Functions of a Business

1. Production Production is the making of a good and or service. The term production can be used to mean/include: Land: The physical space in which the product will be produced/sold Labour: The workforce that will make the product Capital: The money/equipment/machinery used for production Information: the information and tracking necessary for production

Costs of production For this project your production costs will include: 1. Bill of materials costs (provided) 2. Equipment list (researched)

1. Production Land Labour Capital Information Explain below how you will use each of these factors of production for your project:

2. Human resources The people involved in the business Can be internal Permanent employees for your company Can be external People brought in and paid to work on specific projects

Cost of Human Reources Since you are the owner of your business, you will be the only employee Questions for you to answer about your business: - What skills for this business do you have? - What skills for this business do you need to improve? - In what ways will you have to be flexible?

3. Marketing The activities a business does in order to convince people to sell a product. In this project this could include: Personal selling: one on one communication to promote or sell a product In your opinion, what are two advantages to selling things to one customer at a time? In your opinion, what are two disadvantages to selling things to one customer at a time? Advertising Mass advertising through the use of a medium (such as posters, t.v. adds, the internet, magazines, newspapers, radio, outdoor advertising) In your opinion, what are two advantages to selling things this way? In your opinion, what are two disadvantages to selling things this way?

Costs of marketing Your marketing will have four components: - Creation of a name for your business (to be included on the reports that follow) - Creation of a prototype - Creation of a sign - Creation of business cards to hand out to friends/family - Using the website come up with and print off estimates for the cost of a colour sign for your business (size 24 X 36), as well as the cost of 100 one sided black & white business cards

Costs of marketing Name for business: Cost for poster (include link in box to the right) Cost for business cards (include link in box to the right)

4. Financing Obtaining money to start and continue to operate the business Initially done through either debt or equity financing If successful, business can continue to operate using operating revenue (revenue from sales of goods/services) There are two general ways of finding the financing to start up a business

Debt Financing Debt Financing occurs when a person is loaned money to complete a task (or assist in a business). The person lending the money is then given the money back either over time or at the end of a period with interest Interest is extra money paid for the use of money (the cost of borrowing)

Debt Financing Example Todd wants to buy a car He borrows $10,000 from the bank to buy the car The bank charges a yearly interest rate of 5% At the end of the year, how much will he have to pay back to the bank? Answer below In this case, the principal is the amount originally loaned out ($10,000) Answer:

Debt Financing Advantages You do not give up ownership in your business You can do whatever you want with the money Disadvantages You must pay back the loan with interest

Equity Financing Equity Financing occurs when a business allows investors to become co-owners in a business The new owner may or may not have say in what happens to the business, but MUST have a share of the profits and/or losses of the business

Equity Financing Advantages You do not have to pay back the new owner’s investment You don’t have to pay any interest Disadvantages You are giving up some ownership and say in the business You are giving up a share of the profits

Potential Financing Costs There are two options for this business: The bank will offer you a loan (debt financing) Anywhere between $500 and $5000 You choose amount loaned Interest rate is 8% annual (8% / 12 for each month) Principal is due at the end of August. A friend, Dave Smith, has offered to be a partner (equity financing) Will give you $2000 to become a 50% partner in the business The friend does not want to work for the business at all, but must share in projected profit

Financing advtanges and disadvantages Complete the chart to analyze the two options for financing OptionAdvantageDisadvantage Debt financing from the bank Equity financing from a friend