Bus& 101 Chapter 01Introduction To Business

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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 others4) 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? 2

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 LockerIncome Statement (Profit or Loss)

For the Year Ended 2008

Total Revenues 9,000,000.00$

Expense 1 674,106.00 Expense 2 1,979,872.00 Expense 3 1,350,144.00 Expense 4 1,239,773.00 Expense 5 2,115,878.00 Total Expenses 7,359,773.00 Net Income (Profit) 1,640,227.00$

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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 11

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

Life19

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 problem2. Have idea3. Take risk of starting business

5) Knowledge (Effective use of knowledge) 21

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) The economic and legal environment2) The technological environment3) The competitive environment4) The social environment:5) 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_product

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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. Customer Service2. Stakeholder recognition3. Employee Service4. 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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2121stst Century Century Diversity IssuesDiversity Issues

• RaceRace

• GenderGender

• EthnicityEthnicity

• DisabilityDisability

• AgeAge

• LanguageLanguage

• ReligionReligion

• SexualSexual OrientationOrientation

Source: U.S. Equal Employment Opportunity Commission

1-39Buying Power of Diverse Groups

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.

• Women $3,700 Billion

•African Americans 761 Billion•Hispanic Americans 686 Billion •Gay Men & Lesbians 610 Billion•Asian Americans 397 Billion•Native Americans 51 Billion

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

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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)

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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

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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