1 California State University, Fullerton Chapter 2 Business Fundamentals

2 California State University, Fullerton 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 California State University, Fullerton The Nature of Business (cont’d.) Profit or Loss is the difference between the firm’s revenues and it’s expenditures. Profit/Loss = Revenues-Expenses

4 California State University, Fullerton Business Environment The business environment includes Economic Socio/Cultural Political/Legal Technological and Industry factors. Competition, Suppliers, Customers, & others

5 California State University, Fullerton Business Environment

6 California State University, Fullerton 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 R&D Total industry spending for R&D 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 Environmental 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 California State University, Fullerton Industry Analysis

8 California State University, Fullerton Types of Businesses Most business are “for profit”. Some businesses are “not-for-profit”.

9 California State University, Fullerton Types of Businesses (cont’d.) Some businesses sell to other Consumers or end-users (B-to C) Some businesses sell to other businesses (B-to-B)

10 California State University, Fullerton Types of Businesses (cont’d.) Some businesses manufacture Product(s) for their customers. Tire manufacturers Automobile manufacturers

11 California State University, Fullerton Types of Businesses (cont’d.) Some businesses provide Service(s) to their customers. Wholesalers (or Distributor) Retailers Brokers Banks Insurance companies Travel Agents Air lines

12 California State University, Fullerton Types of Businesses (cont’d.) Others Provide both Product(s) and provide Service(s) to their customers. Direct Marketers

13 California State University, Fullerton Business Trends Globalization of businesses Consolidation of businesses Shift away from manufacturing towards service businesses

14 California State University, Fullerton Business Functions Accounting Finance Marketing Production Human Resource Management Other functions Research and Development Information Services

15 California State University, Fullerton 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 California State University, Fullerton Basic Organizational Structures: Simple and Functional I. Simple Structure II. Functional Structure Owner-Manager Workers Top Management ManufacturingSalesFinancePersonnel

17 California State University, Fullerton Basic Structures of Corporations: Divisional III. Divisional Structure* ManufacturingFinanceManufacturingFinance Top Management Product Division AProduct Division B *Conglomerate structure is a variant of the division structure. SalesPersonnelSalesPersonnel

18 California State University, Fullerton The Organization of a Business Information flow within a business may be within or between workgroups, departments, or within or outside the business.

19 California State University, Fullerton 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 California State University, Fullerton Information and Business Management (cont’d.) 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 California State University, Fullerton 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 California State University, Fullerton Basic Business Information Processing Nine tipical (basic) information processing activities 1.Accepting & Entering customer orders 2.Shipping products 3.Billing (invoicing) customers 4.Collecting customer payments 5.Keeping track of inventory 6.Purchasing stock and materials 7.Paying bills 8.Paying employees 9.Reporting financial information

23 California State University, Fullerton 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 California State University, Fullerton Entering Customer Orders (cont’d.) Inputs Customer orders May be received by mail, phone, fax, , and other methods Outputs Sales order

25 California State University, Fullerton 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 California State University, Fullerton Shipping Inputs Sales order Outputs Shipping notice

27 California State University, Fullerton Billing Customers Billing Department uses the sales order and the shipping notice to prepares the customer’s bill (invoice) for those goods shipped by the Shipping Department. Billing department may be part of the accounting or marketing function.

28 California State University, Fullerton Billing Customers (cont’d.) Inputs Sales order Shipping notice Outputs Invoice (bill)

29 California State University, Fullerton 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 California State University, Fullerton Collecting Customer Payments (cont’d.) Inputs Invoice Customer payments Outputs Customer statements Overdue notices Accounts receivable reports

31 California State University, Fullerton 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 California State University, Fullerton Keeping Track of Inventory (cont’d.) Types of inventory Raw Materials Work-in-Process Finished goods

33 California State University, Fullerton Keeping Track of Inventory (cont’d.) Inputs Receiving notices Shipping notices Outputs Inventory reorder report Inventory value report

34 California State University, Fullerton 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 California State University, Fullerton Purchasing Stock and Materials (cont’d.) Inputs Inventory reorder report Outputs Purchase order

36 California State University, Fullerton 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 California State University, Fullerton Paying Bills (cont’d.) Inputs Purchase order Receiving notice Invoice from supplier Outputs Checks payable to suppliers Accounts payable report

38 California State University, Fullerton 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 California State University, Fullerton Paying Employees (cont’d.) Inputs Employee work report (time sheet) Outputs Paychecks to employees Payroll report

40 California State University, Fullerton Reporting Financial Information Provides reports of financial information for the management and owners of the business. Usually a part of the accounting department.

41 California State University, Fullerton Reporting Financial Information (cont’d.) Categories of “accounts” Assets – what the business “owns” Liabilities – what the business “owes” Stockholder’s Equity – what the business is “worth” Revenues – the income of the business Expenses – the costs incurred to produce the revenues of the business

42 California State University, Fullerton Reporting Financial Information (cont’d.) Inputs The transactions of the business Outputs Balance Sheet Income Statement