business for beginners, business definition and principles
Making. Money being. Profitable, that's the goal of every business but, it's not very easy no. Matter how big or small companies. Of every size often struggle, to make a profit I'm, serious, how, can that be how. Can a company not, make a profit and still be, in business well. Before we try and answer that question you. Need to first understand, the basics, of profit, profit. Is the amount of money left over after a company pays all of its bills profit. Is calculated, using this, simple formula, revenue. Minus, cost equals, profit looks. Simple, but in fact it isn't, that simple. Formula, has so, many layers, let's. First, concentrate, on, revenue. Revenue. Is the amount of money a company collects from its customers. Cost. Cost. Is the sum of all the expenses, for a company we. Need to subtract, all of the costs, from, the revenue it's, a very challenging balancing act every. Company in every industry is trying their best to. Tip that scale in the revenue direction, there. Are a couple of ways to do this, increasing. Sales can be tough as a, result, many, companies, try and control costs by, cutting employee, hours and using. Lower quality, materials, but, by doing that you, may a lien eight customers, down. Low your revenues do. You see the challenge, to. Grow quickly you, need to do things like buy more land open, facilities. Invest. In more inventory and, hire, and train lots, of new people, that's. A lot of money there, cost to constantly, grow are very high and so even a few months of good sales may, not be enough to, make a growing company profitable. Startup. Companies often lose money for many years before they start making a profit soon. You'll start to see every, story in the news as a signal, of profit, try, right now go. To a reputable news, site and look, at the headlines war. On terrorism does. That mean lower sales for Airlines does, it mean increase, sales for a military supplier, the. Price of oil how. Does that impact the cost, trucking-company, how. Does it impact the revenue of an oil company. Child. Birth rates increase, a new, cancer, drug is approved a massive. Snowstorm, is due hit your part of the country the. Government passes, a new law in each. Case think. About which companies, will see changes, in revenues, and which, companies will face changes, in their costs, making. Money being. Profitable, that's, what businesses, try to do these. Are the big decisions, business, executives, face on a daily, basis. Cost, quality, and speed are all related to company, flexibility, for, example when you buy a car you're, given certain options, vehicle. Color leather. Or fabric interior. Electronics. Navigation, and media options tire. Options, but. They, don't ask you the type of battery you want in your car they don't ask you what kinds of spark plugs for your engine they, also don't ask what types of oil and antifreeze to, use in your car why. Well, the company is trying to balance a number of things they. Want to give you choices so, the car feels special, so, the car feels like it's yours, but. They, can't let you choose everything, because offering. The customer choices. Requires, extra, time extra, inventory and it's possible, the customer, really doesn't care if the. Company offers you 10 different tire options, for one car they, would probably need to carry inventory of, all 10 tires lots. Of inventory in, low, volumes, higher. Per unit prices, from the supplier, plus, your, workers, now have to become more versatile, at, the same time when, companies offer lots, of options, customers. Might, be willing to pay a premium, to get exactly, what they want also. When, a company offers more options it's, possible, to attract, a wider market, of customers, now. We have cars for, people that like different, colors for. People that want luxurious, leather interiors, and also. For parents that would rather have cloth interiors, that are easier to maintain. We. Also have a car that appeals, to people that just want a car with basic, stereo, options, as well, as families. That want the very best media, options, for those long trips with the kids, so. As your, company develops, new products, and services consider. All of the possible options which. Options, does, the customer value most, for. Each feature, how, many options will you need to offer and are, they willing to pay the premium, for that option does. That make your market bigger while. Offering that option deliver a profit, at the. Same time which, features, our customers, willing to a cept s standard. Standard. Features are easy to mass-produce if, materials. Are needed you can buy them in bulk for a good price and fewer. Options might, make it easier for a customer, decide whether. Or not they, want to purchase your product or service, the.
Next Time you go anywhere. A restaurant. A coffee, shop the, post office, the grocery store consider. All the choices they let you make, consider. The ones they don't and then. Try and think about, how the number, of choices impacts. Their, cost their, quality, and their, speed. In business. Pretty much everything, customers enjoy requires. Some, materials, a great. Meal required, delicious, ingredients, a movie. Experience required, comfortable, seats even. Your massage was made better with fragrant, nourishing, oils. Companies. Must recognize, that every, material purchase, is an opportunity. To improve the product, or service, providing. Procurement. And materials, management are the segments of the company that fun suppliers, purchase, the materials and then make sure that this inventory, is stored and used effectively if, done. Right procurement. And materials, management can improve customer, satisfaction, they. Can contribute to the company's profitability and, by. Partnering, with reliable. Suppliers, they. Can help the company develop, a stable, supply chain, that can be counted on to continuously. Deliver high, quality products and services to, the consumer, to. Illustrate, these points let's. Use a cell, phone as our example product, and, actually. Since, we're buying parts, for this cell phone let's consider just one part, of the, cell phone the battery, what. Does our company need to think about let's. First consider the consumer, what. Does the consumer expect. They. Want value a, long-lasting. Battery at, a reasonable, price they. Probably also want a battery that is safe a small. Lightweight. Battery, that won't overheat if. This. Is what the customer values, and if those are the things that we advertised. The, battery in some way needs to fulfill the customer's expectations a. Great. Battery helps. Make our phone better a better. Phone will sell more units and thus, our revenues, go up now. That we made the customers, happy let's, remember that revenues, alone won't, bring as a profit we, need to consider our company's, needs the. Company needs, to control costs, while. We're buying great batteries, for our customers, we, have to know what, the total cost of purchasing, these batteries, will be I'm. Not just talking about the per unit cost you. Must consider the total, cost of these batteries the. Cost of storing, bad race costs, associated, with theft and damage the, cost of negotiating. And placing, orders from battery companies and don't forget that, someone needs to pay for the delivery, of those batteries so.
If Keeping costs low is, important, to your company you'll need to remember inventory. Costs, include the cost to buy hold. And order, inventory, that. Brings us to the final party, involved, in our battery purchase, the, supplier, the. Battery supplier, will ultimately, dictate battery. Cost and the quality of the battery but. They also impact, our cellphone company in other ways if they, can fill orders quickly we. Can keep low inventory, levels even. If we run out of stock it won't take long to get a new shipment for. That kind of service though we'll, probably have to pay a higher price on the. Other hand a slower. Supplier, may, have lower per unit prices, but, will need to carry more inventory, since. We have to place orders, early, just to be sure they'll, be able to fill them before, we run out of batteries, this. Takes care of our, battery needs today but. How about the next generation, of cell phones, we'll, need stronger, batteries, that fit in our new phone design and we still need to control our costs in. Modern. Business suppliers. Our business. Partners, when. We sell more phones they. Sell more batteries on the other hand if they, make batteries, better, we may sell more phones because. Of this suppliers. And innovative, manufacturers. Must, work together to, understand, the customer, develop. New technologies. And also, to develop manufacturing. And logistics strategies. Whether. Your company is buying cell, phone batteries, tomatoes. Theater. Seats or even, massage oils, it, needs to consider the customer the. Supplier, and our, company, as you. Head back to work today ask, yourself, these simple, questions, are. The, customers, happy with, the materials, they buy or use. Do. We consider, our supplier, a partner, our, suppliers. Involved. In helping us develop better products, and services. And do. We consider, the cost of holding inventory, or just, the cost of purchasing, if, your. Answer to any of those questions is no you, are likely missing, an opportunity to. Maximize your, company's potential. In, just the last few years the term logistics, has gotten very popular global. Companies like DHL, UPS. And FedEx are known, as logistics, companies but, what exactly is, logistics. I mean is it just getting, finished goods to a customer's, home or perhaps to, a store, where these goods can be put on a shelf ready, for purchase, yeah. That's. Logistics, but it's just a small part of what the world of logistics, and compasses, you, see logistics. Doesn't just happen in the last mile before a product gets to the hands, of the user, logistic. Happens before, a product is even made even. In the most simple, supply chains raw, materials, and components are shipped, to manufacturers, finished. Goods are shipped to, distribution centers and from their products. Make their way to, a retail, store or an online retailers, picking and packing warehouse, where finally. They can be shipped to your home all. Along. The way there, are important, decisions to be made that will impact, whether the shipment was quickly, delivered, safely. On time, in the right amount and of course at a reasonable, cost, plus. We, want to know that our logistics. Process, is flexible. Big, orders small. Orders perishable, products heavy products, dangerous, goods orders destined. For big cities and others, heading towards a farm, domestic. Orders and foreign, orders and. Nowadays. Customers. Want to be informed, customers.
Want To have the ability to track, their shipments. Marketing. And manufacturing are, important, but. A great product that comes with a big shipping cost and then arrives late, damaged. Or to the wrong address ruins. The customer experience as a. Result logistics. Specialists, are constantly. Making decisions that must make customers, happy and keep, the company profitable, so. How can a logistics, manager, keep, the company profitable, keep. Inventories, low, move. Inventory as quickly as possible and at the lowest possible cost. Empty. Trucks and containers waste, fuel so keep, trucks and containers full, by planning, effectively. And don't, get caught unprepared. Stock-outs. Rush, shipments, and shipping, errors are extremely. Expensive and can mean the loss of a customer, forever, so. In the end logistics. Managers, are tasked, with making all sorts of decisions that balance, cost speed. And customer, satisfaction. What. Types of decisions, well should. We use a truck, train. Ship, or plane. What. Type of packaging, is needed to keep the items safe, they. Also consider, storage, issues like what's, better having. High levels of, long term inventory, sitting in a warehouse or, low. Levels of inventory, moving quickly through distribution, centers and if. You're shipping globally. You'll need to consider issues like import. And export laws, tariffs. And documentation. You. See logistics. Is about a lot more than delivery, oh and. Don't, forget, materials. Don't just move in the direction of, the customer, reverse. Logistics deals, with returned, items, items. Requiring, repair, that need to be sent to a repair center and, reusable. And recyclable, packaging. As. Companies, look to control cost reduce. Waste and eliminate, product loss while, still getting the right good to, the right place at the right time, companies. Need to consider, all of, the pieces of the logistics, puzzle, Logistics. Is beneficial. For, everyone, involved, customer. Get what they want how. They want and, when. They want it and companies. Can make it all happen with. Minimal, cost and waste. Now. That you have a better understanding of, some of the vital pieces of the logistics, puzzle think. About which pieces your, company, may, not be considering. Whether. Your company has customers, wants, customers, or if you're already successful. Company wants even more customers knowing. That customer, is vital, to securing, sales so. As the company looks to start selling, their products and services often. One of the very key questions, they need to confront early, in the process is who. Should my company, want as customers, who is our, target market well. Your target, market, should probably include people that you're capable of satisfying, while, still earning a profit that way, they're. Happy and you're. Happy so. How. Do companies, describe. Their target markets well, target. Markets, can be described, in a number of different ways is your. Target market made, up of men or women. How, old are they where do they live what. Language, do they speak what. Are their hobbies what, do they do for a living how, much money do they make or better yet how. Much money do they spend, and, is, it, possible, your target market is not made up of people, perhaps. Your target market is made up of other companies, and it. Doesn't matter, where your company is today, if you're, a brand new startup, company a large, global firm with a rich history or maybe, your, future company, is only an idea in your head, knowing.
Your Market is important, to being successful today. And in, the future why. Well. A company and its, marketing, team and Salesforce have only so much time and money they. Need to use their resources wisely, we're. Not just making sales today we're. Building a target, market that is loyal to our brand so. Whether you want to know your customers, desires today, or tomorrow, whether. You want to use your company's, money and time wisely or if, you just want to find new customers for. Your products and services. Understanding. Your target market. Is vital. To the evolution, of your company. Customers. Are interested, they're, actually, considering, making a purchase they've. Taken the step to seek out a representative, or maybe they're, at your website perhaps, they, even decided to visit your store. Now. It what. Are some of the key issues that need to be considered in making that first sale and then having, them purchase, from us again at. This point typically. Customers, are looking for trust. Comfort. Stability, and growth all. Play, a part in moving, a customer, to make a purchase. Therefore. Your people, your, website, and your facilities, all need, to demonstrate that you are committed, to the customer, and their needs that, the company cares that the company will be here, if you need assistance and, that. The company is looking for opportunities to get better, the. Facility. Signage. Furniture. Cleanliness. How, the company representatives. Look and act, the, words that are used documents. Customers. Are required to fill in and sign, they. All carry, messages are your. People, facilities. And websites sending, out messages that, drive sales or are they driving away potential customers. Let's. Consider delivery. Even. When a customer, is ready to purchase from your company they'd like to know when the product, or service will be delivered, fast. Delivery free, delivery easy. In-store, pickup, installation. It's, important, to know what, your target market, wants, and needs and it's important, to understand, what your competition, is offering, the. Final, hurdle in making a sale is processing. The sale, especially. On that first sale or with any major purchase. Before. You give your money over to any person, or company a number, of questions probably race through your head how. Many forms do I need to fill out why. Do. I need to sign a contract, what. Does the contract say what. Types of payment are acceptable, when. Will they tell me the final, and full price of the transaction, before. The transaction is complete will representatives, push me to sell additional products, and services what. Are the options, for cancelling, or changing my order what. Happens if I'm unsatisfied. With my purchase, what. Are the return policies, what, happens, if the item stops working you are. So, close, to closing the deal and still. There are so many opportunities to scare away the sale, whether. You're selling to a new customer or a return, customer, consider. The importance, of your sales resources. Sales, reps facilities. Website. Work. To provide competitive, delivery, options, and create, hassle-free. Business. Processes, that protect both your company, and your, customer. Customers. They're, here, they're, interested. Now, it's your job to show the customer that you are committed, to giving them what they want and, demonstrating. That the transaction, is only the first step in developing, a, long term relationship. Knowing. How much money is needed to, launch a business a product, or an initiative is difficult. But, once you have a number it's time to find the funding, perhaps, your company has the extra, cash lying around even. Then though you'll need to show your plan and projections. To the finance department and hope they, think that, your idea is worth investing, in if your, idea looks like it'll get the company the best return on investment, great, but, for many of us getting. The money will not be that easy so. Let's, look at some options for borrowing, the money this. Is called debt financing, common. Types of debt financing include, loans and bonds. Alone. Is a transaction, where a borrower, gets money from a lender and agrees, to repay, the money in a certain amount of time sometimes. Weeks sometimes. Months and sometimes, over, many years the. Lender could be a bank a friend. A family member or even a credit card company, why. Does, the lender, give the money to the borrower well the. Lender expects, to make money by getting interest. On the loan and in, the case of a secured, loan if the, borrower does not pay back the money the. Lender can take assets, from the borrower as payback if your.
Company Gets a loan you, are taking, on certain, risks, you, must be ready to pay back the loan or make periodic, payments, when the loan comes due not. Paying back the loan in time could bring penalty, fees, result. In the loss of company assets, it, could hurt your credit rating and if, you're borrowing from friends and family you, risk damaging the relationship in, some, cases though companies. Could issue bonds. Bonds. Are essentially, small-scale. Loans from investors, and just. Like a bank they, will pay you interest. How. About if we don't want to borrow the money what. Can we give investors, instead of interest payments we, could give them a stake in the company big. Corporations. Can issue stock, each, share of stock might be sold for, $100. The, company, gets, the hundred dollars to invest in new ventures the. Owner of the now owns a very small percentage, of the company how, small well some. Companies have millions, or even billions, of shares, but. Suppose a company sells, even just 1, million shares the. Company, might be able to raise tens, or even hundreds. Of millions of dollars very quickly. Small. Private, companies though might, look to venture. Capitalists. These. Folks will give you money but, they'll, want ownership, in return for, example you, might sell them 25, percent of the company for a five million dollar cash, investment. The. Company now has five million dollars in cash but. In return, the. Investor, will demand you, grow the company such. That their 25 percent stake in the company will, grow as the company grows then. Again some. Entrepreneurs, raise money by selling parts, of the company to, friends and family, again, this, is very risky they. Now feel entitled, to manage, the company or perhaps ask for, their money back if they don't agree with your management. Loans. Bonds. And equity, investments are, sort of classic, ways companies raise money but, nowadays we, also have. Crowdsourcing. Money online. Business. Competitions. Where startups, present, their ideas and judges, award funds to, one or more companies, companies. May also seek grants, or gifts, from the government, or charitable organizations, often. This, type of financing is available to companies that are either owned by or, serve. Underprivileged. Or underrepresented, groups. Look. Raising. Money is not easy and often, it's, not risk-free, so. Understand. Your needs and understand. The trade-offs so you can explore, the financing.
Opportunities That. Are best for your, company. Money, it's the lifeblood of the organization, it needs to flow, money. Comes in from customers, money, must, also go out to employees, and suppliers, what. Happens if the flow stops. No. Revenues from customers, the. Company dies, if we, stop paying people no. Supplies no. Employees, the. Company dies. So. Whose. Responsibility is. It to keep track of the money flow finance. No. Finance. Does, deal with money but their job is not to keep track of money flows their, job is to obtain funds, and also, to invest them, keeping. Track of the money flow is the job of accounting. They're. Responsible, for tracking money coming, in from customers, money. Going out to employees and suppliers and, they're. Also responsible. For keeping, track of money flowing, inside, the organization, from one department to another, why. Is this important, and who benefits, from this tracking, of the money for. That let's, discuss, the two types of accounting. Managerial. Accounting and financial. Accounting. Managerial. Accounting keeps track of where all the money goes this. Is important, to people inside, company, this. Helps with budgeting, it, helps us keep track of departments, that are using money wisely and it also tells us where, there might be waste. Managerial. Accountants, are the ones that tell us how, much it costs, to make and deliver, a two thousand dollar television. To the consumer, so. Managerial. Accountants, help, managers, inside, the organization. Measure, cost, of production. Marketing. And everything, else that goes on inside, the company they. Also assist, in developing budgets for next year as well as budgets for new projects. After. The fact they, can then report if people are staying within those budgets, plus. Managerial. Accountants, find, ways to help us minimize taxes. So. What, do the folks in financial, accounting do instead. Of being responsible, for reporting to folks inside the company than accountants are tasked, with developing reports.
For, People outside of the organization, why. Is this important. It informs. People, about. Our company's, financial, status that's. Important, for anyone, considering, investing. In the company and for organizations. That might consider lending, money to us plus. Government. Agencies. Special. Interest, groups employee. Unions, law. Enforcement. And sometimes, even customers, are interested in knowing about the, financial, activities, as well as the financial stability of, the organization. While. Financial reports, are generated by financial, accountants throughout the year they. Work hard to develop the all-important. Annual, report, the, annual. Report provides financial, data a written. Recap, of events from the past year, and a, statement of concerns, and opportunities. For, the company in the future. This. Information. In the annual report will, influence all sorts, of actions, and behaviors, inside, and outside the company so. Financial, accountants, must carefully consider every. Word and every. Number in developing, an annual report that. Abides by the laws of commerce, and does. Not mislead, parties, inside, or outside of the organization as, you. Can see having, accountants. Both managerial. And financial accountants. Helps a company learn, from its past. Understand. Its present, financial, health and also. Plan for its future growth, you. May not love accounting but. Hopefully, now you understand. Just. How important, they are for any organization. That requires, money to, survive. What, is your financial worth, how. Would you figure that out well, to start we'd, add up all of your money and the, stuff you own cash. Savings. Retirement, accounts. Your, home your car and, other, property, we, total it up those. Would, be your assets. Now. For, most of you you'd also owe money, bills, power water, cell phone we'd, also add in credit, cards, car. Loans student. Loans your, mortgage. Those. Are your liabilities. Now. Take your assets and subtract. Your liabilities, that is. Your net worth for. Some of you the, number may be positive, you, have more, than, you owe for. Many others though, liabilities. Exceed, assets, you, have a negative net worth. Accounts. Do the same thing with companies except for, companies assets. Minus, liabilities gives. Us owner's, equity so. What. Would be the assets. For a company, cash. And investments. Machines. And furniture. Buildings. And land and also vehicles. For. The most part those, are tangible. Assets but you'd, also include, intangible. Assets, like patents. Trademarks. And, copyrights. How. About corporate, liabilities, companies, have bills they, pay off loans like you and I but they. Might also have to make payments on bonds, they issued to investors. Corporate. Assets, minus corporate, liabilities, that gives, us owner's equity and again just, like with our net worth sometimes. Companies have positive, owner's equity other, times, it may be negative, so. Why. Not take stock of your personal, net worth today add up. Your personal, assets, consider. Your personal liabilities. And then, calculate, your net worth, so. Often, we're caught up in just making, money and paying bills we. Get lost in the day-to-day finances. Perhaps. By, calculating, your net worth you'll, see your finances, in the big picture and perhaps, it, may change your four behaviors. When. Companies examine, their assets. Liabilities. And owner's equity they're, doing the same thing they're. Looking at the big picture because. While a company may have lots of sales and small bills to pay today they. May not be considering, debts that may not come due for the next couple of years so, don't. Judge a company, by. What you see because. Just, like your neighbor with the great house and, luxury car it's, possible, the luxurious hotel. You love may, have lots of beautiful assets, but, they may, be loaded, with millions. In liabilities. You.