Business Administration

BUSINESS and environment

BUSINESS ADMINISTRATION

1.1 WHAT A BUSINESS IS

The term business (synonyms are firm, company and enterprise) is used in multiple ways:

● As a label for the overall field of business concepts

● As a collective label for the activities of many companies

● As a way to indicate specific activities or efforts

A business is an open system because it receives inputs from the environment (capital, knowledge and

workforce) and produces outputs like goods, services, and intangible results. It is also an economic

system, as it uses limited resources to produce values; a social system, since it is managed by people to

meet human needs; a dynamic system, because it must continuously adapt to environmental changes. A

business is any profit-seeking organization that provides goods and services designed to satisfy

customers’ needs.

An economic system, such as a business, exists with the common goal of producing goods and services to

satisfy human needs. Every company can be seen as a system created to add value, transforming

resources (input) into useful products or services (output) that generate wealth. This process is explained

through the business model, which describes how a company generates or intends to generate revenue.

The business model must also indicate how the company is going to realize profit, the amount of money left

over after expenses (all the costs involved in doing business) deducted from revenue.

1.2 TYPES OF BUSINESSES

The driving forces behind most businesses are the prospects of earning profits and building assets. In

contrast, not-for-profit organizations do not have a profit motive.To categorize businesses we revise:

1. Product types and ranges. In everyday usage, people tend to divide the output of companies into

“products and services.” However from a business perspective, it’s often more useful to view all

outputs of business as products and divide these into goods and services. Most goods are tangible

(they have a physical presence), other goods are intangible.

2. Company size. Big companies are truly big, employing hundreds of thousands of people and

generating several hundred billion dollars of revenue every year.

3. Geographic reach. Companies can do business locally, regionally, nationally, or internationally.

Thanks to the internet, digital product formats, and global transportation services, geography is no

longer the limitation it used to be.

4. Ownership. Firms can be owned and structured in a variety of ways, from sole proprietorships (one

owner) to partnerships (typically several owners) to public corporations (which can have thousands

of owners).

POSITIVE AND NEGATIVE ASPECTS OF A BUSINESS

Advantages are:

offering valuable goods and services: most of the goods and services you consider essential to

your quality of life were made possible by someone with a profit motive.

providing employment: in addition to providing salaries, many companies help their employees

meet the costs of health care, child care, education, retirement, and other living expenses.

paying taxes: U.S. businesses pay hundreds of billions in taxes every year, money that helps build

public structures.

contributing to national growth, stability, and security: a strong economy helps ensure a strong

country by providing job opportunities.

Disadvantages are: 1

generating pollution and creating waste: companies consume resources and produce waste and

therefore have an impact on the natural environment.

creating health and safety risks: many business operations involve an element of risk to the

health and safety of employees and surrounding communities.

disrupting communities: from taking up land to pushing out local businesses and putting pressure

on schools and roads, growing companies can cause problems for communities. When businesses

fall into decline, they can destabilize communities that have been depending on them.

causing financial instability: irresponsible or poorly managed companies can become a liability to

society if they are unable to meet their financial obligations and need assistance from the

government.

1.3 RECOGNIZING THE MULTIPLE ENVIRONMENTS OF BUSINESS

Every business operates in an overlapping mix of

dynamic environments that continuously create

both opportunities and constraints.

Since human needs change rapidly, companies must understand the environmental forces that affect them.

These include

- natural and physical conditions such as climate and geography

- cultural aspects like education, religion, and lifestyle

- technological innovation

- social factors such as population and behavior

- political and legal regulations

- economic conditions that influence costs, prices, and market opportunities

There are also specific forces, such as market and industrial ones. Market forces are based on the

relationship between demand and supply: demand reflects the willingness of buyers to purchase goods or

services, while supply refers to the quantity that sellers are willing and able to provide. Industrial forces

depend on the specific characteristics of each sector, like automotive, healthcare, or service.

TECHNOLOGICAL ENVIRONMENT

The technological environment stems from the practical application of science to innovations, products, and

processes. Technology is essential to business, but it can also be an extremely disruptive force.

ECONOMICAL ENVIRONMENT 2

Every decision a company makes is influenced by the economic environment, the conditions and forces that

affect the cost and availability of goods, services, and labor.

-a growing economy can help companies by increasing demand and supporting higher prices for their

products, but it can also raise the costs of labor and materials the companies need.

-a shrinking economy can damage even well-run, financially healthy companies by limiting demand for

their products or the availability of loans or investments needed to expand operations.

LEGAL AND REGULATORY ENVIRONMENT

Every business is affected by the legal and regulatory environment, the sum of laws and regulations at

local, state, national, and even international levels. The policies and practices of government bodies also

establish an overall level of support for businesses operating within their jurisdictions. Taxation, fees, labor

rules, environmental restrictions…

MARKET ENVIRONMENT

Every company operates within a specific market environment composed of three important groups:

1. target customers

2. buying influences that shape the behavior of those customers

3. competitors other companies that market similar products to those customers. Competition gives

customers a wider range of options, and it tends to increase quality, improve customer service, and lower

prices. Consumers benefit from better products and more choices, instead companies get to focus on what

they do best

The market is very various but we can divide it into:

- stable with well-defined boundaries and few competitors and the high barriers to entry (huge

investments, specialized facilities, strict regulations) this make it hard for new companies to enter.

- industries with low barriers to entry are far more dynamic, allowing new players to emerge easily

thanks to digital technology and online distribution.

STRUCTURE OF INCOME IN A FINANCIAL STATEMENT

Structure of income in a financial statement revenue less cost we arrive at net income or loss. cost of sales:

cost related to production of final product.

revenue - cost of sales = gross profit

If current liabilities are higher that asset is because they receive the money and after they cover the raw

materials and all the cost. 3

FUNCTIONS AND TYPES OF BUSINESS

1.4 IDENTIFYING THE MAJOR FUNCTIONAL AREAS IN A BUSINESS ENTERPRISE

The functional areas in a business coordinate their efforts to understand and satisfy customer needs.

A function is every successful company works, there are some areas:

- leading part of the organization (CEO) giving the directions

- marketing and customer relations who creates connection and promote the product

- innovation and development (RND) who improves and innovates

- operations and production who executes and delivers efficiently

- people and values who inspires trust and motivation

THERE ARE 3 CORE BUSINESS FUNCTIONS:

research and development innovation (RND)

production → they are interconnected by processing (input and output) it

marketing comprehend different phases

SECONDARY BUSINESS FUNCTION

accounting and finance

organizations e HR → they add value to the company

business services

RESEARCH AND DEVELOPMENT

Products are conceived and designed through research and development (R&D). For companies that do

develop products, R&D is essential to their success because it provides the ideas and designs that allow

these firms to meet customer needs in competitive markets.

MANUFACTURING, PRODUCTION AND OPERATIONS

This function concerns whatever the company makes (for goods-producing businesses) or does (for service

businesses). In addition to supervising the actual production activity, operations managers are responsible

for a wide range of other strategies and decisions, including:

● purchasing: arranging to buy the necessary materials for manufacturing

● logistics: coordinating the incoming flow of materials and the outgoing flow of finished products

● facilities management: everything from planning new buildings to maintaining them

MARKETING, SALES, DISTRIBUTION AND CUSTOMER SUPPORT

Marketing is charged with identifying opportunities in the marketplace, working with R&D to develop

products to address those opportunities, creating branding and advertising strategies to communicate with

potential customers, and setting prices. The sales function develops relationships with potential customers

and persuades customers to buy the company’s goods and services. The distribution function is

responsible for delivering products to customers or to intermediaries such as retailers.

Work in marketing encompasses a wide range of strategic and tactical activities, from defining new products

to generating creative ideas for advertising.

FINANCE AND ACCOUNTING

The finance and accounting functions:

● ensure that the company has the funds it needs in order to operate

● control how those funds are spent

● write reports for company management and outside audiences such as investors and government

regulators.

They are responsible for planning and funding, whereas accounting managers are responsible for

monitoring and reporting.

HUMAN RESOURCES

The human resources (HR) function is responsible for recruiting, hiring, developing, and supporting

employees. They generally oversee these processes and support the other departments as needed. The

HR department is also charged with making sure the company is in compliance with the many laws

concerning employee rights and workplace safety.

BUSINESS SERVICES

A wide variety of business services exist to help companies with specific needs in law, banking, real estate,

and other areas. These services can be performed by in-house staff, external firms, or both.

THE NATURE OF ENTREPENEURSHIP

Entrepreneurship: risk-taking behavior that results in new opportunities

Classic entrepreneur: pursues opportunities others view as problems

Serial entrepreneur: starts and runs business and nonprofits over and over again

First-mover advantage: first to exploit a niche or enter a market

Social entrepreneurship: unique form of ethical entrepreneurship that seeks new ways to solve pressing

social problems (poverty, illness)

5.1 SOLE PROPRIETORSHIPS

A sole proprietorship is a business owned by one person. Operating in this way offers advantages:

1. Simplicity: easy to start and requires little paperwork such as business licenses and permits.

2. Single taxation: profits are taxed only once as personal income.

3. Privacy: few reporting requirements.

4. Flexibility and control: the owner makes all decisions (business strategy or tactics) freely.

5. Unlimited personal income: all after-tax profits belong to the owner.

6. Personal satisfaction: working for themselves, taking the risks and enjoying the rewards..

Sole proprietorship also has significant disadvantages:

1. Unlimited liability: the owner is personally responsible for all debts and legal issues, you could lose

your personal assets.

2. Heavy workload and stress: the owner must handle all responsibilities alone, lack of partners or

colleagues for support and discussion.

3. Limited managerial perspective: one person may lack expertise in all business areas.

4. Limited resources: harder to raise funds or expand the business, usually have fewer financial

resources and fewer ways to get additional funds from lenders or investors.

5. No employee benefits: no paid leave, health insurance, or retirement plans unless self-funded.

5.2 PARTNERSHIP

A partnership is a company that is owned by two or more people but is not a corporation. The partnership

structure is appropriate for firms that need more resources and leadership talent than a sole proprietorship

but don’t need the fundraising capabilities or other advantages of a corporation. Partnerships come in two

basic forms:

1. a general partnership: all partners have the authority to make decisions for the firm and joint

liability for the firm’s financial obligations.

2. a limited partnership: under this type of partnership, one or more persons act as general partners

who run the business. The remaining owners are limited partners, investors who do not participate in

running the business and who have limited liability.

3. a master limited partnership (MLP) is allowed to raise money by selling units of ownership to the

general public, in the same way corporations sell shares of stock to the public. (no double-taxation)

4. the limited liability partnership (LLP) form of business was created to help protect individual

partners in professions such as law, accounting, and management from major mistakes made by

other partners in the firm. ( no risk of losing their personal assets)

AGGIUNGO FOTO SLIDE

Operating in this way offers advantages:

1. Simplicity: easy to set up, similar to a sole proprietorship.

2. Single taxation: profits are taxed once as personal income.

3. More resources: partners can combine funds and increase borrowing power.

4. Cost sharing: shared expenses (e.g., facilities, staff) reduce individual costs.

5. Broader skills and experience: partners contribute diverse knowledge and abilities.

6. Longevity: the business can continue as new partners replace those who retire or leave.

Partnership also has some disadvantages:

1. Unlimited liability: partners can be personally responsible for all business debts and losses,

sometimes risking more because multiple people make decisions.

2. Potential for conflict: disagreements over strategy, profits, ethics, or management can harm the

business; clear agreements and communication are essential.

3. Expansion, succession, and termination issues: problems may arise when adding, replacing, or

removing partners if no clear plans or rules are in place.

A carefully written partnership agreement can maximize the advantages of the partnership structure and

minimize the potential disadvantages. If a partnership doesn’t have a formal agreement, in most states the

partners will be bound by the Revised Uniform Partnership Act.

5.3 CORPORATIONS

A corporation is a legal entity that has the power to own property and conduct business. It is owned by

shareholders, investors who purchase shares of stock. The stock of a public corporation is sold to anyone

who has the means to buy it. Such corporations are said to be publicly held or publicly traded. The stock

of a private corporation, also known as a closely held corporation, is owned by only a few individuals or

companies and is not made available for purchase by the public.

AGGIUNGO FOTO

Operating in this way offers advantages:

1. Ability to raise capital: corporations can raise large amounts of money by selling stock or bonds,

allowing major investments and growth.

2. Liquidity: shares can be easily bought and sold, making investment in corporations attractive and

flexible.

3. Longevity: corporations can continue indefinitely since ownership changes hands through buying or

inheriting shares.

4. Limited liability: shareholders financial risk is limited to the amount they invest, protecting their

personal assets.

Partnership also has some disadvantages:

1. Cost and complexity: it’s expensive and complicated to start and manage, especially when going

public.

2. Reporting requirements: must produce detailed financial reports, which consume time and may

reveal strategic information.

3. Managerial demands: executives must spend significant time dealing with shareholders, analysts,

and media.

4. Possible loss of control: outside investors can influence or even take over the company through

stock ownership.

5. Double taxation: profits are taxed at both the corporate and individual shareholder levels.

6. Short-term orientation: pressure to show constant quarterly growth can lead to short-term

decisions instead of long-term strategies.

Special corporations:

-An S corporation, or subchapter S corporation, combines the capital-raising options and limited liability of

a corporation with the federal taxation advantages of a partnership. Corporations seeking “S” status must

meet certain criteria, including a maximum of 100 investors.

-The limited liability company (LLC) structure offers the advantages of limited liability, along with the

pass-through taxation benefits of a partnership. LLCs are not restricted in the number of shareholders they

can have, and members’ participation in management is not restricted. LLC structure is recommended for

most small companies. LLCs do have some potential disadvantages. Employee benefits are not tax

deductible and it can’t use stock options as an employee benefit, nor can it raise money from the stock

market.2

-A benefit corporation (b-corp) it’s like a regular corporation but adds the legal requirement that the

company must also pursue a stated nonfinancial goal, such as hiring workers whose life histories make

employment difficult to attain or reducing the environmental impact of the environmental impact. If

entrepreneurs give up or lose voting control of the