Ch1 Flashcards
Not for profit organization
Organization that exists to achieve some other goal other than the usual business goal of profit. They do not compete directly with another organization. Instead they seek talented employees, volunteer time, and donations.
Factors of production
The building blocks of a business:
- labour
- natural resources
- capital
- entrepreneur
- knowledge
Profit
Money left over after all other costs are paid
Costs> revenue= loss
Revenue> costs= profit
Goods
Tangible items manufactured by a business
Eg. Laptops
Supply chain
Raw materials -> processing -> producers -> wholesalers/distributors -> retailers -> end consumer.
Business
Organization that strives for profit by providing goods and services desired by its customers.
Labour
Economic contributions of the mind and muscles. Everyone’s own talents.
Capital
Machinery, tools, buildings, equipment. Does not include MONEY
Entrepreneurs
Ppl who combine labour, capital, and natural resources to produce goods and services with either the intention of making a profit or accomplishing a not for profit goal.
Knowledge
Refers to the combines skills and talents of the workforce which lead to economic growth
Services
Intangible offerings of businesses that cannot be held, touched, or stored.
Product
Benefits and attributes that create value for the customer
Tangible: packaging/ warranties
Intangible: symbolic, meaning of brand image
Convenience products
Inexpensive products that require little shopping effort and are bought constantly
Eg. Bread, soft drinks
Little to minimal effort
Specialty products
Customers search long and hard for these products. There are limited sellers. Customers are willing to spend as much time and effort to find the product.
Eg. Gourmet restaurant, expensive jewelry, one of a kind car.
Maximum effort
- Consumer nondurables
Vs - Consumer durables
- Get used up quickly: shampoo and chips
2. Last a long time: laptops and washing machines
Consumer products
Packages of benefits that deliver value- always tangible and intangible attributes of a product: unsought, convenience, shopping, specialty.
Shopping products
Bought after brand and store comparison of price, stability, and style. Can take up to months or years to purchase.
Eg. Car, house, vacay
Considerable effort
Unsought products
Was not a planned purchase. Buyer does not actively seek the product.
Eg. Life insurance
Some to considerable effort
How is the standard of living measured in many countries?
Measured by the output of goods and services people can buy with the income they have. Important to rmr that just because the wages in some countries are higher it does not mean that the standard of living is higher. Higher wages= more money you give back to the government in taxes.
Revenue
Money a company makes by providing services or selling goods to its customers.
What types of organizations do businesses serve?
Retailers, government, hospitals
Costs
Expenses for rent, salaries, supplies, transportation, and many other items incurred from creating and selling goods and services.
Natural resources
Farmland, forests, oil deposits, minerals, water
Similarities between NFP and for profit
Developing strategy, measuring performance, encouraging innovation, budgeting carefully, improving productivity, demonstrating accountability, and fostering an ethical workplace environment
Business products
Products bought by institutions and business for use in making other products
Installations
Large, expensive capital items that
determine the nature, scope, and efficiency of a
company.
Eg. Factory
Long negotiations, significant planning, expert advice
Accessories
Not the same long run impact on a firm as installations. They are less expensive and more standardized.
Eg. Computers
Brand name products, personal selling, service agreements.
Component parts and materials
Items which are built into end products. Some components can be custom made while others are standardized for sale to many industrial users.
Eg. Computer chips
Contact or supply agreement, may be a quick purchase, competitive pricing
Raw materials
Expense items that have undergone little or no processing and are used to create a final product
Eg. Lumber
Contract or supply agreement, may be quick purchase, competitive pricing
Supplies
Do not become part of the final product. They are brought up routinely and in fairly large quantities.
Eg, pencils
Routine items, little impact on a company’s profit
- Capital products
Vs - Expense items
- Large expensive items with a long life span
Eg. Airplanes - Small, less expensive products that have a life span of less than a year.
Three main forms of a business
Corporations, Partnerships, Sole Proprietorship
Sole Proprietorship
Are single person firms, most popular but relatively small in terms of revenue and profit.
Sole Proprietorship advantages and disadvantages
Advantages: easy and inexpensive, few legal requirements, profits go to the owner, owner has direct control of the business, not required to consult with others when making decisions, fewer government controls, profits are taxed as owners personal income, easy to close the business
Disadvantages: unlimited liability, you can lose anything you own if there is a claim against your business, difficult to raise capital since assets are personal, owner relies on funds to start up, limited experience; gaps in knowledge and skills, harder to find employees, time consuming and unstable, when owner dies business is shut down.
Partnership
Two or more people that agree to go into a business together. Partners may be active or silent
Partnership advantages and disadvantages
Advantages: easy and inexpensive to form , few legal requirements, partnership agreement is recommended, capital is likely more available due to more partners, more diverse skill range, maintains flexibility to make rapid changes, profits are taxed as personal income, profits go to partners, fewer government controls.
Disadvantages: unlimited liability, partners may have disagreements or different ideas, profit sharing can be more complex, partnerships are easier to create than end; mutual agreement.
Two types of partnerships
General partnership: all partners share in the management and profits. They co-own the assets and each can act on behalf of the firm. Each also has unlimited liability.
Limited partnership: do not have to take part in day to day manage to of the firm. They help finance the business but the general partners maintain operational control.
Corporations
Separate legal entity, largest in terms of revenue and total profit
Incorporation process
- Selecting the company’s name
- Writing the article of incorporation and filing them with the appropriate government office
- Paying required fees and taxes
- Holding an organizational meeting
- Adopting bylaws, electing directors, and passing the first operating resolutions.
Shareholders
Owners of a corporation, holding shares of stock that provide them with certain rights. They may receive a portion of the corporations profits in the form of dividends and they can sell or transfer their ownership in the corporation at anytime.
Board of directors
Govern and handle the overall management of the corporation. Set major corporate goals and policies, hire corporate officers, and oversee the firms operations and finances.
Corporations advantages and disadvantages
Advantages: limited liability; shareholders can only lose what they invest in the company, easy to transfer ownership, unlimited life; does not automatically shut down after death, tax deduction and lower tax rates can be an advantage, easier to raise capital
Disadvantages: double taxation, more expensive and time consuming, more government restrictions.
Officers
Top management. Responsible for achieving corporate goals and policies.
Cooperatives
Autonomous businesses owned and democratically controlled by their members-the people who buy their goods or use their services- not investors.
Joint ventures
Two or more companies form an alliance to pursue a specific project, usually for a specific time period.
Franchisee
Owner of individual franchise
Franchising
Form of business organization that involves a franchisor, the company supplying the product or service concept, and the franchisee, the individual company selling the goods or services in a certain geographic area.
Franchise agreement
A contract that allows the franchisee to use the franchisors business name, trademark, and logo. Also outlines the rules for running the franchise, services provided by the franchisor, and financial terms.
Franchise advantages and disadvantages
Advantages: recognized name, ability to expand, management and training assistance, easier to setup, financial assistance.
Disadvantages: must pay a royalty to a franchisor, cost of investing/buying can be expensive, restricted in how you can operate and promote under contract, may be required to purchase materials from fractions at high prices, can lose franchise rights if policies are not followed.
How to chose a form of business orgainzation
Depends on type of business, number of employees, capital requirements, tax considerations, and level of risk involved.
Business plan
One of the most important steps on starting a business. Do not neglect.
Management
Process of guiding the development, maintenance, and allocation of resources to attain organizational goals.
Roles of management
- Anticipate potential problems or opportunities and design plans to deal with them
- Coordinating and allocating the recourses needed to implement plans
- Guiding personnel through the implementation process
- Reviewing results and making any needed changes.
Characteristics of money
Scarcity, durability, portability, divisibility
Scarcity
Money should be scarce enough to have some value but not so scarce as to be unavailable. Too much money in circulation increases prices and causes inflation. Government control the scarcity of money by limiting the quantity of money in circulation.
Durability
Any item used as money must be durable.
Portability
Money must be easily moved around
Divisibility
Money must be able to be divided into smaller parts.
Functions of money
For money to be acceptable, it must function as a medium of exchange (makes transactions easier), as a standard of value, and as a store of value.
Accounting process
Collecting, recording, classifying, summarizing, reporting, analyzing.
It results in reports that describe the financial condition of a business
Annual report
Yearly document that describes a firms financial status
Balance sheet
Measured at a point in time, showing the firms assets, liabilities and accumulated equity
Income statement
Shows the firms profitability for a stated period
Statement of cash flow
Shows how cash moved through the organization for a stated period
Operating expenses
Expenses of running the business to related directly to producing or buying its products
- Gross margin
- Operating margin
- Profit margin
- Measures what percentage of sales remain to pay the operating expenses
- Measures what % of sales is left over after all operating expenses are paid
- Measures the overall profitability of the firm
How does the income statement report a firms profitability?
Summarized the firms revenues and expenses and shows its total profit or loss over a period of time.
