wealth
of an economy and increase the standard of living and
quality of life?
3) Compare entrepreneurs to working for others
4) How do taxes and economic environment affect
businesses?
5) How has technology affected businesses?
6) How can businesses meet and beat their competitors?
7) What has been the reaction to the changing social
environment?
8) What must businesses do to meet the global
challenge?
9) What business trends from the past can help us plan
for the future?
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Business Terms
• Entity:
▫ An entity could be a business, a nonprofit company, a
college, or other
• Business:
▫ Any activity that seeks to provide goods and
services to others for a profit
• Nonprofit organization:
▫ An organization whose goals do not include making
a personal profit for its owners or organizers
▫ Examples:
 Churches and Temples
 Washington Boomerang Club
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Business Terms
• Goods:
▫ Tangible items like shoes, cars, food, etc.
• Services:
▫ Intangible things like preparing a tax return,
tutoring, fixing a car, etc.
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Business Terms
• Entrepreneurs:
• Entrepreneurs are people who take risks
in order to implement new ideas that will
solve existing problems in the hopes of
gaining profit (or for benefits for
nonprofit)
• Entrepreneurs see the problem and then
have good ideas that can solve the
problem
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Business Terms
• Economic:
▫ The production, distribution, and consumption of
goods and services
• Economy:
▫ The system or range of economic activity in a
country, region, or community
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Business Terms
• Revenue:
▫ Cash in or the promise to pay cash later (accounts
receivable) that a business receives for the sale of
goods or services.
• Expense:
▫ The cost spent by a business (cash out or the
promise to pay cash out later (accounts payable)) to
run the business.
• Profit or Loss = Revenues - Expense
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Profit
• Profit or Net Income = Revenue – Expenses
▫ (Revenues are greater than Expense)
• Loss or Net Loss = Revenue – Expenses
▫ (Expense are greater than Revenues)
Shoe Locker
Income Statement (Profit or Loss)
For the Year Ended 2008
Total Revenues
Expense 1
Expense 2
Expense 3
Expense 4
Expense 5
Total Expenses
Net Income (Profit)
$
9,000,000.00
$
7,359,773.00
1,640,227.00
674,106.00
1,979,872.00
1,350,144.00
1,239,773.00
2,115,878.00
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Risk:
• The chance that you may lose time or money
while running a business. The higher the risk the
greater the profit or loss may be.
• Do Entrepreneurs take risk?
• How about the Banks, Investment Firms,
Insurance Companies and Hedge Funds in the
2007-2010 Financial Crisis?
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Businesses Provide Benefits For
Society
• Provide Jobs for Employees
• Provide Products and Services for people to buy
• Pay Taxes (hopefully) so that governments can:
▫ Hire fire and police people
▫ Provide Schools and Parks
▫ Assist people in need
• For more about companies not paying taxes type
“US corporations pay little tax” into Google.
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Businesses and Employees pay
taxes so the government can:
•
•
•
•
•
•
•
Build schools and roads and parks
Hire fire men/women and police
Keep the environment healthy
Help people in need
Laws to Promote Private Property
Courts to Enforce Contracts
If this does happen, then the profit from business
helps to increase the:
▫ Standard of Living
▫ Quality of Life
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Standard of living:
• The amount of goods and services you can buy
with the money you have
▫ If you have more money than someone else, but can
buy less, the standard of living would be lower for
you than for the person who could buy more.
▫ $7.00 Beer in Japan / $3 beer in the USA
▫ Problems with measuring the Standard of living:
▫ http://en.wikipedia.org/wiki/Standard_of_living
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Quality of life:
• The general well-being of a society in terms of:
Political freedom
A clean natural environment
Education
Health care
Safety
Free time
Everything else that leads to satisfaction and joy
(that does not harm others)
▫ Quality of life comes from a combined efforts
amongst businesses, nonprofits and government
agencies
▫
▫
▫
▫
▫
▫
▫
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2007-2010 Financial Crisis
• What has happened to the Standard of Living &
Quality of Life during this period?
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Stakeholders: Everyone who stands to gain or
lose from a businesses’ conduct
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Outsourcing & Insourcing
• Outsourcing
▫ Contacting with other companies to do tasks for
the business such as production or accounting
• Insourcing
▫ Firms from other countries setting up design or
production facilities in the US
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Outsourcing:
• Contracting with other companies to do various
business functions such as accounting or
production.
• Outsourcing can:
▫ Help business focus on what it does best
▫ Reduce costs and increase profit
▫ Cause communities to lose jobs
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Entrepreneurs:
• Entrepreneurs are people who take risks in order
to implement new ideas that will solve existing
problems in the hopes of gaining profit.
• Entrepreneurs see the problem and then have
good ideas that can solve the problem.
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Entrepreneurs:
• Entrepreneurs must work hard to implement the new
idea and create a business or other entity
• Entrepreneurs take great risks when they start a new
business or other entity
• It is usually very hard to translate the new idea into a
successful business or other entity
• Entrepreneurs are the engine behind any successful
economy because they:
• Solve problems
• Start Businesses
• Help to generate profit and wages
• Help to increase standard of Living And Quality Of
Life
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Compare entrepreneurs to
working for others
• Working for others:
▫ No entrepreneurial risk
▫ Benefits (pay, insurance…)
• Entrepreneurs
▫ Good idea to solve problem  Great risks = Great
Benefits or Loose it all
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Factors of Production: Resources used to
Create Wealth
1) Land
▫ Any natural resource
2) Labor (workers)
3) Capital
▫ Buildings, computers, machines
▫ NOT CASH (cash buys the factors of production)
4) Entrepreneurship
▫ Land, Labor, Capital, Knowledge are of little good with
out an entrepreneur to:
1. See problem
2. Have idea
3. Take risk of starting business
5) Knowledge (Effective use of knowledge)
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Why Are Some Countries/ States/ Cities Wealthier
Than Others?
• Countries that encourage entrepreneurship tend to
be wealthier
• Ways to encourage entrepreneurship:
▫ Legal systems that protect private property, help to
enforce contacts, discourage bribery
▫ Financial markets that can get help startup
entrepreneurial companies – loans or stock.
▫ Others…
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Business Environment:
• Surrounding factors that help or hinder the
development of businesses:
1)
2)
3)
4)
5)
The economic and legal environment
The technological environment
The competitive environment
The social environment:
Global Business Environment
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Business Environment:
1) The economic and legal environment (ways
government can foster entrepreneurship):





Freedom of ownership
Contract laws
Elimination of corruption
Tradable currency (If you did not have one you could
not buy from other counties)
Minimum taxes and regulations required to provide a
high quality of life
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Business Environment:
2) The technological environment:
Information Technologies (computers, cell phones,
internet)
Spreadsheets


The default computer program for the business world

Databases

▫
Store raw data and create useful information
Bar codes


Automate transactions, accounting and data collection
The Internet


Information and commerce
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Technology:
• Things that make running a business more
effective, efficient and productive such as:
▫
▫
▫
▫
▫
▫
Machines
Phones
Medical Devices
Spreadsheets and Databases
Internet
History: the wheel and the telescope are
technological elements
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Effective & Efficient:
• Effective:
▫ Producing the desired result
• Efficient:
▫ Obtain goal with the fewest resources (time, work,
materials)
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Productivity:
• The amount of output you generate given the
amount of input
• Productivity goes up when you produce the same
amount of output with fewer inputs.
• Example: In 1980, summarizing customers sales
purchases for the year (accounting task) may
have taken 5 hours; whereas in 2010, with the use
of a spreadsheet this job could take as little as five
minutes.
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Average per capita GDP (Gross
Domestic Product)
• (Total Value of all final goods &
services)/(Number of people in Country)
• For more info:
http://en.wikipedia.org/wiki/Gross_domestic_pr
oduct
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E-commerce:
• The buying and selling of goods and services over
the internet
• B2C Business to Customer (Amazon.com)
• B2B Business to Business
(Coloradoboomerangs.com)
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Database:
• Stores raw data
• Creates useful information for decision making
• Example: Search data base for customers who
have low sales or who have not made purchases
in a while so that you can contact them and try to
make a sale
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Spreadsheet:
• Calculations and data analysis can be made in
programs like Excel
• Excel is the most used program in the business
world and for most jobs it is required that you
know how to use it.
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Identity Theft
• Obtaining private information such as Social
Security & Credit Card numbers to use for illegal
purposes
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Business Environment:
3) The competitive environment:
1.
2.
3.
4.
Customer Service
Stakeholder recognition
Employee Service
Concern for the environment
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Competition:
• To compete in the World Economy you must:
Delight the customer
Have a customer and stakeholder orientation
Create profits with a social orientation
Demonstrate proactive ethics
Create quality products/service and provide service
after the sale
▫ Have a customer focus
▫
▫
▫
▫
▫
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Empowerment:
• Giving frontline workers the responsibility,
authority, and freedom to respond quickly to
customer needs.
• This requires that employees be trained properly
so that they can respond to customer needs
without consulting a manager
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Business Environment:
4) The social environment:
Diversity
Demographic change
Family changes



5) Global Business Environment
Global Competition & Free Trade




Transportation and Communications have contributed
to an increase
Decreases Cost
But has it decreased quality?
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*
*
*
21st Century
Diversity Issues
• Race
• Age
• Gender
• Language
• Ethnicity
• Religion
• Disability
• Sexual
Orientation
Source: U.S. Equal Employment Opportunity Commission
1-38
Buying Power of
Diverse Groups
• Women
• African Americans
• Hispanic Americans
• Gay Men & Lesbians
• Asian Americans
• Native Americans
1-39
$3,700 Billion
761 Billion
686 Billion
610 Billion
397 Billion
51 Billion
Sources: National Organization on Disability Employability; U.S. Pan Asian American Chamber of Commerce; DiversityInc.com; U.S. Census Bureau; The Augusta Chronicle,
October 22, 2005; Selig Center for Economic Growth, 2005.
Demography:
• The statistical study of the human population
with regard to its size, density, and other
characteristics such as race, gender, and income.
• Businesses must understand demography in
order to provide or not provide the products and
services that people may want.
• Example: A company may need to close a store if
the population in that area declines, or a
company may need to add products if the
demography changes
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Change:
• Because the rate of change has increased,
businesses and workers must change also.
Continuing education and training is required to
keep up with the times
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Global Environment
• International Competition and Free Trade
• Improvements in Transportation and
Communication
• War & Terrorism
• Global Changes
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Making customers happy and
managing cash flow are amongst
the most important daily tasks of
any competitive business
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1) What is the relationship
between profit and risk.
• The more risk the greater the profit and losses
• Entrepreneurs take a big risk when they try to
start a business. If they are successful they can
have great profits. If the business fails, they may
lose all their money and time invested
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2) How do businesses & entrepreneurs add
to the wealth of an economy and increase
the standard of living and quality of life?
• When an entrepreneur creates a business or
nonprofit, they provide a solution to a problem. By
solving a problem, the entrepreneur and business can
increase both the standard of living and quality of life.
• The standard of living can be increased by providing
profit to the owner and wages to the employees.
• The quality of life can be increased by providing the
solution in itself and also by providing tax revenues
for the government that can be used for education,
parks and similar endeavors.
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3) Compare entrepreneurs to working for
others
• Working for others:
▫ No entrepreneurial risk
▫ Benefits (pay, insurance…)
• Entrepreneurs
▫ Good idea to solve problem  Great risks = Great
Benefits or Loose it all
46
4) How do taxes and economic
environment affect businesses?
• Taxes can have two major effects: 1) they provide
revenues so that the government can protect private
property and enforce contacts; 2) they can deter
business from making investments if the taxes are too
high.
• The economic environment can have positive or
negative impacts on businesses. On the positive side,
low interest rates can help business borrow to make
capital investments. On the negative side, low interest
rates and easy credit without sufficient regulation
can lead to a housing market and debt market bubble
that could pop and lead to recession, which in turn
could hurt business activity.
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5) How has technology affected
businesses?
• From more efficient farming equipment to
spreadsheets to help with accounting and
marketing, technology helps to increase
productivity.
• The continual change in technology has also
meant that businesses and governments must
continually retrain employees.
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6) How can businesses meet and beat
their competitors?
Delight the customer
Have a customer and stakeholder orientation
Create profits with a social orientation
Demonstrate proactive ethics
Create quality products/service and provide service
after the sale
▫ Have a customer focus
▫
▫
▫
▫
▫
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7) What has been the reaction to
the changing social environment?
• The reaction of business has been slow, but
inevitable. As the demographics change,
businesses must change, or they will not survive.
• Businesses have change location, changed
products and service and have changed internal
policies to meet these changes.
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8) What must businesses do to meet
the global challenge?
• Compete with businesses around the world while
keeping customers happy (quality of product and
customer service) and employees satisfied
(outsourcing)
51
9) What business trends from the past
can help us plan for the future?
• Farming  Manufacturing  Service 
Information
• In a changing world, be flexible and be willing to
learn new things
52
Entrepreneurs
• Entrepreneurs
▫ See Problems
▫ Have an Idea that can help to solve the problem
▫ Take the risk of starting a business
 Risk = future uncertainty
 Risk = could be great gains or losses
▫ Get funding to start business (in this case debt is usually good)
▫ New business = new jobs + new goods & services for people
▫ New Business pay taxes to help government with costs
associated with:
 Legal System, Police, firemen, Social Security…
▫ Everyone is better off
▫ Entrepreneurs = Engine of any economy
▫ Schumpeter: “Continuous Gail of Creative Destruction”
History
• Tax History:
• http://www.infoplease.com/ipa/A0005921.html
• Over the last century starting overall government
spending in the United States has increased
substantially from about seven percent of GDP in
1902 to about 35 percent of GDP in 2010
• Federal Government spends money on all sorts of
things:
▫ Federal Revere started in 1913
▫ Social Security Act was enacted in 1935
▫ Medicare and Medicaid in 1960s
GDP
• GDP = Gross Domestic Product
▫ Uses numbers from within borders
• GNP = Gross National Product
or
• GNI = Gross National Income
▫ In addition to numbers from within borders, this
includes income from overseas
• GCP per capital
▫ (Totals goods)/Population (Kids included)
▫ GDP/(Labor Force) is a more common measure for
productivity