Sole proprietorship
The sole
proprietorship is the simplest business form under which one can operate a
business. The sole proprietorship is not a legal entity. It simply refers to a
person who owns the business and is personally responsible for its debts.
A sole
proprietorship can operate under the name of its owner or it can do business
under a fictitious name, such as Nancy's Nail Salon. The fictitious name is
simply a trade name--it does not create a legal entity separate from the sole
proprietor owner.
Advantages of a Sole Proprietorship
Owners
can establish a sole proprietorship instantly, easily and inexpensively.
Sole
proprietorships carry little, if any, ongoing formalities.
A sole
proprietor need not pay unemployment tax on himself or herself (although he or
she must pay unemployment tax on employees).
Owners
may freely mix business or personal assets.
Disadvantages of a Sole Proprietorship
Owners
are subject to unlimited personal liability for the debts, losses and
liabilities of the business.
Owners
cannot raise capital by selling an interest in the business.
Sole
proprietorships rarely survive the death or incapacity of their owners and so
do not retain value.
Objectives of Business Combinations
The
basic objective of combinations is the sustained profitable growth of the
combining enterprises. This basic objective is realized by achieving economies
of scale, reducing competition, preventing the entry of new firms and
controlling the market.
The objectives of combinations are:
Achieving
sustained growth and profits.
Reduction
in competition.
Preventing
the entry of new firms by creating entry barriers.
Achieving
monopoly status.
Undertaking
large scale production and benefiting from economies of scale.
Investing
in common facilities and infrastructure.
Avoiding
cut-throat competition and the evils associated with it.
Achieving
greater financial strength and stability.
Investing
in research and development to innovate new products.
Pooling
of material and manpower to ensure efficiency in operations.
Sharing
knowledge of best practices for mutual benefit.
Maintaining
stability in prices.
To
withstand the effects of business cycles.
Business Environment
The
definition of Business Environment, “The sum total of all individuals,
institutions and other forces that are outside the control of a business
enterprise but the business still depends upon them as they affect the overall
performance and sustainability of the business.”
A
business can be established, but to successfully sustain a business, the
business needs resources like finance, for which it has to depend on financial
institutions. Acceptance of social norms, for which it has to depend on
society. Proper market conditions, for which it has to depend on the market.
The sale of products/services, for which it has to depend on the customers. The
labor, for which it has to depend on society.
Then
there are natural resources and raw material, for which it has to depend on
Nature. Also, the legal support of the government, for which it has to depend
on the government. There are many factors and dimensions that affect Business
Environment. These factors are many different components of a single concept
called Business Environment.
These
factors which business depends upon aren’t standstill, they are very dynamic
and ever-changing. For example, trends, the trend of fidget spinners gave the
biggest big push the silicone mold industry has ever received.
The
changing needs of customers and new innovations in the market are a part of the
business environment. The challenge for businesses in this technological era is
not to enter the market but to survive in the market. To survive in the market
means to adapt to the changes as fast as possible. To adapt to the changes
means to be aware of the business environment.
Cartel
A cartel is a grouping of producers that
work together to protect their interests. Cartels are created when a few large
producers decide to co-operate with respect to aspects of their market. Once
formed, cartels can fix prices for members, so that competition on price is
avoided.
Traditional
Economic System
The traditional economic system is the most
traditional and ancient types of economies in the world. Vast portions of the
world still function under a traditional economic system. These areas tend to
be rural, second- or third-world, and closely tied to the land, usually through
farming. In general, in this type of economic system, a surplus would be rare.
Each member of a traditional economy has a more specific and pronounced role,
and these societies tend to be very close-knit and socially satisfied. However,
they do lack access to technology and advanced medicine.
Command
Economic System
In a command economic system, a large part
of the economic system is controlled by a centralized power. For example, in
the USSR most decisions were made by the central government. This type of
economy was the core of the communist philosophy.
Since the government is such a central
feature of the economy, it is often involved in everything from planning to
redistributing resources. A command economy is capable of creating a healthy
supply of its resources, and it rewards its people with affordable prices. This
capability also means that the government usually owns all the critical
industries like utilities, aviation, and railroad.
Advantages of Command Economic Systems
If
executed correctly, the government can mobilize resources on a massive scale.
This mobility can provide jobs for almost all of the citizens.
The
government can focus on the good of society rather than an individual. This
focus could lead to more efficient use of resources.
Disadvantages of Command Economic Systems
It is
hard for central planners to provide for everyone’s needs. This challenge
forces the government to ration because it cannot calculate demand since it
sets prices.
There is
a lack of innovation since there is no need to take any risk. Workers are also
forced to pursue jobs the government deems fit.
Market Economic System
In a
free-market economy, firms and households act in self-interest to determine how
resources get allocated, what goods get produced and who buys the goods. This
is opposite to how a command economy works, where the central government gets
to keep the profits.
There is
no government intervention in a pure market economy (“laissez-faire“). However,
no truly free market economy exists in the world. For example, while America is
a capitalist nation, our government still regulates (or attempts to control)
fair trade, government programs, honest business, monopolies, etc.
In this
type of economy, there is a separation between the government and the market.
This separation prevents the government from becoming too powerful and keeps
their interests aligned with that of the markets.
Historically,
Hong Kong is considered an example of a free market society.
Advantages of a Free Market Economy
Consumers
pay the highest price they want to, and businesses only produce profitable
goods and services. There is a lot of incentive for entrepreneurship.
This
competition for resources leads to the most efficient use of the factors of
production since businesses are very competitive.
Businesses
invest heavily in research and development. There is an incentive for constant
innovation as companies compete to provide better products for consumers.
Disadvantages of a Free Market Economy
Due to
the fiercely competitive nature of a free market, businesses will not care for
the disadvantaged like the elderly or disabled. This lack of focus on societal
benefit leads to higher income inequality.
Since
the market is driven solely by self-interest, economic needs have a priority
over social and human needs like providing healthcare for the poor. Consumers
can also be exploited by monopolies.
Mixed Economic System
A mixed economy is a combination of
different types of economic systems. This economic system is a cross between a
market economy and command economy. In the most common types of mixed
economies, the market is more or less free of government ownership except for a
few key areas like transportation or sensitive industries like defense and
railroad.
However,
the government is also usually involved in the regulation of private
businesses. The idea behind a mixed economy was to use the best of both worlds
– incorporate policies that are socialist and capitalist.
To a
certain extent, most countries have a mixed economic system. For example, India
and France are mixed economies.
Advantages of Mixed Economies
There is
less government intervention than a command economy. This results in private
businesses that can run more efficiently and cut costs down than a government
entity might.
The
government can intervene to correct market failures. For example, most
governments will come in and break up large companies if they abuse monopoly
power. Another example could be the taxation of harmful products like
cigarettes to reduce a negative externality of consumption.
Governments
can create safety net programs like healthcare or social security.
In a
mixed economy, governments can use taxation policies to redistribute income and
reduce inequality.
Disadvantages of Mixed Economies
There
are criticisms from both sides arguing that sometimes there is too much
government intervention, and sometimes there isn’t enough.
A common
problem is that the state run industries are often subsidized by the government
and run into large debts because they are uncompetitive.
Warehousing
Warehousing is the act of storing goods
that will be sold or distributed later. While a small, home-based business
might be warehousing products in a spare room, basement, or garage, larger
businesses typically own or rent space in a building that is specifically
designed for storage.
What
is warehousing and its functions?
Functions of Warehousing means the wide
ranges of activities, which are associated with the physical distribution of
goods from end of production line to the final consumers. These activities
include purchasing of goods, inventory management, storage, materials handling,
protective packing and transportation
Types of warehouses include storage
warehouses, distribution centers (including fulfillment centers and truck
terminals), retail warehouses, cold storage warehouses, and flex space.
Warehousing
and logistics
Warehousing and logistics are two different
sides of the same coin. Warehousing is the safe & economical storage of
goods, inventory, information, etc. within a specified area or building.
Logistics is generally the detailed organization and implementation of a
complex operation in different management tomes.
Objectives
of Warehousing & Distribution
Basic Storage. For many small-business
owners, the main objective for building a warehouse or renting warehouse space
is simply to store inventory. ...
Efficient Accessibility. ...
Increased Turnover. ...
Better Production Processes. ...
Decreased Shrinkage. ...
Optimal Safety.
Why
is warehousing needed?
Warehousing plays an important role in the
supply chain, and here's why: Continuous production – Factories need to have
their raw materials stored so they can make a continuous supply of goods. The
storage allows the factories to have enough raw materials put by so production
is production
What
is difference between store and warehouse?
There is a huge difference between a
warehouse and a store. A store is the place where things are kept for retail
purpose whereas a warehouse is the place where things are just stocked and then
moved to their point of sale which might be a store, a mall or a supermarket.
What
is the role of warehousing in logistics?
Warehousing is a very important part of the
logistics management system. It provides storage for the finished goods and
also includes packing and shipping of the order. Efficient warehousing provides
an important economic benefit to the business as well as the customers.
Types
of Consumer Products
Firstly, what specifically is a consumer
product? A consumer product is a product bought by final consumers for personal
consumption. But not every consumer product is the same. There are four
different types of consumer products. Marketers usually classify consumer
products into these 4 types of consumer products:
Convenience products
Shopping products
Specialty products
Unsought products.
These 4 types of consumer products all have
different characteristics and involve a different consumer purchasing behavior.
Thus, the types of consumer products differ in the way consumers buy them and,
for that reason, in the way they should be marketed.
Convenience
products
Among the four types of consumer products,
the convenience product is bought most frequently. A convenience product is a
consumer product or service that customers normally buy frequently, immediately
and without great comparison or buying effort. Examples include articles such
as laundry detergents, fast food, sugar and magazines. As you can see,
convenience products are those types of consumer products that are usually
low-priced and placed in many locations to make them readily available when
consumers need or want them.
Shopping
products
The second one of the 4 types of consumer
products is the shopping product. Shopping products are a consumer product that
the customer usually compares on attributes such as quality, price and style in
the process of selecting and purchasing. Thus, a difference between the two
types of consumer products presented so far is that the shopping product is
usually less frequently purchased and more carefully compared. Therefore,
consumers spend much more time and effort in gathering information and
comparing alternatives. Types of consumer products that fall within the
category of shopping products are: furniture, clothing, used cars, airline
services etc. As a matter of fact marketers usually distribute these types of
consumer products through fewer outlets, but provide deeper sales support in
order to help customers in the comparison effort.
Specialty products
Number three of the types of consumer
products is the specialty product. Specialty products are consumer products and
services with unique characteristics or brand identification for which a
significant group of consumers is willing to make a special purchase effort. As
you can see, the types of consumer products involve different levels of effort
in the purchasing process: the specialty product requires a special purchase
effort, but applies only to certain consumers.
Examples include specific cars, professional
and high-prices photographic equipment, designer clothes etc. A perfect example
for these types of consumer products is a Lamborghini. In order to buy one, a
certain group of buyers would make a special effort, for instance by travelling
great distances to buy one. However, specialty products are usually less
compared against each other. Rather, the effort must be understood in terms of
other factors: Buyers invest for example the time needed to reach dealers that
carry the wanted products. To illustrate this, look at the Lamborghini example:
the one who wants one is immediately convinced of the choice for a Lamborghini
and would not compare it that much against 10 other brands.
Unsought
products
The 4 types of consumer products also
include unsought products. Unsought products are those consumer products that a
consumer either does not know about or knows about but does not consider buying
under normal conditions. Thus, these types of consumer products consumers do
not think about normally, at least not until they need them. Most new
innovations are unsought until consumers become aware of them. Other examples
of these types of consumer products are life insurance, pre-planned funeral
services etc. As a consequence of their nature, unsought products require much
more advertising, selling and marketing efforts than other types of consumer
products.
RISK
IN BUSINESS
Strategic
Risk
Everyone knows that a successful business
needs a comprehensive, well-thought-out business plan. But it’s also a fact of
life that things change, and your best-laid plans can sometimes come to look
very outdated, very quickly.
This is strategic risk. It’s the risk that
your company’s strategy becomes less effective and your company struggles to
reach its goals as a result. It could be due to technological changes, a
powerful new competitor entering the market, shifts in customer demand, spikes
in the costs of raw materials, or any number of other large-scale changes.
Compliance
Risk
Are you complying with all the necessary
laws and regulations that apply to your business?
Of course you are (I hope!). But laws
change all the time, and there’s always a risk that you’ll face additional
regulations in the future. And as your own business expands, you might find
yourself needing to comply with new rules that didn’t apply to you before.
Operational
Risk
So far, we’ve been looking at risks
stemming from external events. But your own company is also a source of risk.
Operational risk refers to an unexpected
failure in your company’s day-to-day operations. It could be a technical
failure, like a server outage, or it could be caused by your people or processes.
In some cases, operational risk has more
than one cause. For example, consider the risk that one of your employees
writes the wrong amount on a check, paying out $100,000 instead of $10,000 from
your account.
Financial
Risk
Most categories of risk have a financial
impact, in terms of extra costs or lost revenue. But the category of financial
risk refers specifically to the money flowing in and out of your business, and
the possibility of a sudden financial loss.
For example, let’s say that a large
proportion of your revenue comes from a single large client, and you extend 60
days credit to that client
n that
case, you have a significant financial risk. If that customer is unable to pay,
or delays payment for whatever reason, then your business is in big trouble.
Reputational Risk
There
are many different kinds of business, but they all have one thing in common: no
matter which industry you’re in, your reputation is everything.
If your
reputation is damaged, you’ll see an immediate loss of revenue, as customers
become wary of doing business with you. But there are other effects, too. Your
employees may get demoralized and even decide to leave. You may find it hard to
hire good replacements, as potential candidates have heard about your bad
reputation and don’t want to join your firm. Suppliers may start to offer you
less favorable terms. Advertisers, sponsors or other partners may decide that
they no longer want to be associated with you.
