Quarter 3 Exam Review

Entrepreneurship & Functions of a Business Units

 An Entrepreneur is a person who recognizes a business
opportunity and organizes, manages, and assumes the risks
of starting and operating a business.
 Entrepreneurship = The process of:
1. Recognizing an opportunity
2. Testing it in the market
3. Gathering resources necessary
to go into new business
venture
Venture = A new business
undertaking that involves risk.
 12 Characteristics of
Successful Entrepreneurs
1. Persistent
2. Risk - Taking
Entrepreneurs are Entrepreneurs take risks,
willing to work until a but they are not
job is done, no matter reckless.
how long it takes.
3. Self-Confident
4. Restless
Entrepreneurs believe in Once entrepreneurs
themselves. achieve their goals, they
start looking for new
challenges.
5. Goal - Oriented
6. Action-oriented
Entrepreneurs set and Entrepreneurs are doers
achieve goals. instead of spectators.
They take action.
7. Responsible
8. Self-demanding
Entrepreneurs take Entrepreneurs have high
responsibility for their expectations.
decisions and actions.
9. Creative
10. Independent
Entrepreneurs look for Entrepreneurs want to
new ways to solve old make their own
problems decisions.
11. Inquisitive
12. Enthusiastic
Entrepreneurs conduct Entrepreneurs are
research and ask energetic and passionate
questions to solve about their
problems. pursuits.
Rewards of Entrepreneurship

● Being the Boss

● Doing what you enjoy
● Having the opportunity to be
creative
● Building an enterprise
Initial Steps in setting up a business:

1. Market Research - see if there is a demand for your product or service

a. If market research shows that your business has the potential to
succeed then you should develop a business plan.
i. Helps the entrepreneurs focus on what they want to do, how
they will do it, and what they expect to accomplish.
ii. Used by potential investors and financing agencies
 A business plan is a written
description of a new business venture
that describes all aspects of the
business.
16 Essential parts of a
Business Plan
 2. Management Team Plan
1. Executive Summary
● This is a brief account of ● This section presents your
the key points contained in (and your partner’s)
the business plan. No qualifications
more than 2 pages and ● Description of your team’s
include all the key points capabilities to execute your
from each section. business concept.
 4. Product & Service Plan
3. Company Description ● Description of the product or
service you want to offer.
● Outline of the business ● Nature of business should be clear
● Helps investors understand ● Note unique features and possible
the size, scope and type of spin-offs (additional products and
business you plan to start. services you might offer when the
● Description of the business business is more established) -
opportunity and explains shows growth potential
why the venture will
succeed.
5. Vision & Mission
6. Industry Overview
Statement
● Your research of the
● Vision statement =
establishes the scope and industry
purpose of a company and ● Discuss trends and growth
reflects its values and beliefs within the industry
● Mission Statement =
Expresses the specific
aspirations of a company, the
major goals it will try to reach
“To connect the world’s professionals to make them
more productive and successful.”
“To give people the
power to share and
i s s i o n make the world more
p l e s of M
Exa m open and connected.”
e nt s
Statem
7. Market Analysis 8. Competitive Analysis
● Results help you with overall
marketing and sales strategies. ● Indicates how the
● Analyzes your customers and proposed business has an
competition.
● Includes geographic, economic advantage over its
and demographic data about competitors.
the target market and business
location
9. Marketing Plan 10. Operational Plan
● How a company makes it ● Business processes that
customers aware of its
products or services result in production and
● Includes features such as a delivery of the product or
market niche, pricing, service
company image, marketing
tactics, a media plan and
budget.
11. Organizational Plan 12. Financial Plan
● Organizational chart - who ● Forecasts for the business
will run the business ● Financial Statements
● Management’s philosophy ● Proof the business will be
● Form of business financially healthy
organization
13. Growth Plan 14. Contingency Plan
● Looks at how the business ● Looks at likely risks to the
will expand in the future business
○ Lower than expected
sales
○ Emergencies
● Suggests ways to minimize
risks
Business Ownership &
Operations
There are three main types
of Business organizations:
1. Sole Proprietorship
2. Partnerships
3. Corporations
1. Sole Proprietorship

● ¾ of all businesses in
United States are sole
proprietorships
● A business owned by one
person
Advantages of sole Disadvantages of sole Proprietorship
proprietorship ● Owner has unlimited liability
○ Unlimited liability = the owner is
responsible for the company’s
● Easy start-up debts
● Sole proprietor in charge of ○ If debts are more than income
their own business then the owner has to make up
the difference.
● Ability to keep 100% profits ● Limited access to credit
● Income taxes usually lower ● Owner may not have all the skills
because income is passed to needed to run the business
the owner and the company ● Sole proprietorship ends when the
doesn’t pay tax, the owner owner dies
does (taxed once)
2. Partnership
● A business owned by two or more
people who share the risks and rewards
● Partnership agreement needed to start
○ This outlines the rights and
responsibilities of each partner
Advantages of Partnerships Disadvantages of Partnerships

● Easy to start ● All partners share the business risks

● Problems can occur if partners do
● Capital resources split not get along
between partners ○ If one partner wants out, the
● Banks are usually more partnership must be dissolved,
willing to lend money to and reorganize the business
partnerships ● Partners share unlimited legal and
● Each partner brings different financial liability
skills and talents to the ○ If one partner makes a bad
business decision, all partners are liable.
3. Corporations
● A corporation is a company that is registered by a state and
operates apart from its owners.
● To form a corporation, the owner must get a corporate charter
from the state where their main office will be located
○ Corporate charter = license to run a corporation
● To raise money, the owner can sell stock, or shares in the
company
● Corporations must also have a board of directors who will
govern the corporation
 Advantages of Corporations Disadvantages of Corporations
● Double taxation
● Limited Liability ○ Corporation taxed on income
○ The owners cannot be ○ Stockholders pay taxes on
responsible for more than income they make from
they have invested in the corporation
business. (Special corporations such as S corps
● Ability to raise money by & limited liability corps. do not have
selling stock double taxation)
● Corporations continue if ● Government regulates
owner dies. corporations more than other
○ Deceased shares are sold, types of business organizations
business continues ● Difficult and costly to start
 Other ways to organize a business
● Cooperative = an organization that is owned and operated by its members, pool their resources. They save money on
purchase of certain goods and services. Marketing can be more efficient and profitable
○ Ocean Spray
○ Small Farms
● Nonprofit Organizations (nonprofits) = type of organization that focuses on providing a service but not to make a
profit. Nonprofits must register with the government because they to not make a profit, they do not pay taxes
● Franchise = contractual agreement to use the name and sell the products or services of a company in a designated
geographic area.
○ You have to invest money and pay franchise fees or a share of the profits
○ In return, the franchiser offers a well-known name and a business plan
● LLC - Limited Liability Corporation - Many sole proprietors set up
Types of Businesses
 Group Businesses by the kinds of activities they
perform:
1. Producers = a business that gathers raw goods.
a. Raw goods are materials gathered in their original state from natural
resources such as land or water.
b. Agriculture, mining, fishing and forestry
2. Processors =businesses that change raw materials into more finished products
a. Good which are made from raw goods that require further processing
b. Sugar cane is turned into sugar, crude oil into gasoline, iron ore into steel
Group Businesses by the kinds of activities they
perform (cont.):
3. Manufacturers = a business that makes finished products out of
processed goods.
a. Turn raw or processed goods into finished goods
b. Cars, computers
4. Intermediaries and Wholesalers
a. Intermediary = a business that moves goods from one business
to another. It buys goods, stores them and then resells them
b. Wholesaler = distributes goods
Group Businesses by the kinds of activities they
perform (cont.):

5. Retailers and Service Businesses

a. Retailers = purchase goods from a wholesaler and
sells them to consumers.
b. Service Businesses = perform tasks rather than
providing goods.
i. Employ about ¾ of the US workforce.
The main functions involved in the
operation of all types of businesses:

1. Production and procurement

2. Management
3. Finance
4. Accounting
5. Marketing
6. Legal
7. Data Analytics
Functions of a business are interdependent

● The functions of a business depend on each other

○ For example: if a furniture makers sales decrease,
accounting and finance note the drop in sales, management
and production may have to implement more effective
procedures and then accounting and finance will have to
monitor new efforts on profits.
● Sometimes the functional areas conflict with each other as well.
Management involves planning,
organizing, leading and
controlling.
Four Functions of Management:

1. Planning
2. Organizing
3. Leading
4. Controlling
 1. Planning
● The process or act of creating goals and
objectives as well as strategies to meet
them.
● Figuring out the resources that are
needed and the standards that must be
met in a particular business
 2. Organizing

● Getting the resources arranged in an orderly and

functional way to accomplish goals and objectives
● Organize people, work processes, and or
equipment so that the work is well coordinated
● Hire and train employees, and fire them when
necessary
● Responsible for making sure employees have all
the tools they need to do their job well
3. Leading

● Good management also requires good leadership.

● Leading means providing direction and vision
● You have to create a vision of the company to inspire your employees
● Managers: set standards, deadlines, sales quotas so everyone is aware
of their goals, delegate work, enforce policies, oversee time
management
● Good managers lead by example
 4. Controlling
● Keeping the company on track and making
sure goals are met
○ Budgets
○ Schedule
○ Quality of the products or services they
provide
● Monitor employees and review their
performance
● Monitoring customer satisfaction
 Advantages of being a manager:

● Usually earn more money than employees in

non-management jobs
● Ability to lead
● Respected
● Influence and authority
● More Control of their time
 Disadvantages of being a manager:
● Often blamed when things go wrong,
even if they don’t cause the problem
● Could be under a lot of pressure to
make right decisions, as their
mistakes could be costly to a
company
The Basics of Marketing

● Know your market

○ Market - is a group of customers who share common
wants and needs, and have the ability to purchase
products or services of their choice
● Marketing - is the process of creating, promoting and
presenting a product or service to meet the wants and
needs of consumers, wherever they are.
 Product Price
Is there a demand for
Determine price for
the product
a product

The Marketing Mix

4 Basic Marketing Strategies

Place Promotion
How and where customers
Making customers
will buy goods and services
aware - advertising
 What is a Financial Plan?
● Document that outlines the essential
financial facts
● Road-map that can be used to guide a
company into the future
● Financial forecasting for a business
An effective Financial Plan:
1. Identifies the assets that need to be purchased
2. Describes the amount of money a business needs to start and
operate
3. Describes the expenses the business will incur and explains how a
business will cover its expenses
4. Describes how the business will document and report financial
records
5. Forecasts finances to project future profitability
6. Explains how the business will acquire money to grow and expand
A Budget is a plan specifying how money will
be used or spent during a particular period
 3 Basic Elements of a Budget:
1. Income
2. Expenses
a. Fixed expenses
b. Optional expenses
c. Unplanned Expenses
3. Savings
 What is Data Analytics?
Refers to all the processes and tools required to process a set of data and

interpret important insights to them.

• Data Mining: Data mining breaks down large reserves of raw data into concise
information that is usable.

• Data Visualization: Laying out data in a visual format for better assessment
helping make complex data understandable (i.e. bar charts, graphs and pie charts).

• Business Intelligence: Transforming data into actionable insights for business

such as product development and pricing.
 Benefits of Data Analytics for Business
● Product Development: Data analytics enables businesses
to understand the current market scenario and change
the processes or products that match the market needs
● Targeted Content: Data analytics enables companies to
customize their marketing to target a segment of their
entire customer base
● Operational Efficiency: Data analytics helps companies
identify opportunities to streamline operations to
maximize their bottom line.
 Accounting - the systematic
process of recording and
reporting the financial position
of a person or an organization
Accountant - the person who
maintains and reviews business
records
Accounting is often called the “language
of business” = the way of communicating
how well a business is doing
Rules for Accountants

● All accountants use the same set of rules = GAAP

○ Generally Accepted Accounting Principles
○ These rules provide a way to communicate financial
information to others
○ Financial Reports are summarized information about the
financial status of a business
○ Every company sets up an accounting system according to
its specific needs, but all businesses follow GAAP
 Assets

● Assets = property and other items of value owned by a business.

● They are either current assets or fixed assets
○ Current Assets = assets that are either used up or converted to
cash during the normal cycle of the business (usually one year)
■ Cash
■ Supplies
■ Merchandise/inventory
■ Accounts Receivable = total amount of money owed to a business
● Represents money to be received in payments after goods or services are
sold on credit.
Assets - Continued

● Fixed Assets - are items of value that will be held for

more than one year
○ Include any buildings
○ Land
○ Equipment
○ Cars/Trucks
Liabilities

● Liabilities are creditors’ claims to the assets of a

business
○ The DEBTS of a company
○ Liabilities are measured by amount of money a
business owes its creditors
■ Accounts Payable = represents the
short-term liabilities that a business owes its
creditors
■ Mortgage Payable
Owners’ Equity

● Owners Equity is an owner’s claim to the assets of the business

○ Equity = the present value of an asset less all claims against it
○ Owners Equity is also considered the owner’s capital in the
business
○ It is measured by the dollar amount of the owner’s claims to
the total assets of the business
The Accounting Equation
● The accounting equation ensures that all accounting records
will be correct
● It is a rule that states that assets must always equal the sum of
liabilities and owner’s equity
● Both sides of the equation must always balance

ASSETS = LIABILITIES + OWNER’S EQUITY

 ASSETS = LIABILITIES + OWNER’S EQUITY

Asset side of the

equation shows the Liabilities are the Owner’s Equity shows
value of everything that rights that creditors the rights that the owner
the business owns or have to the assets. has to the assets
possesses.
Assets $100,000 = Liabilities $40,000 + Owner’s Equity ?
 Financial Statements
● The accounting system is designed to generate financial statements and
reports
● Financial Statements - are documents that summarize the changes
resulting from business transactions that occur during the accounting
period
○ Accounting period is the period of time reflected by an accounting
report
● Provide information that business owners use to make financial decisions
 Who uses financial statements
● Federal government requires
corporations to release financial
reports to the public
● Stockholders, employees, banks and
investment companies use financial
statements to learn about the
financial condition of a business
4 Financial Statements

1. Income Statement
2. Balance Sheet
3. Statement of Owner’s Equity
4. Statement of Cash Flows
 Company xx
Income Statement
Date

1. Income Statement Revenue (sales)

● At the end of an accounting - Expenses
period, you want to know how _____________________
= Net income or net loss
much money you made or lost
● The Income Statement is a Net Income = Revenues exceeds Expenses
** This is a Profit
report of the revenue (sales),
Net Loss = Expenses exceeds Revenues
expenses and net income or net
loss over an accounting period
2. Balance Sheet
● The Balance Sheet is a report of the balances in all assets, liabilities and
owner’s equity accounts at the end of an accounting period
● The balance sheet applies the accounting equation (Assets = Liabilities +
Owner’s Equity)
● Managers and investors look at the balance sheet to determine if
liabilities are increasing too much
● Can also indicate if there is too much cash available.
○ If too much cash is available, then money may not be being used
efficiently
3. Statement of Owner’s Equity

● Reports the changes in owner’s equity for an accounting period

● Reports events that increase or decrease owner’s equity
○ Investments (+)
○ Net income (+) or net loss(-)
○ Withdrawals (drawings) by the owner (-)
● The ending balance on the statement of owner’s equity will equal
the owner’s equity section of the balance sheet
4. Statement of Cash Flows

● Cash Flows are the money that is available to a

business at any given time
● The Statement of Cash Flows is a financial report that
shows incoming and outgoing money during an
accounting period
● Important to keep track of cash coming in and out
 What is Business Law?
Business law is a section of code that is involved in:

● protecting liberties and rights

● maintaining orders
● resolving disputes
● establishing standards for the business concerns and their
dealings with government agencies and individuals.
● Every state defines its own set of regulations and laws for
business organizations.
● Similarly, it is also the responsibility of the business concerns
to know the existing rules and regulations applicable to them.
 Importance of Business Law
Business law plays a vital role in regulating business practices in a
country. Here are some points that prove why business law is so
relevant:
● Compensation Issues – Business law is essential to handle
various compensation issues in an organization.
● Safeguard the Rights of Shareholders – Business law plays a
vital role when it comes to safeguarding the rights of a
company’s shareholders.
● Business Formation – Business law plays the role of a
foundation stone for any business concern. Establishing
business includes a lot of legal processes, leasing, and permits.
 The Constitution
● Foremost law of the land
● First ten amendments are referred to
as the Bill of Rights
○ Offer specific protections of
individual liberty and justice
○ Restricts certain powers of
government
● Empowers federal law making by
giving Congress the power to enact
statutes for certain limited purposes,
like regulating interstate commerce