Part I: Organization of a Business Introduction to Business 3e 1 Copyright © 2004 South-Western. All rights reserved. Planning A Business

Copyright © 2004 South-Western. All rights reserved.1–2 Organization of a Business

Copyright © 2004 South-Western. All rights reserved.1–3 Learning Goals Identify key business stakeholders. Describe key business functions. Explain how to develop a business plan.

Copyright © 2004 South-Western. All rights reserved.1–4 Business Defined A business is an enterprise that provides products or services desired by customers.

Copyright © 2004 South-Western. All rights reserved.1–5 Key Business Decisions Product –What type of product should be produced? Production –How should the product be produced? Promotion –How should the product be promoted? Financing –How should the company obtain funds to finance the cost of producing the product?

Copyright © 2004 South-Western. All rights reserved.1–6 Business Decisions

Copyright © 2004 South-Western. All rights reserved.1–7 Key Stakeholders Owners –Entrepreneurs –Co-owners –Stockholders Creditors Employees –Managers Suppliers Customers

Copyright © 2004 South-Western. All rights reserved.1–8 Interaction among Owners, Employees, Customers, Suppliers, and Creditors Exhibit 1.1

Copyright © 2004 South-Western. All rights reserved.1–9 Creating a Business Idea Identify a competitive advantage. Differentiate the product or service from competitors. Determine necessary resources. Assess feasibility of the idea.

Copyright © 2004 South-Western. All rights reserved.1–10 business online

Copyright © 2004 South-Western. All rights reserved.1–11 Success Stories Domino’s Pizza –Managhans bought bankrupt pizza parlor –Started with little funding –Now generates sales of $1 billion per year Jeremy’s Micro Batch Ice Cream –Applied microbrewery concept to ice cream –Makes ice cream in small batches, sold in limited editions Glow Dog, Inc. –Sells light-reflective clothing for pets –After two years, average annual sales of $1 million

Copyright © 2004 South-Western. All rights reserved.1–12 Lessons to Remember Successful businesses do not require a great invention. –Many focus on making life more convenient for customers. Some business ideas will fail—but entrepreneurs can learn from failures and make revisions.

Copyright © 2004 South-Western. All rights reserved.1–13 Impact of Technology Technology defined –Knowledge or tools used to produce products and services Information technology –Represents over 1/3 of the growth in U.S. output –Reduces cost of producing products –Workers in technology industries earn more than workers in other industries.

Copyright © 2004 South-Western. All rights reserved.1–14 Impact of Technology E-business or e-commerce –Use electronic communications to produce or sell products and services  Sales to individual customers  B2B e-business: transactions between a business and its suppliers  Generates $301 billion in revenue and creates 1.2 million jobs each year

Copyright © 2004 South-Western. All rights reserved.1–15 Successful E-Businesses Started out small Created to sell a product or service that was not offered by competitors Transformed how traditional firms conducted business –Improved communication with customers –Improved information flow –Improved efficiency –Complemented traditional business operations

Copyright © 2004 South-Western. All rights reserved.1–16 E-Business Examples Amazon –Online seller of books, music and other products –Low overhead costs allow price discounting Yahoo! –Internet search engine and the most visited site on the Web –Offers variety of services - free , web page hosting, custom-designed start-up pages –Generates revenue by selling advertising eBay –Online auction service

Copyright © 2004 South-Western. All rights reserved.1–17 Key Functions of Business Management –Means by which employees and other resources are used by the firm Marketing –Means by which products and services are developed, priced, distributed, and promoted to customers Finance –Means by which firms obtain and use funds for their business operations

Copyright © 2004 South-Western. All rights reserved.1–18 Key Functions of Business Accounting –Summary and analysis of the firm’s financial condition –Used to make various business decisions Information systems –Information technology, people, and procedures that provide appropriate information to make effective decisions

Copyright © 2004 South-Western. All rights reserved.1–19 How Business Decisions Affect a Firm’s Earnings Exhibit 1.4

Copyright © 2004 South-Western. All rights reserved.1–20 Common Business Decisions Management Decisions –What equipment is needed? –How many employees should be hired? –How can employees be motivated to perform well?

Copyright © 2004 South-Western. All rights reserved.1–21 Common Business Decisions Marketing Decisions –What price should be charged? –Should the product be changed to be more appealing to customers? –Should the firm use advertising or some other strategy to promote its product?

Copyright © 2004 South-Western. All rights reserved.1–22 Common Business Decisions Finance Decisions –Should financial support come from the sale of stock or from borrowing money or some combination? –Should the firm attempt to obtain borrowed funds for a short-term or long-term period? –Should the firm invest funds in a new business project?

Copyright © 2004 South-Western. All rights reserved.1–23 A Business Plan Detailed description of the proposed business –Description of the product or service –Types of customers the business would attract –Competition –Facilities needed for production

Copyright © 2004 South-Western. All rights reserved.1–24 Developing a Business Plan Assess the Business Environment –Economic environment –Industry environment –Global environment Develop Management Plan –Organizational Structure –Production –Human Resources

Copyright © 2004 South-Western. All rights reserved.1–25 Developing a Business Plan Marketing Plan –Target Market –Product Characteristics –Pricing –Distribution –Promotion Financial Plan –Financing –Feasibility

Copyright © 2004 South-Western. All rights reserved.1–26 Online Resources Advice and basic information –Yahoo’s Small Business site –American Express –Small Business Administration Financing Options –Quicken Small Business –Garage.com –The Elevator Business Planning Software

Copyright © 2004 South-Western. All rights reserved.1–27 Assessing a Business Plan Potential revenue Potential demand for product or service Potential expenses Profit potential

Copyright © 2004 South-Western. All rights reserved.1–28 Expected Monthly Expenses of CHC Exhibit 1.6

Copyright © 2004 South-Western. All rights reserved.1–29 Expected Performance of CHC in the First Year Exhibit 1.7