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BBA 113- Business Administration. Lecture 3: The significance of profit; Private and public sectors enterprises Strengths and weaknesses of small scale organisations. What is a Business?.
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BBA 113- Business Administration Lecture 3: The significance of profit; Private and public sectors enterprises Strengths and weaknesses of small scale organisations.
What is a Business? • A business (also known as enterprise or firm) is an organization engaged in the trade of goods, services, or both to consumers. • Businesses are predominant in capitalist economies ("Liberal market economy" “Free Enterprise"), where most of them are privately owned and administered to earn profit to increase the wealth of their owners.
What is a Business? (cont) • Businesses may also be not-for-profit or state-owned. • A business owned by multiple individuals may be referred to as a company although that term also has a more precise meaning. • Although forms of business ownership vary by jurisdiction, there are several common forms: “Jurisdiction” (from the Latin meaning "oath”
Basic Forms of Ownership • Sole proprietorship: A sole proprietorship is a for-profit business owned by one person. The owner may operate on his or her own or may employ others. The owner of the business has unlimited liability for the debts incurred by the business. Legal liability is the legal bound obligation to pay debts.
Partnerships: • A partnership is a for-profit business owned by two or more people. In most forms of partnerships, each partner has unlimited liability for the debts incurred by the business. The three typical classifications of partnerships are: general partnerships ; limited partnerships; and limited liability partnerships
Corporations: • A corporation is a limited liability business that has a separate legal personality from its members. • Corporations can be either government-owned or privately-owned, and privately-owned corporations can organize either for-profit or not-for-profit • A for-profit corporation is owned by shareholders who elect a board of directors to direct the corporation and hire its managerial staff. • A for-profit corporation can be either privately held or publicly held
Cooperatives: Often referred to as a "co-op", a cooperative is a limited liability business that can organize for-profit or not-for-profit. • A cooperative differs from a for-profit corporation in that it has members, as opposed to shareholders, who share decision-making authority. • Cooperatives are typically classified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy
Franchises • Franchises, also known as chain stores, are businesses operated under a special arrangement. Franchises are moderated industries that follow a set business model, which includes a name, an image, and a set of support services. • The main advantage of franchises is that the businesses being operated already have a proven track record of success. • Opening an MTN Shop, for example, requires no market research, as the owners of the trademark will provide all necessary training and support to the franchisee. This includes site selection, help with leasing, and even business mentoring. Franchises are great choices for people who know little about business ownership and want to get started as soon as possible.
Charities A charity is a particular type of voluntary organization – one that takes a distinctive legal form and has a special tax status. Charities can be organized in a number of different ways – Once registered, charities have to obey a number of rules, which include regulations covering trustees, accounts, finances and management. Charities: • Are set up for a charitable purpose • Are not profit-making – so any surplus they may make must be used only to further the organization's purposes • Are independent – that is, they are not a part of any governing department, local authority or any other statutory bodies
What is Profit? • Definition: Profit is the difference that arises when a firm's sales revenue exceeds its total costs. This can be shown in an equation: • (Revenue - Total Cost = Profit). • With profit, there is also different types of profits. • One type of profit managers use a lot is operations profit, which is the amount remaining once all fixed and variable costs have been deducted from total revenue, but before tax has been paid.
Types of Profits • Many types depending on the subject and context, we shall consider only two types ( Gross & Net) • Gross Profit • The first level of profit is gross profit, sometimes referred to as gross margin. • It is the amount of money you make after deducting the cost of whatever you are selling from the total revenue expressed as a percentage of the total. • Many business owners do not understand the concept that this leftover money must cover all the other expenses of running your business.
Net Profit • Net profit is the most elusive. It is defined as the amount of money left after all business expenses, but that is not necessarily accurate. Taxable net profit is affected by what are known as "non-cash" expenses. • These are things like depreciation and amortization and formerly used items like oil depletion allowance. • They are deductions from a businesses income for tax purposes and must be added back to the total to determine the true net profit.
Importance Of Profits to the Business • Every business is started with the main objective of making profits because of the following reasons • Profit is essential for the growth of the enterprise (expansion, diversification etc) • Survival of the enterprise, because existence of business cannot be seen in absence of profits. • Profit is required to meet the individual and social requirements of the traders
Fulfill various social goals because business is looked at to serve the society like the consumers and laborers • Profit is used a good measure of efficiency of an organization in performance • Essential at the time of attracting additional capital for modernization and expansion • Profit serves as a provision of risk bearing
Maximization of profits • Maximization of profits may be opposed because of the following: • Leads to exploitation of workers and consumers • Leads to a state of social inequality, where the rich becomes richer and the poor – poorer • Leads to number of corrupt practices • Lowers human values because it leads to a materialistic society
Nature and Objectives of Public sector Enterprises • Fundamental objectives of state enterprises are to serve the people and help the state to industrialization. The following are some of the pivotal objectives : • Check on the formation of monopolies • Facilitate all-round industrial development • Public welfare • Provide Necessities
Create employment opportunities • Channelising of public savings • Avoid concentration of economic power • Exploitation of natural resources • To carry production in certain sensitive areas • Increase in Government revenues
Small Scale Businesses • A small business (also called mom-and-pop) is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales. Small businesses are normally privately owned corporations, partnerships, or sole proprietorships. • The legal definition of "small" varies by country and by industry, ranging from fewer than 15 employees to under 50 • Small businesses can also be classified according to other methods such as sales, assets, or net profits.
Small businesses are common in many countries, depending on the economic system in operation. • Typical examples include: convenience stores, other small shops (such as a bakery or delicatessen), hairdressers, tradesmen, lawyers, accountants, restaurants, guest houses, photographers, small-scale manufacturing, and online business, such as web design and programming, etc.
Questions • Compare Private and Public Enterprises • What are the advantages and disadvantages of Small Scale Enterprises • What is the importance of profits in business?
