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1 - Introduction to Business Management - IB NOTES

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Introduction to Business Management

Reasons for starting up in Business?

The main reason to why people want to start up a business is for the money. It is to be said that you will make more money when you are working for yourself rather
than for somebody else. Over the LT, you will most likely earn much more money that runs through the business of your own.
Secondly, there are just some people who simply hate working for somebody else a.k.a under them. There may be people who hate the idea of having a boss above
them and must obey the rules according to them. Therefore, these people may be best suitable to run their own business and having a job that they exactly know
what to do. You will get to work towards something that belongs to you entirely.

What is a Business Plan?

A business plan is straight up, a guide for your business that outlines the needed expectations and details on how to achieve them. It helps you allocate resources
properly and make the right decisions. A business plan is crucial because it provides speci c and organised information about your company, also on "how you will
repay borrowed money" because any type of loan package is considered important in a good business plan.

Those who wants to see a business plan may be sales personnel or suppliers as it informs them about your operations and goal. An investor may also search for a
good business plan for consideration for investment. They might expect a) an experienced team, b) believable exits (whether the money coming out of the company
invested will go back into the bank account) c) Real growth prospects d)Real planning.

Problems that a new enterprise may face.

Note that the speed of economic and technological changes to the world may be unpredictable therefore the right path yesterday may not work for today, and even
disastrous by tomorrow.

1. Cash, Borrowing and Resource Management

Cash ow --> a healthy pro t. Therefore, if capital expenditures are draining your cash, it is a sign that the business is in risk. In order to avoid these,
businesses must store up cash to meet the obligations needed to handle any emergencies. Cash restrictions can be the biggest factor that may limit growth
and overtrading to be fatal. 

It is crucial to make the best of your nances, because it is a key opportunity to assess new right set of circumstances.

Effective credit management and tight control of overdue debts.

Good stock and effective supplier management

Planning ahead (to anticipate your nancing heeds)

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2. Keeping up with the market

Business conditions change continually, therefore your market research should be continuous as well.

Can easily lead to business/market failure (out-of-date information...etc)

More you succeed = more competitors will notice you

Important to invest in innovation to build new pro table pro ts to market (to maximise overall pro tability)

Your own experiences may be more valuable (useful insights)

Continually watch the customers' purchasing behaviour and preferences.

Analyse key info on the customer's reaction to a new product.

3. Skills and Attitudes

May need outsiders for help as business grows

Must learn to listen, take advices of people, to be a successful entrepreneur.

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Primary Sector
The primary sector of the economy is the sector of an economy making direct use of natural resources. This includes agriculture, forestry, shing and mining. 

Secondary Sector
Secondary industries are those that take the raw materials produced by the primary sector and process them into manufactured goods and products.

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Tertiary Sector
The tertiary sector is also called the service sector and involves the selling of services and skills. They can also involve selling goods and products from primary and
secondary industries.

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Quaternary Sector
The quaternary sector consists of those industries providing information services, such as computing, ICT (information and communication technologies), consultancy
(offering advice to businesses) and R&D (research, particularly in scienti c elds).
The quaternary sector is sometimes included with the tertiary sector, as they are both service sectors. The tertiary and quaternary sectors make up the largest part
of the UK economy, employing 76 per cent of the workforce.

<source: http://www.bbc.co.uk/schools/gcsebitesize/geography/economic_change/characteristics_industry_rev1.shtml>

The main functions of business

1. Human resources

The HR department is responsible for managing the personnel of the organization

In managing people, the HR department is likely to deal with the following issues:

workforce planning, recruitment, training, appraisal, dismissals and redundancies, and outsourcing human resource strategies

2. Finance and accounts

This department is in charge of managing the organization’s money

The nance and accounts director must ensure that accurate recording and reporting of nancial documentation takes place

To comply with legal requirements

(e.g. to prevent deliberate understating of pro ts to avoid corporate taxes)

To inform those interested in the nancial position of the business (such as shareholders and potential investors)

Finance and accounts topics are covered in Units 3.1-3.9

3. Marketing

Responsible for identifying and satisfying the needs and wants of customers

In charge of ensuring that the rm’s products sell

Done through a series of activities such as:

market research, test marketing, advertising and branding

Functions of the marketing department can be summed up as the traditional four Ps of marketing 

a) Product

Ensuring that goods and services meet the customer’s requirements

A product’s various sizes, colours, packaging and core functions

Other roles related to the product include product differentiation and product position mapping

b) Price

Using various pricing strategies to sell the products of a business

Numerous pricing strategies can be used, depending on factors such as the level of demand, the costs of producing the good or service, and
the number of substitute products available

c) Promotion

Making sure that customers know about the rms products

This is often done through the mass media

e.g. television and newspaper advertising

Alternatively, cheaper methods include the use of sales promotions, social networking and guerrilla marketing 

d) Place

Ensuring that goods and services are available in convenient places for consumers to buy

Marketing managers must ensure that they select appropriate ways to distribute products to the marketplace

e.g. online purchases, retail outlets, vending machines

4. Operations

Also known as operations management or production

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Functional area of an organization is responsible for the process of converting raw materials and components into nished goods

Ready for sale and delivery to customers

Examples of production include:

The extraction of crude oil, car manufacturing and the construction of roads

Operations also applies to the process of providing services to customers as in the case of hotels, restaurants, beauty salons and nancial institutions
Operations topics are covered in Units 5.1-5.7

Can you answer these questions? If yes - you are ready to move on to the next topic!

1. What is a business?

2. Distinguish between goods and services.

3. Distinguish between customers and consumers of a business.

4. What are the four functional areas of a business?

5. Describe the four business sectors of the economy.

6. What is meant by the chain of production?

7. What is meant by sectoral change?

8. Differentiate between entrepreneurs and intrapreneurs.

9. What are the main reasons for starting up a business?

10. What are the main steps in starting up a business?

11. What are the problems that new businesses may face?

12. What is a business plan and what are the main elements that go into a business plan? 

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