Part I: Organization of a Business

Planning A Business

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Introduction to
Jeff Madura
Business
3e

Organization of a Business

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Learning Goals
Identify

key business stakeholders.

Describe key business functions.
Explain how to develop a business
plan.

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Business Defined
A business is an enterprise that
provides products or services
desired by customers.

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Key Business Decisions

Product

What type of product should be produced?

Production

How should the product be produced?

Promotion

How should the product be promoted?

Financing

How should the company obtain funds to

finance the cost of producing the product?
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Business Decisions

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Key Stakeholders
Owners

Entrepreneurs
Co-owners
Stockholders
Creditors
Employees

Managers
Suppliers
Customers

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Interaction among Owners,

Employees, Customers, Suppliers,
and Creditors

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Exhibit 1.1

18

Creating a Business Idea

Identify

a competitive advantage.
Differentiate the product or service
from competitors.
Determine necessary resources.
Assess feasibility of the idea.

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Copyright 2004 South-

e-business

business online

110

Success Stories

Dominos Pizza
Managhans bought bankrupt pizza parlor
Started with little funding
Now generates sales of $1 billion per year
Jeremys Micro Batch Ice Cream
Applied microbrewery concept to ice cream
Makes ice cream in small batches, sold in limited
editions
Glow Dog, Inc.
Sells light-reflective clothing for pets
After two years, average annual sales of $1 million
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Lessons to Remember
Successful

businesses do not require

a great invention.
Many focus on making life more convenient
for customers.

Some

business ideas will failbut

entrepreneurs can learn from
failures and make revisions.

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Impact of Technology
Technology

defined

Knowledge or tools used to produce

products and services
Information

technology

Represents over 1/3 of the growth in U.S.

output
Reduces cost of producing products
Workers in technology industries earn more
than workers in other industries.
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Impact of Technology
E-business

or e-commerce

Use electronic communications to produce

or sell products and services

Sales to individual customers

B2B e-business: transactions between a business
and its suppliers
Generates $301 billion in revenue and creates 1.2
million jobs each year

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Successful E-Businesses
Started out small
Created to sell a product or service that
was not offered by competitors
Transformed how traditional firms
conducted business

Improved communication with customers

Improved information flow
Improved efficiency
Complemented traditional business operations

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E-Business Examples

Amazon
Online seller of books, music and other products
Low overhead costs allow price discounting

Yahoo!
Internet search engine and the most visited site on
the Web
Offers variety of services - free email, web page
hosting, custom-designed start-up pages
Generates revenue by selling advertising

eBay
Online auction service

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Key Functions of Business

Management
Means by which employees and other resources
are used by the firm

Marketing
Means by which products and services are
developed, priced, distributed, and promoted to
customers

Finance
Means by which firms obtain and use funds for their
business operations
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Key Functions of Business

Accounting

Summary and analysis of the firms financial

condition
Used to make various business decisions
Information

systems

Information technology, people, and

procedures that provide appropriate
information to make effective decisions

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How Business Decisions

Affect a Firms Earnings

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Exhibit 1.4

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Common Business
Decisions

Management

Decisions

What equipment is needed?

How many employees should be hired?
How can employees be motivated to perform
well?

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Common Business
Decisions

Marketing

Decisions

What price should be charged?

Should the product be changed to be more
appealing to customers?
Should the firm use advertising or some
other strategy to promote its product?

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Common Business
Decisions

Finance

Decisions

Should financial support come from the sale

of stock or from borrowing money or some
combination?
Should the firm attempt to obtain borrowed
funds for a short-term or long-term period?
Should the firm invest funds in a new
business project?
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A Business Plan
Detailed

description of the proposed

business
Description of the product or service
Types of customers the business would
attract
Competition
Facilities needed for production

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Developing a Business
Plan

Assess

the Business Environment

Economic environment
Industry environment
Global environment
Develop

Management Plan

Organizational Structure
Production
Human Resources
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Developing a Business
Plan

Marketing Plan

Target Market
Product Characteristics
Pricing
Distribution
Promotion

Financial Plan
Financing
Feasibility

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Online Resources
Advice

and basic information

Yahoos Small Business site

American Express
Small Business Administration
Financing

Options

Quicken Small Business

Garage.com
The Elevator
Business

Planning Software

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Assessing a Business Plan

Potential

revenue
Potential demand for product or
service
Potential expenses
Profit potential

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Expected Monthly Expenses of

CHC

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Exhibit 1.6

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Expected Performance of CHC

in the First Year

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Exhibit 1.7

129